Income Tax on Investment Income

In 2001 the Dutch Income Tax Act has undergone a major reform. Part of this reform was the introduction of seperate tax systems for different income sources (so-called "boxes"). The income from employment and businesses is taxable against a progressive rate and includes social security contributions, income and capital gains from major shareholdings in Dutch companies (more than 5%) are taxed against a flat rate and other investment income is taxed in what can be described best as a wealth tax.

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The System of Taxation of Investment Income

All assets and debts not taxed in any of the other "boxes" are subject to income tax under this investment income rules. In this "box 3" the actual income and capital gains are disregarded, rather a deemed return on investment is taxed on the value of all assets and liabilities per 1 January of any tax year.

After deduction of a tax free amount (EUR 50.000 per person, EUR 100.000 for tax partners together in 2021). The deemed return on your investment is calculated at a progressive rate, depending on the value of your assets and liabilities. The rate for 2021 amounts to:

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Tax Consequences

The income tax on investments disregards the actual income and capital gains, which means it is advantageous for income components with a high return on investment. But for investments such as bank accounts the system will lead to a higher taxation than the actual income in some instances. 

Tax Structuring

Although wealth tax does not allow for a low of room to structure, in some instances it may be worth looking into possibilities to readdress investment income into another source of income ("moving it to another box"). 

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Taxably has in-depth experience with the Dutch Income Tax Act and would be happy to assist you with possible tax structuring. Please contact  us for any additional information or a fee quote.