Last updated: Feb, 2025 by Ernst (disclaimer)
The Dutch tax system is undergoing significant reform in the taxation of savings and investments under Box 3. The current system, which taxes assumed returns based on a notional rate, has been widely criticized for its unfair treatment of taxpayers with differing actual returns. In response, the government has proposed the "Wet werkelijk rendement box 3" (Taxation of Actual Returns in Box 3), set to take effect on January 1, 2028.
The need for reform
The transition to a system based on actual returns has been driven by legal, economic, and political considerations:
- Legal challenges: The Dutch Supreme Court ruled in June 2024 that the current system is unjust, as it taxes assumed returns rather than actual income, violating the principle of fair taxation.
- Public and political demand: There is strong public and political pressure to tax Box 3 income more equitably.
- Feasibility considerations: The government acknowledges the challenge of implementing a system that balances fairness, administrative feasibility, and fiscal responsibility.
Structure of the new box 3 system
The proposed legislation introduces a hybrid system combining two methods of taxation:
- Capital gains tax (vermogenswinstbelasting): Taxes are levied on gains realized upon the sale of real estate and shares in startups.
- Capital growth tax (vermogensaanwasbelasting): Annual taxation on accrued but unrealized gains for publicly traded shares, bonds, and other liquid assets.
This structure aims to reflect actual returns while maintaining administrative efficiency.
Alternative models considered
The government and the Council of State considered several alternatives:
- Forfaitary tax with a rebuttalscheme: Rejected due to legal and fairness concerns, particularly benefiting high-net-worth individuals.
- Full capital gains tax: Rejected due to the risk of tax deferral and significant short-term revenue losses.
- Wealth tax: Found legally challenging, as it could violate property rights if tax liability exceeds actual income.
Ultimately, the government concluded that taxing actual returns with a hybrid approach offers the best balance between fairness, feasibility, and revenue stability.
Timeline and next steps