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Rental income and capital gains of Dutch real estate
*based on the temporary fictional return(on investment) percentage for 2024.
Rental income
Individuals
Introduction
Rental income is taxed as ordinary private or business income.
Liability to tax
Rental income received by individuals is subject to personal income tax.
Basis to tax
Income of individuals is allocated in three ‘boxes’ with different tax rates.
Categories of income taxed in box 1 are income out of employment and business profit (entrepreneurial activities). If rental income qualifies as business income, it will be taxed in box 1 against a progressive tax rate to a maximum of 49.5%. The individual must deliver a certain level of labour or entrepreneurial activities. In most cases, direct investment in real estate does not qualify as income taxed in box 1 and will be taxed in box 3.
Income taxed in box 2 is income out of shareholding of at least 5%. Income such as dividends or capital gains realised on the transfer of shares will be taxed against a tax rate of 24,5% up to €67.000 and 33% from €67.000 and more.
The income from savings and investments is taxed in box 3. The actual received (interest) income is not relevant because box 3 assumes a fictitious return on your investments and savings. The fictitious rates of return for 2024 are divided into three types of assets:
- Bank and savings deposits and cash: 1.03%*
- Investments/other assets: 6.04%
- Debts: 2.47%*
At present, the fictitious rates of return for cash, (bank)savings and debts are still provisional. The definitive fictitious rates of return for these types of assets for 2024 are still to be announced. Your taxable return is determined by deducting the fictitious return on your debts (3) from the fictitious return on your other assets (1 and 2).
The final profit from savings and investments is your taxable return multiplied by your share (in %) in the return basis. This profit from savings and investments is taxed at a flat rate of 36% in 2024. Furthermore, consideration must be given to the tax-free allowance in box 3. In 2024, the tax-free allowance is €57,000 for a taxpayer without a fiscal partner and €114,000 for a taxpayer with a fiscal partner.
Companies
Introduction
Rental income is taxed as business income.
Liability to tax
Rental income earned by companies is subject to corporate income tax as business income.
Basis to tax
Business income up to EUR 200,000 is taxed against a tax rate of 19%. For profits of more than EUR 200,000 are taxed against a tax rate of 25,8%.
Capital gains
Individuals
Introduction
In general, capital gains realised by individuals are not directly subjected to personal income tax. Instead, a fictional return will be taxed at a flat rate of 36%.
Liability to tax
Capital gains realised by individuals may be subjected to personal income tax in box 1 under specific circumstances. In short, the individual must deliver a certain level of labour or entrepreneurial activities. The realised capital gains are subject to the personal income tax at a rate up to 49.5%.
Basis of tax
Income taxed in box 3 is income out of savings and investments whereby the actual income is not relevant. Instead, a fictional return will be taxed at a flat rate of 36%.
Companies
Introduction
Capital gains realised by companies are subject to corporate income tax as business income.
Liability to tax
Business income up to EUR 200,000 is taxed against a tax rate of 19%. For profits of more than EUR 200,000 are taxed against a tax rate of 25,8%.
Exemptions
Companies can defer taxation on realised capital gains by creating a reinvestment reserve. The capital gains are not taxed at the moment of selling but a reinvestment reserve will be formed for the amount of the capital gains. The company must make a reinvestment three years after the year in which the sale took place. If another building is bought, the value of the reinvestment reserve can be deducted from the purchase price of the new property. As a result of this, the future depreciation costs are lower resulting in higher taxable income.
Dutch VAT & transfer taxes
* 2% rate applies on the transfer of dwellings if the buyer uses the dwelling as main residence.
Value-Added Tax
Individuals who qualify as entrepreneurs for VAT purposes
Introduction
Value-added tax is a tax based on the increase in value of a product or service at each stage of the supply the chain.
Liability to tax
If an individual performs commercial or professional activities in the Netherlands, he/she may be recognized as an entrepreneur for VAT purposes by the tax authorities. If an individual qualifies as an entrepreneur for VAT purposes, he/she is subject to the VAT.
Basis of tax
As a general rule, the supply and lease of immovable property are exempt from VAT. However, VAT is charged if a newly created building is sold within two years after its first occupation. Moreover, the supplier and the recipient can opt for a VAT taxed supply or lease of the property. The applicable VAT rate is 21%.
Interaction with transfer tax
If VAT has been charged by the seller in relation to the supply of new real estate or the supply of a building plot, the purchaser is generally not liable for transfer tax.
Companies
The same rules as for individuals apply.
Transfer Taxes
Individuals
Introduction
Transfer tax is a tax on the transfer of real estate from one person or company to another. This also applies to limited rights to which real estate is subject such as leasehold or a right of superficies.
Liability to tax
Transfer taxes applies by the acquisition of the legal or economic ownership of Dutch real estate and is payable by the purchaser. Transfer tax is also due upon the acquisition of a qualifying interest in a so-called real estate entity.
Basis of tax
The due transfer tax is calculated on the market value. This market value is at least equal to the purchase price. The rate of 2% applies on the transfer of dwellings if the buyer uses the dwelling as main residence. Other real estate and dwellings used as second residence or holiday home is subjected to 10,4% transfer tax.
Individuals between the ages of 18 and 35 buying a first dwelling used as main residence, can claim an exemption from transfer tax if the residence is bought for less than €510,000.
Exemptions
There are various exemptions available. For example, an exemption from transfer tax applies to the acquisition of newly constructed real estate or a building site, in respect to which VAT (21%) is due. Furthermore, there are several exemptions related to (de)mergers and/or internal reorganisations. However, various detailed conditions apply.
Reductions
There are various reductions of the taxable basis available. In case the real estate is transferred a second time within six months, the taxable basis of the first transaction can be deducted from the taxable basis of the second transaction.
Companies
The same rules as for individuals apply. The applicable tax rate is 10,4%. The rate of 2% is not applicable on companies buying real estate.
Dutch Local taxes
* There are certain rules to determine the market value for local taxes. Every municipality determines this market value which is open for appeal.
Introduction
Every municipality levies an annual municipal tax on Dutch real estate.
Liability to tax
Every owner or user of residential or commercial buildings in the Netherlands is liable to local municipal tax.
Basis of tax
The local tax is based on the so-called ‘WOZ-value’. For commercial real estate it is the market value, given certain legally prescribed assumption. Local authorities determine the WOZ-value (in Dutch: WOZ-waarde) and each municipality has its local rate.
Dutch wealth tax / net worth tax
Individuals
Introduction
The wealth tax system (box 3 tax) has been modified in 2023. The old method of taxing wealth used a fictitious distribution of asset types, regardless of the actual distribution of the type assets owned by a taxpayer. Now, there are no assumptions with regard to the type of assets owned by the taxpayer. The actual assets of a taxpayer are now divided into the following categories:
- Bank and savings deposits and cash: 1.03%*
- Investments/other assets: 6.04%
- Debts: 2.47%*
At present, the fictitious rates of return for cash, (bank)savings and debts are still provisional. The definitive fictitious rates of return for these types of assets for 2024 are still to be announced. Your taxable return is determined by deducting the fictitious return on your debts (3) from the fictitious return on your other assets (1 and 2).
Once the taxable return is determined, the profit from savings and investments can be calculated. The profit from savings and investments is your taxable return multiplied by your share (in %) in the return basis. This profit from savings and investments is taxed at a flat rate of 36% in 2024.
Liability to tax
Individuals owe income tax on the basis of their box 3 assets.
Basis of tax
The tax base in box 3 includes income from savings and investments. In this case, the actual income realized is irrelevant. The tax is calculated on a fictitious return, which varies per type of asset. The (taxable) fictitious return is taxed at a flat rate of 36%.
Companies
The Netherlands has no wealth tax on assets of legal entities.
Vehicles for Dutch real estate
Commonly used vehicles for Dutch real estate
Corporate entities
The so-called ‘BV’, the Dutch limited liability company, is the most frequently used vehicle for the ownership of Dutch real estate. The equity is divided into shares and the shareholders of the BV are not personally liable for the business debt.
Individuals who hold 5% or more of the shares in a Dutch company are holders of the so-called substantial interest (in Dutch: aanmerkelijk belang). Income derived from the substantial interest is subject to a 24.5% tax rate up to €67.000 and 33% from €67.000 (box 2). Profits made by the BV are subject to the corporate income tax at a tax rate up to 25,8%.
Transparent vehicles
Investments in real estate are often done on a collective basis by entities and/or individuals. For Dutch tax purposes, there is no distinction between taxation of partnerships and joint ventures. In some cases, a partnership of mutual fund can be structured as tax transparent entity. The profits and losses of the entity will hereby be allocated directly to the partners. Furthermore, partners of a transparent entity are not subjected to Dutch dividend withholding tax upon distribution of profits. This structure thus avoids multiple level taxation. Examples of transparent vehicles are the closed CV and the closed FGR (fonds voor gemene rekening, or mutual fund).
The CV has at least one managing partner and one limited partner. In case a partner leaves the CV, the entity ceases to exist. The CV is treated as transparent for tax purposes (closed-CV) unless the CV doesn´t have stringent restriction regarding the admittance of new members or transferring shares (open-CV). Similar rules apply to the FGR.
The open-CV or open-FGR is treaded as a company for Dutch tax purposes. Profits made by the open CV are subject to the corporate income tax at a tax rate up to 25,8%. Partners of a so-called ‘open-CV’ or ‘open-FGR’ are subjected to taxation (personal income tax or corporate income tax). Individuals who hold 5% or more interest in the open-CV or open-FGR are holders of a substantial interest and income such as dividends paid from the open-CV or open-FGR are taxed in box 2 against a tax rate of 24.5% up to €67.000 and 33% from €67.000 (box 2). As of January 1, 2025, both the open-CV and the open-FGR will no longer be subject to corporate income tax. These legal forms will then be regarded as fiscally transparent, similar to the closed-CV and closed-FGR structures.
Trusts
The concept of the trust is not known under Dutch law. For tax purposes, the assets and liabilities of a trust are allocated to the trustor as personal income. Profits realised by the trusts will be taxed by the trustor as personal income tax.
Foreign partnership
The residence of a partnership is determined by the place where the crucial decisions are made. Usually, the residence is the place where all partners meet.
In case a foreign partnership carries an enterprise in the Netherlands, the partnership is subject to Dutch corporate income tax or the partners are subject to Dutch personal income tax. The foreign partnership qualifies as a permanent establishment in the Netherlands by owning Dutch real estate. The partners are subjected to Dutch personal income tax
Specific real estate vehicles for Dutch real estate
Real estate investment trusts
Under Dutch law, there are no specific real estate vehicles.
In some circumstances it’s possible to form an exempt investment vehicle (in Dutch: fiscale beleggingsinstelling or FBI). The FBI can be considered a REIT lookalike. It is a special form of a fund which can be used for portfolio investments. However, several detailed conditions apply when establishing an FBI. Among other things, an FBI is required to distribute its profits no later than eight months after the end of the financial year. In addition, the shareholder cannot hold the shares as a so-called substantial interest. The shares of individuals who hold 5% or more of the shares cannot qualify as the shares of an FBI-fund. The applicable corporate income tax on FBI-funds is 0%. In case the FBI pays out profits, dividend withholding tax will be due.
From January 1, 2025, it will no longer be permitted for FBI’s to directly invest in Dutch or foreign real estate. This means that as of January 1, 2025, investments in real estate will no longer be possible through a FBI, rendering this vehicle unsuitable for real estate investors.
More information?
For more detailed information and questions please contact your trusted RSM advisor.
