Real estate abroad: box 3

As a resident of the Netherlands, you are required to declare the sales value of your property in the so-called box 3 in income tax. You must also include your property abroad in box 3. However, the double taxation treaty with the Netherlands usually states that only the country in which the property is located may tax it. So what are the taxes on foreign real estate in the Netherlands?

What is the so-called box 3?

The income listed in box 3 is income from savings and investments. The Dutch tax authorities assume that you earn a fixed return from all your worldwide assets, less debts, determined annually on 1 January. From this, you can still deduct the tax-free capital. The progressive returns are applied to the difference, depending on your assets. On this notional income, you pay a tax rate of 31%.

Here is an overview on how to calculate Box 3.

How is property abroad taxed in Box 3?

Under double taxation treaties, only the state in which the property is located has taxing jurisdiction. For example, if we look at the double taxation treaty between the Netherlands and Spain, only Spain has the right to tax. The Spanish tax authorities therefore tax non-residents on owning or renting property in Spain.

Learn more about Spanish property taxes here.

The Netherlands should then exempt your foreign property in Box 3. This was the case until 2017; you could then enjoy a full exemption. However, this situation is currently different. The Netherlands only exempts with progression proviso. This means that the exemption applies to the extent of the share of the foreign property in relation to your total net assets.

A simple example. We do not take debts or the tax-free allowance into account in this example. You have assets in the Netherlands of 200,000 euros. In addition, you have a property in Spain of 100,000 euros. Assume the notional return is 3% (this percentage does not correspond to the actual percentages, which can vary year-on-year).

The return is then 9,000 euros. On this, you pay the rate of 31% = €2,790. Then you do the deduction of foreign assets, proportional to the total assets: 100,000 euros foreign assets/300,000 euros total assets = 0.33%. The 2,790 euros tax * 0.33% = 920.70 euros exemption. The total tax is then 2,790 euros - 920.70 euros = 1,869.30 euros.

Decision: property abroad and box 3

As a resident of the Netherlands with property abroad, you have a duty to include the sales value of your foreign property in your income tax return. The Dutch tax authorities will then grant a (partial) exemption.

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