If you were a Dutch resident taxpayer subject to “Box 3” tax in 2021, you may be completely confused at the moment and rightfully so!
Some background: The Dutch supreme court decided that the methodology of “deemed income” from your savings and investments was not fair to individuals who held a significant amount of cash, since ultimately they were assumed to have earned up to 5.69% on this cash (taxed at 31%) while it is highly likely that they actually paid 0.5% in negative interest to the banks for the privelege of keeping their cash there. Therefore, for 2021 the tax authorities are preparing two calculations for every taxpayer subject to Box 3, and ultimately you owe the lower of the two calculations (i.e. you will not owe more than the amount based on the original method, but you could pay less if the alternative method results in lower tax).
The “original” methodology in place for 2021 assumes a certain amount of your assets were in cash and a certain amount was invested as follows, regardless of your actual asset allocation (per taxpayer if a couple):
| From €0 to €50,000 | 0% deemed return (tax free amount) |
| From €50,000 to €100,000 | 67% Cash with a return of 0.03% / 33% Investments with a return of 5.69% (1.898% deemed return) |
| From €100,000 to € 1,000,000 | 21% Cash with a return of 0.03% / 79% Investments with a return of 5.69% (4.501% deemed return) |
| Above € 1,000,000 | 100% Investments with a return of 5.69% (5.69% deemed return) |
For 2021, the “alternative” deemed return for Dutch tax purposes is based on your actual assets as follows (see also https://www.belastingdienst.nl/wps/wcm/connect/nl/box-3/content/nieuwe-berekening-box-3-inkomen):
| Savings / Cash | 0.01% deemed return |
| Investments | 5.69% deemed return |
| Debts | 2.46% deemed interest expense (reduction in deemed income) |
In both cases, once the deemed income has been calculated, the tax rate is 31% on this income.
I will give you two examples to show the extremes:
Example 1: A Single taxpayer with EUR 2,000,000 of cash
Old method:
| First EUR 50,000 | Tax-Free |
| Next EUR 50,000 | 1.898% deemed return = EUR 948 of income |
| Next EUR 900,000 | 4.501% deemed return = EUR 40,511 of income |
| Remaining € 1,000,000 | 5.69% deemed return = EUR 56,900 of income |
| Total Deemed Income / Tax | EUR 98,359 * 31% = EUR 30,491 of tax |
New method:
| EUR 2,000,000 | 0.01% deemed return = EUR 200 of income |
| Deemed Income / Tax | EUR 200 * 31% = EUR 62 of tax |
| Tax-free amount (pro-rata) | EUR 50,000 / EUR 2,000,000 * EUR 62 = EUR 2 reduction |
| Net Tax Due | EUR 62 – EUR 2 = EUR 60 Net Tax Due |
In this example, the “alternative” method saves EUR 30,431 of tax, so the taxpayer would owe EUR 60.
Example 2: A Single taxpayer with EUR 2,000,000 of investments:
Old method:
| First EUR 50,000 | Tax-Free |
| Next EUR 50,000 | 1.898% deemed return = EUR 948 of income |
| Next EUR 900,000 | 4.501% deemed return = EUR 40,511 of income |
| Remaining € 1,000,000 | 5.69% deemed return = EUR 56,900 of income |
| Total Deemed Income / Tax | EUR 98,359 * 31% = EUR 30,491 of tax |
New method:
| EUR 2,000,000 | 5.69% deemed return = EUR 113,800 of income |
| Deemed Income / Tax | EUR 113,800 * 31% = EUR 35,278 of tax |
| Tax-free amount (pro-rata) | EUR 50,000 / EUR 2,000,000 * EUR 35,278 = EUR 882 reduction |
| Net Tax Due | EUR 35,278 – EUR 882 = 34,396 Net Tax Due |
In this example, the “alternative” method results in EUR 3,905 more tax, so the tapayer would owe the EUR 30,491 of tax based on the original methodology.
From what I have seen in practice with my own clients is that very few have a significant enough amount of cash to result in a lower amount of tax using the alternative methodology.