Anyone living in the Netherlands and owning real estate in countries such as France, Turkey, Morocco, Suriname, or any other foreign country, must declare this on their Dutch tax return. By correctly completing the declaration, you can benefit from deductions in the Netherlands due to the taxes you already pay abroad. Assets like a residence, vacation home, plot of land, building, garage, or other real estate in countries like Spain, Greece, Germany, Belgium, Indonesia, and any other foreign country fall under the Dutch box 3. The value of these assets must be reported in the annual income tax declaration in the Netherlands. This refers to the market value of the real estate when it is unoccupied.
If the Netherlands has a tax treaty with another country, it typically states that real estate will be taxed in the country where the property is situated. Therefore, in the Netherlands, you get a deduction to prevent double taxation. A correctly filled out declaration ensures that the tax liability in the Netherlands is minimized, because, since 2017, due to the proportionality method, you might sometimes still have to pay tax in the Netherlands. How much you owe depends on your other assets like savings and stocks.
Property in Countries Without a Tax Treaty with the Netherlands
In the absence of a tax treaty, the ‘Decree to Prevent Double Taxation’ is applied. This decree dictates that immovable property located in another country will not be taxed in the Netherlands, as long as that other country imposes income tax on those immovable assets.
Completing the Declaration Properly
Whether a tax treaty applies depends on the specific country in question. To avoid issues and penalties, it’s vital to complete the declaration accurately. Initially, assets should be declared, after which one can appeal to the tax treaty or the Decree.
Rental income from a property abroad is not taxed in the Netherlands. However, this income may be taxed in the respective foreign country. Unfortunately, the mortgage interest for such a property is not deductible in the Netherlands, as it does not serve as a primary residence.
Impact on Allowances
If you own foreign real estate, it can impact your allowances. If you receive rent allowance, health care allowance, and/or Dutch child budget while also owning a house abroad, whether or not you’re entitled to these allowances depends on the level of your assets.
No Box 3 for Personal Use
On July 5, 2023, the Arnhem-Leeuwarden Court of Appeal (Hof) ruled that if you use a foreign property solely for personal use and do not rent it out, the actual yield is 0 euros. This means that the foreign vacation home is not subject to tax in box 3. However, it’s crucial to convincingly demonstrate that the property is not being rented out. Not renting out the property? Depending on your situation, for example due to a disadvantage from the proportionality method or when receiving allowances, further action may be required. Contact us at Taksgemak, also to have your income tax return filed.
Take the tax treaty between the Netherlands and France as an example. This treaty precisely stipulates which country has the right to levy taxes. Article 6 of this tax treaty pertains to income from real estate. It determines that the real estate may be taxed in the state in which it is located. This means that France can levy taxes on your property located in France. The Netherlands must provide an exemption. You report this property in box 3 on your Dutch income tax return. Subsequently, you can apply for an exemption, meaning you pay very little tax in the Netherlands on that real estate. Additionally, you don’t pay taxes in the Netherlands on rental income from that property. However, owning this property can have implications for your benefits.
The Netherlands is increasingly entering into tax treaties to exchange information, including data related to real estate. Ultimately, the exchange of this data will be fully automated. Not declaring the real estate would therefore be unwise. If the Tax Authority identifies undeclared assets, they might also inquire about the means by which you acquired those assets. Be aware that the Tax Authority might initiate an investigation if you don’t provide information about your assets. Therefore, act wisely and meticulously.
Have Your Declaration Done by Us
Do you find it challenging to handle foreign real estate in your Dutch tax declaration? Let us assist you. Real estate abroad comes with specific tax challenges. Given the complexity of the regulations, professional assistance can ensure that your declaration is completed correctly. Therefore, allow us at Taksgemak to handle your Dutch income tax return for you, including the declaration of a house abroad. This will save you time and avoid stress.
About the author: Farshad Bashir combines his passion for entrepreneurship with tax advice at Taksgemak to assist businesses and individuals with the complex world of tax regulations. He simplifies the complicated and ensures his clients stay on track. Before diving into the consulting world, he was a member of the Dutch Parliament. This combination of political experience and tax knowledge makes him an excellent partner for anyone.