When an individual holds shares in a BV (Besloten Vennootschap) or its foreign equivalent (like a LTD), the tax treatment depends on the percentage of shares owned. This article will provide an overview of how shares in a BV are taxed in the Netherlands, and what individuals should consider when they hold such shares.
An overview of the Dutch tax system
The Dutch tax system for individuals is divided into three categories, also known as boxes:
Box 1: Taxable income from employment, freelance work, and main residence
Box 2: Taxable income from substantial interest (5% or more shares in a BV or equivalent company)
Box 3: Taxable income from savings, investments, and debts that are not considered part of Box 1 or Box 2
Tax treatment of BV shares for individuals
How are shares in a BV taxed when held by a private individual?
Holding less than 5% of the shares
If you hold less than 5% of the shares in a BV as a private individual, those shares are classified as assets in Box 3. In this case, the value of the shares should be declared in your Box 3 tax return.
Holding 5% or more of the shares
When you own 5% or more of the shares in a BV, they are considered substantial interest and should be reported in Box 2. This is a key threshold in Dutch tax law.
Box 2: taxation on substantial interest
A person is considered to have a substantial interest in a company if they own at least 5% of the shares, either directly or through a partnership. This applies to both Dutch BVs and foreign equivalents.
Income from a substantial interest includes dividends and profits from the sale of shares. Both types of income are taxed under Box 2 at a tax rate of 26.9% (as of 2022).
Dividends from a Dutch BV
In the Netherlands, dividend tax is an advance tax that a Dutch BV must withhold when paying dividends to a shareholder. The withholding tax rate is 15%. When the dividend is paid, the BV withholds 15% of the dividend. Additionally, dividends are taxed with 11.9% when the shareholder files their personal tax return in Box 2, bringing the total tax rate to 26.9%.
Dividends from a foreign LTD
Dividends received from a foreign LTD are generally taxed the same way in Box 2 at a rate of 26.9%. However, if there is a foreign withholding tax on the dividend, the Dutch taxpayer can receive a tax credit for the foreign tax paid, typically capped at 15% under most bilateral tax treaties.
The 30% ruling and foreign shares
If a Dutch resident applies for the 30% ruling and qualifies as a partial non-resident taxpayer, dividend income from a foreign company may be exempt from Dutch taxes in Box 2, provided that the company is not considered to have a Dutch tax residency based on international tax rules.
Box 3: taxation for shares below 5%
For individuals holding less than 5% of the shares in a BV, the shares are considered investments and taxed in Box 3. The value of these shares is included in the total wealth calculation for Box 3, which considers assets like savings and investments.
The Dutch tax law mandates that assets above 50,650 euros (2022 threshold) need to be declared in Box 3. Tax partners enjoy a double threshold (101,300 euros). The tax applies to the market value of the shares on January 1 of the applicable year.
Although the dividend income from these shares is not taxed directly in Box 3, any foreign dividend tax withheld can reduce the Box 3 tax through a credit of up to 15%, depending on the specific foreign tax agreement.
Box 3 and the 30% ruling
If you have the 30% ruling, you can choose to be treated as a partial non-resident taxpayer. This means that you will not need to declare savings and investments in Box 3, except for Dutch real estate that is not your primary residence.
Box 3 tax changes after 2021
As a result of a court decision in December 2021, a new system for taxing Box 3 assets was introduced, focusing on the type of assets. This system will apply from 2017 to 2025 and offers a lower tax rate for those who primarily have savings.
The government aims to implement a new Box 3 system starting in 2026, based on actual returns, such as capital gains tax, rather than on fictional returns.
The tax rate for box 3
The tax rate for Box 3 in 2022 is 31%, calculated on the fictional return of income. This rate will increase by 1% annually until it reaches 34% in 2025. The fictional return of income for various types of investments is defined as follows:
- Savings: 0.01%
- Investments: 5.69%
- Debts: 2.46%
The fictional return for investments is set at 5.53% for 2022 and 6.17% for 2023.
Box 3 taxation before December 2021
Before the court’s ruling in December 2021, Box 3 taxation was based on the value of assets, with no differentiation by asset type. The tax rates were as follows:
- 0 – 50,650 euros: 0.56%
- 50,650 – 1,013,000 euros: 1.35%
- Over 1,013,000 euros: 1.71%
These rates can still apply for 2017-2022 if they result in a more favorable tax outcome for the taxpayer.
Questions about Dutch tax laws?
If you have further questions about the tax implications of holding shares in a BV or any other tax-related matter, don’t hesitate to reach out to Taxsight. Their experienced advisors can provide expert guidance and advice on both local and international tax issues to ensure you’re always compliant and efficient in managing your tax matters.
