Netherlands Tax Reform: A Structural Shift Toward Taxing Actual Returns

Across Europe, taxation frameworks are evolving. The Netherlands is preparing for one of the most consequential changes to its wealth taxation framework in decades. The Dutch House of Representatives in February has proposed Actual Return in Box 3 Act, a reform that will tax residents at a flat rate of 36% on the actual returns they earn from savings and investments. The proposal aims for an intended start date of 1 January 2028, subject to final approval by the Senate and further legislative refinement.  

This reform represents more than a technical adjustment. It signals a structural shift in how private wealth is measured and taxed. At the heart of the debate lies a complex policy question: should individuals be taxed only when gains are realized, or should annual increases in asset value also fall within the tax base?

For investors, founders, and internationally mobile high-net-worth individuals, the implications are significant. While the reform is domestic in scope, it is relevant in cross-border planning because it changes not only the rate, but also the timing and structure of taxation. When viewed alongside jurisdictions such as Switzerland, the United Arab Emirates, and Cyprus, the contrast in policy design becomes clear. 

What Is Actually Changing in the Netherlands?

Under the old Box 3 system, the Netherlands taxed a deemed (fictional) return on net wealth. In simple terms, the government assumed your assets earned a certain percentage and taxed you on that assumed income whether you actually earned it or not.

From January 2028 (intended), Box 3 income will be taxed at a flat rate of 36%, but the base will change fundamentally.

Instead of taxing assumed income, the new design (as proposed) taxes:

• Actual interest and dividend income

• Net rental income (after costs)

• Annual appreciation in asset value, even if assets are not sold

How the Dutch Box 3 reform actually works? (2028 proposal)

The Netherlands taxes personal income through three separate boxes. 

• Box 1 – Employment income and primary residence

• Box 2 – Substantial shareholdings (generally taxed upon realization)

• Box 3 – Savings and investments

From 2028 onward, the proposal effectively operates under two different approaches.

1. Capital Growth Tax: Annual Tax on Value Appreciation

Under the capital growth regime, taxation will apply not only to ordinary income such as interest and dividends, but also to the annual appreciation in the value of assets even if they have not been sold. 

This regime applies to assets that are not taxed in Box 1 or Box 2 and do not fall under the separate capital gains rules. In practice, this includes bank deposits and monetary claims, listed shares and bonds, cryptocurrencies, derivative instruments such as options, and certain endowment insurance policies.

Each year, taxpayers will be taxed on income earned after deducting related expenses such as bank fees, financing costs, and commissions. In addition, any increase in market value during the year will be included in the taxable base. Where assets decline in value, depreciation will generally be deductible in Box 3.

This is why the reform is often described as introducing taxation of unrealised gains for portfolios that rise in value during the year, even without liquidation.

2. Capital gains tax: Immovable property and Start-Ups

A separate regime applies to immovable property held in Box 3, including second homes, investment properties, and leased commercial premises. Rental income will be taxed annually, with maintenance expenses and interest on loans deductible. 

The proposed scheme distinguishes between three categories:

1. Rented for at least 90% of the year: Tax applies to actual rental income (net of costs).

2. Not rented at all: A deemed percentage (currently proposed at approximately 3.35%) of the WOZ value (or market value for non-residential property) is taxed to reflect personal use.

3. Rented for less than 90% of the year: The higher of actual rental income or the deemed 3.35% amount is taxed.

Importantly, appreciation in property value will generally be taxed only when realized upon sale, and any loss on sale will be deductible. The principal residence remains taxed separately under Box 1.

Shares in small and start-up companies that do not qualify as substantial interests will also fall under a capital gains regime, while substantial shareholdings continue to be taxed in Box 2.

Who is affected? 

The reform is not only aimed at ultra-high net worth individuals. It impacts a much wider group of taxpayers.

It may affect:

• Individuals holding investment portfolios

• Property investors with second homes or rental assets

• Founders who have exited businesses and reinvested proceeds

• Dutch residents with foreign assets

• Individuals considering relocation to the Netherlands

In essence, anyone holding assets for long-term appreciation rather than short-term liquidity could feel the impact.

The Core Policy Debate: Taxing Cash or Taxing Value

At its core, the discussion centres on a simple yet powerful question:

Should tax follow cash flow, or should tax follow economic value creation?

1. The Liquidity Question

Taxing unrealized gains creates a mismatch between available cash and tax responsibilities. An individual with a property portfolio that appreciates significantly in a year may face a higher tax bill without receiving any extra income.

2. The Volatility Factor

The value of asset changes over time. If gains are taxed annually, how are subsequent losses treated? Will depreciation fully offset prior taxed appreciation? The treatment of volatility will determine whether risk is shared fairly.

3. The Valuation Challenge

While realized gains are determined based on transaction prices, unrealized gains depend on valuation approaches. Market fluctuations, appraisal differences, and timing differences introduce complexity and administrative burden.

Where Does the Netherlands Sit Internationally?

To understand the broader implications, it is helpful to examine how other leading jurisdictions handle personal wealth and capital gains.

United Arab Emirates

In the UAE, individuals are not subject to personal income tax, capital gains tax, and wealth tax. Even with the imposition of corporate tax, personal investment gains are normally exempt from taxation. Unrealized gains are not subject to tax, and for individuals, realized gains are normally exempt from tax. This ensures a highly predictable tax environment for investors. There is no annual tax on asset appreciation, and liquidity alignment is maintained.

Cyprus

Cyprus adopts a more selective system. Capital Gains Tax applies largely to the disposal of immovable properties within Cyprus or shares in companies owning Cypriot immovable properties. Taxation is upon realization and not on annual appreciation. Most securities are exempt from capital gains tax altogether. This maintains the long-standing realization system while safeguarding the local real estate sector.

Switzerland

Switzerland presents yet another model. Private individuals generally do not pay capital gains tax on movable assets. Real estate gains are taxed upon sale at cantonal level. Switzerland does impose an annual wealth tax, but it does not directly tax unrealized gains as income. Instead, the wealth is taxed at a moderate rate, and capital gains are taxed at realization.

Each of these jurisdictions reflects a different policy approach. The Netherlands’ developing system approaches a direct capture of economic appreciation, while others maintain realization-based taxation or limited taxation of personal investment gains.

Why This Matters Beyond the Netherlands?

1. Competitiveness and Mobility

Capital is mobile. Investors compare jurisdictions not only on headline rates of tax but also on how and when wealth is taxed. A system that taxing annual appreciation may be compared differently to one that taxes only realized gains or not at all. 

2. Investment Behaviour

Tax design affects economic behaviour. If unrealized gains are taxed annually, investors may choose to hold assets with stable valuations or shorter periods of time. Alternatively, they may choose to leverage their portfolios to manage liquidity risk. Realization-based tax systems give investors control over the timing of tax payments through their disposal decisions.

3. Revenue Stability vs Economic Friction

While taxing unrealized gains may create a broader tax base during periods of asset growth, it may also introduce administrative complexity and market friction. Policymakers must balance fairness, feasibility, and competitiveness.

A Structural Turning Point

The Netherlands’ change is a part of a broader international reassessment of wealth taxation. The increase in asset values, fiscal pressures, and inequality concerns have led governments to rethink how capital income is taxed.

While jurisdictions like the UAE avoid personal capital taxation, Cyprus applies targeted realization-based taxation, and Switzerland combines wealth tax with realization-based capital gains, the Dutch system moves closer to incorporating annual economic appreciation into the tax base.

Final Thoughts

The discussion around unrealized gains is not just a technical issue. It raises on basic principles of tax policy such as fairness, liquidity, risk-sharing, and competitiveness.

For individuals owning investment assets in the Netherlands, the change may affect long-term wealth structuring plans. For globally mobile investors, it illustrates the importance of comparing tax systems not only on rates but also on structure and timing.

Ultimately, it is not a question of whether to tax unrealized gains. It is a question of how to tax them, how to manage volatility, and how it affects global mobility.

In a world where capital is more mobile than ever before, the difference between taxing paper gains and taxing realized income is not just a technicality, it is a policy decision. And this choice places the Netherlands at a pivotal point in the evolving global conversation about wealth taxation.

How Can Water & Shark Help?

The coming Box 3 reform in the Netherlands marks a change in taxation from actual returns to include, in some instances, unrealized gains. This is a proactive planning requirement, not a reactive compliance process.

Water & Shark assists investors, founders, and internationally mobile individuals by:

• Assessing portfolio exposure under the new 36% regime

• Modelling liquidity impact of annual taxation on asset appreciation

• Reviewing cross-border positioning, including comparisons with jurisdictions such as the United Arab Emirates, Cyprus, and Switzerland

• Advising on structuring and relocation strategies

It is essential to evaluate this now, as the new system is set to be implemented in 2028 if the bill is approved. The difference between taxing realized income and annual growth is structural, and planning ahead can significantly impact long-term results.

Key takeaways:

• The Netherlands plans to introduce a 36% tax on actual returns in Box 3 from 2028.

• Investment portfolios may be taxed on annual appreciation even without asset disposal.

• Property and start-up shares follow a realisation based capital gains regime.

• Liquidity planning becomes critical for investors holding appreciating assets.

• Global investors will increasingly compare the timing of taxation across jurisdictions.

FAQs - Frequently asked questions

1. Will the Netherlands start taxing actual investment returns?

Yes. Under the proposed Box 3 reform, the Netherlands plans to tax actual returns from savings and investments at 36% starting from 1 January 2028, subject to final legislative approval.

2. Will unrealized gains also be taxed?

In many cases, yes. Certain financial assets such as listed shares, bonds, bank deposits, and cryptocurrencies may be taxed on annual increases in value even if the asset is not sold.

3. Does the reform affect only ultra-high-net-worth individuals?

No. The reform can affect any Dutch resident holding investment assets, including portfolio investors, individuals with second homes, and founders who have reinvested capital after exiting a business.

4. Will real estate be taxed the same way as financial investments?

Not entirely. Rental income from investment properties will be taxed annually, but capital gains on property will generally be taxed only when the property is sold.

5. Why is this reform important for international investors?

Because it changes when tax is paid. Investors may face taxation on asset appreciation each year, which can affect liquidity planning and influence how portfolios are structured across different jurisdictions.

Meta title - Netherlands Tax Reform: A Structural Shift Toward Taxing Actual Returns

Author’s Name

Amisha Raorane

(Tax and Regulatory Associate at Water & Shark)

Disclaimer
The views and opinions expressed in this article are solely those of the author. They do not necessarily reflect the official position, policy, or perspective of Water & Shark."