DIRECT HOLDING OF REAL ESTATE

This section discusses the most important tax implications of the direct holding of real estate. First, the impact for resident individuals and non-resident individuals is discussed. Thereafter is discussed the impact for resident companies and non-resident companies.

Resident individuals

Personal income tax
Income generated from real estate, such as rental income, is subject to income tax. If the real estate qualifies as a business or as part of a business for income tax purposes, the generated income will be taxed in box 1 at a progressive rate of up to 49.5%. However, in most cases, a direct real estate investment held as an investment will not qualify as box 1 income and will instead be taxed under box 3.

If the real estate does not qualify as a business or as part of a business, it falls under the box 3 tax regime, which applies to income from savings and investments. A deemed return is taxed at a flat rate of 36%.

The counterevidence scheme in box 3 allows taxpayers to prove that their actual return on assets is lower than the deemed return used by the Dutch Tax Authorities. If successful, the tax is calculated based on the actual return instead of the deemed return. As of March 2025, it is known that the Dutch Tax Authorities will introduce a form in the summer of 2025 that allows taxpayers to provide this proof. However, the exact calculation method for actual returns according to this form is not yet known. The counterevidence scheme applies to tax years from 2021 onward.

Deductibility of costs, interest and depreciation
If real estate is subject to the tax regime in box 1, interest expenses, maintenance costs and depreciation costs are deductible from rental income. Depreciation rates for buildings typically range between 2% and 4% per year and are based on the purchase cost plus any improvement costs incurred for the property. 

Since box 3 taxes a deemed return, interest expenses and depreciation costs are generally not deductible in box 3. However, interest expenses may be deductible under the counterevidence scheme.

Losses – carry back/forward
If the interest costs and depreciation costs are higher than the rental income, there may be losses. Only if the real estate falls within box 1, the losses may be offset against the Dutch taxable income in box 1 of the previous three years and next nine years.

Non-resident individuals
Non-resident individuals are treated in the same manner as resident individuals. However, losses can only be offset against other Dutch taxable income.

Resident companies

Corporate income tax
Business income such as rental income and capital gains are subject to corporate income tax. Business profits up to EUR 200,000 is taxed against a tax rate of 19%. For profits of more than EUR 200,000 are taxed against a tax rate of 25,8%. All income gains and expenses of companies are taken into account on an accrual basis.

Deductibility of costs, interest and depreciation
Companies can deduct interest costs, maintenance costs and depreciation costs from rental income. Depreciation of buildings can take place on an annual basis for 2 to 4 percent and is generally based on the acquisition costs and improvement costs if applicable. Note that deprecation cannot be deducted once a so-called bottom value is reached. (Building) land is not depreciable.  

Interest deductions limitation
A general interest deduction limitation applies, known as the earnings stripping rule. Interest is not deductible to the extent that the net interest expense (the balance of interest paid and received) exceeds 24.5% of taxable profit and is more than €1,000,000. Non-deductible interest can be carried forward to future years.

Losses – carry back/forward
Losses can occur when interest expenses and depreciation costs exceed rental income. Such losses can be offset against all Dutch taxable profits from the previous year and future profits, with no time limitation.

If taxable profit for a year is €1,000,000 or less, it can be fully used to offset a loss from a previous year. If taxable profit for a year exceeds €1,000,000, only 50% of the profit exceeding €1,000,000 can be used to offset a loss from a prior year. This rule also applies to carryforward losses.

However, carryforward of losses may be denied if the ultimate ownership of the shares in the loss-making company has changed by more than 30%, causing the losses to expire.

Non-resident companies
Non-resident companies are treated in the same manner as resident companies, since Dutch real estate held by a foreign company is considered to be an enterprise of the non-resident company in the Netherlands.

INDIRECT HOLDING OF REAL ESTATE

This section discusses the most important tax implications of the indirect (shares) holding of real estate. First, the impact for resident individuals and non-resident individuals is discussed. Thereafter is discussed the impact for resident companies and non-resident companies.

Resident individuals

Personal income tax
Individuals who hold 5% or more of the shares in a Dutch legal entity have a so-called substantial interest in that entity. Income generated from this substantial interest, as well as income derived from the sale of shares in the legal entity, is subject to a two-tier tax system: a basic rate of 24.5% on the first €67,000 and a top rate of 31% on amounts exceeding €67,000.

Individuals who hold less than 5% of the shares in a Dutch legal entity are subject to income tax in box 3. In box 3, not the actual income received is taxed, but rather a deemed return, which is taxed at a flat rate of 36%.

Dividend withholding tax
Shareholders of a Dutch company are subject to a 15% dividend withholding tax in case of distribution of dividends. However, the tax paid is deductible from personal income tax. 

Deductibility of costs, interest payments and depreciation
Interest costs on loans to buy the shares and dividend withholding tax are deductible from the income taxed in box 2. 

Losses
The loss arising from a substantial interest will be offset against the income from a substantial interest of the previous year and the next six years .

Non-resident individuals
Non-resident individuals are treated in the same manner as resident individuals. However, losses can only be offset against other Dutch taxable income. 

Resident companies

Corporate income tax
Income derived out of shareholding qualify as business income for companies. Business profits up to EUR 200,000 is taxed against a tax rate of 19%. Profits exceeding EUR 200,000 are taxed against a tax rate of 25,8%.

Dividends received from a shareholding of at least 5% in subsidiary are exempt from corporate income tax (participation exemption, in Dutch: deelnemingsvrijstelling). Losses resulting from participating in a subsidiary are not deductible. 

Deductibility of costs, interest payments and depreciation
Interest, maintenance and depreciation cost may be deductible from the corporate income. 

Fiscal unity
It is possible for a Dutch corporate entity to form a fiscal unity with its subsidiaries in case an interest of at least 95% is held in the subsidiary. In case of a fiscal unity, losses of the company can be offset against profits made by other companies within the fiscal unity. Also, real estate can be transferred between entities belonging to the same fiscal unity without corporate income tax being due.

Distribution of income and gains
Dividend paid to another Dutch company who owns at least 5% of the payers share capital are exempt from dividend withholding tax on the score of the participation exemption (in Dutch: deelnemingsvrijstelling). If a company stops his activities, the liquidation distributions paid to the shareholders are taxed in the same manner as a dividend. In some circumstances, interest and other financing costs paid to related parties can be treated as a dividend. In that case, interest and other costs cannot be deducted from the income. If a company ceases its activities, the liquidation distributions paid to shareholders are taxed in the same manner as dividends.

Non-resident companies

Corporate income tax
Foreign companies are solely taxed in the Netherlands for Dutch income (e.g. income earned by an enterprise in the Netherlands). 

If a non-resident company held less than 5% of the shares in a Dutch company, no taxes will be due regarding income out of shareholding.

If a non-resident company is a holder of the so-called substantial interest, the company is in principle not liable to tax in the Netherlands. There are, however, some anti-abuse rules. If these rules are applicable, the gains arising on the substantial interest are taxable in the Netherlands.

More information?

For more detailed information and questions please contact your trusted RSM advisor.