No more 30% ruling is the situation that occurred to many internationals on January 1, 2021. The 30% ruling period has been updated and all periods have been reduced to max 5 year period. The one date on which this all came together was December 31, 2020.
No more 30% ruling, what has changed?
On December 31, 2020 the 30% ruling holders that still had a 12 year period, 10 year period, 8 year period have been reduced to 5 year period on December 31, 2020. Most of them had as per that date no more 30% ruling.
The immediate change was the net salary of the January 2021 salary specification. Not the best start of a new year. The net salary is only one part of the changes.
World wide assets are now taxed
The question we receive a lot these days is what to do with the world wide assets, now there is no more 30% ruling.
The timing of that question early 2021 is not good. The world wide assets taxed in the 2021 income tax return are valued on January 1, 2021. In other words. If you were going to take action, you are already too late for the 2021 income tax return.
But then we wonder what is it you would like to do? The only method to reduce your wealth is spending it or giving it away. Paying the tax over your assets is then cheaper.
What wealth is actually taxed?
Taxed is your world wide wealth, such as your:
- world wide bank account balances,
- your share portfolio,
- properties you own around the world,
- receivables you have on your company or friends and families.
The bank accounts is a fixed number. The tax offices around the world communicated with eachother, if you ‘forget’ to mention your foreign bank account, the tax office will remind you in the next 12 years, plus a 300% penalty. The 300% penalty is taken over the tax you should have paid, and you can see that as an incentive to report properly.
Pension value
The share portfolio is not always straight forward. If you are a US national and you have a brokerage account for your 401K or IRA, then this 401K and IRA value is not part of the Box 3 taxation. Your instantly reaction will be a relief, but then you wonder why is it not taxed.
The reason why the 401K and IRA are not in Box 3 is that the actual pay outs of these funds will be taxed in Box 1 at the 38% to 49% brackets. This applies to all pension situations. A true pension is not taxed in Box 3, but taxed in Box 1 the day you start receiving pension benefits. The exemption to the rule is state pensions. If you were a civil servant, in the military or embassy, this pension is taxed in the state you served for only.
You see me mention the word ‘true’ in front of pension. That implies there are also not true pensions. Indeed. A non true pension is a pension fund that might carry that name, but you are entitled to touch the capital before the pension date had actually been reached. That is according to Dutch rules not a pension capital. Consequently, such a ‘pension’ capital is taxed in Box 3.
The IRA roth is also taxed in Box 3.
Property abroad
If you own property abroad, or like is common in Russia, part of the family property abroad, then this property value is mentioned in Box 3. Mentioned implies it is reported, but not taxed.
The tax treaties around the world often mention in article 7 how property is taxed. All treaties stated that the property is taxed in the stated where the property is actually situated. Logic solution, as it is that state that has the burden on their soil of such a property, hence they should be the state to tax the property.
The purpose of the exercise of mentioning the property in the Dutch Box 3 tax return and then claiming for the same amount a double taxation relief is as follows. Should the property be sold at any given moment and the income is received in your bank account, you can explain where the money came from. The Dutch tax office then do not need to assume you had hidden bank accounts abroad.
By the way, the double taxation relief on the property is not a 100% double taxation relief. The calculations are not pure, the tax free amount is taken into account, causing less value to be corrected.
Tax is exciting
We think tax is exciting, we do understand that paying tax again over your assets that were already taxed when you obtained them, is not exciting at all.
You have choices what to do in this situation. You can decide to enter in a ‘construction’ that promises you a more nice yield than the interest you receive, if any, in the bank. But will you ever see your money again?
You can invest in property abroad, value could go up, can go down.
You can also accept that part of being a Dutch tax resident is paying tax over your world wide assets. Nobody likes to pay this tax, but gambling with your assets to avoid taxation might cost you more.
