Do you own a Dutch house that is not your main residence? Are you renting out this property for 2 years or longer under a rental contract? If the answer to these questions is yes, we might have exciting news for you!
Empty Value Ratio – Renting out a Dutch house
A question we often get, is what happens tax wise with a house when the property is rented out. The main difference is that the property will be no longer considered your main residence and will therefore be taxed in box 3 instead of box 1.
As the property is no longer your main residence, you can no longer deduct the mortgage interest. Instead you report the so called WOZ value, the value set by the city, in Box 3. This value is reduced with the debt you have on January 1 of the concerning year. The difference, minus the EUR 50.000 (2021) threshold amount is taxed at about 1.4% income tax.
The rental income is not taxed in the Netherlands.
When does the empty value ratio apply?
You do have to meet specific requirements in order for you to be entitled to the empty value ratio. If one of the below is not applicable, then you cannot apply the empty value ratio.
The requirements are as following:
– You rent out a Dutch property
– You rent out the property on 01-01 of the relating year
– There is a rental contract
– The rental contract is 2 years or longer
– You receive the rent on your bank account
What is the empty value ratio?
The empty value ratio is a way to reduce your WOZ-value. The WOZ-value is the value of the property that is used for tax purposes. How much you can lower your WOZ-value depends on how much rent you receive in comparison to the WOZ-value of the property. Only the amount received for the actual rent are taken into account. If the rent includes for instance electricity and water, this part cannot be included in the annual rent received. The calculation is done via the following brackets:
| Percentage of rent in comparison to WOZ more than: | But no more than: | Empty value ratio is: |
| 0% | 1% | 45% |
| 1% | 2% | 51% |
| 2% | 3% | 56% |
| 3% | 4% | 62% |
| 4% | 5% | 67% |
| 5% | 6% | 73% |
| 6% | 7% | 78% |
| 7% | – | 85% |
Example
If the annual rent received is between 2 and 3% of the WOZ-value, the WOZ-value for tax purposes has to be 56% of the actual WOZ-value.
For instance, your WOZ-value is EUR 400.000. The annual rent received is EUR 18.000. In this case, the annual rent received is 4,5% of the WOZ-value, the WOZ-value has to be taken into account for 67%, so EUR 268.000.
The fun part is the mortgage debt reducing the EUR 268.000 of this example at the full value. If your mortgage debt is EUR 238.000, then the balance in this example is EUR 30.000. Each person has a EUR 50.000 (2021) threshold. This implies no Box 3 taxation is to be paid. You did receive EUR 18.000 rental income. If you paid 2% interest over the EUR 238.000 debt, being EUR 4.760, you still have an income of EUR 13.240 tax free.
Box 3 threshold per individual
In the event you and your partner own the house in the Netherlands. You both left the Netherlands and put up the house for rent, the house is in Box 3. Even though legally each of you owns 50% of the house, we often see one of the partners report the house for 100% in their non-resident income tax return.
The moment one partner also reports the ownership of the other partner, it is legally not correct. The tax office does not care less, as long as the tax is being paid. For the partners there is a difference. If one partner report the property, this one partner has only one time the EUR 50.000 threshold amount. When each partner reports 50% in each tax return, two times the EUR 50.000 threshold can be used.
Not only is the tax return then filed correctly from a legal point of view. Each partner uses the full tax percentage range, read twice low range, of Box 3 tax brackets.
You might assume we inform you so we can charge you twice for the income tax return. As much as we like to agree with you, we do not. One family is one family rate of EUR 390 (2021).
Tax is exciting
We think tax is exciting. We are very much excited to help you pay less income tax when that is legally possible. The non-resident income tax return offers you opportunities. We will be glad to assist.
My name is Kelly Postema, feel free to reach out if you would like us to assist you with claiming your lower WOZ-value, due to the empty value ratio.
