You have assets which you report in your income tax return, but you also have foreign assets over which you pay already tax abroad. What to do with these assets in your Dutch income tax return?
Box 3 taxation
The basic rule is that you are subject to Dutch income tax from the moment you have become a Dutch tax resident. You are a Dutch tax resident when your central point of life is in the Netherlands. Whether you are registered or not with city hall does not influence your central point of life. It is more an inconvenience not being registered.
Taxed are your world wide assets minus your world wide debts. Your world wide assets are for instance your Dutch bank accounts, but also all your foreign bank accounts, even if tax was already levied abroad over interest. Taxed are you shares, stock, option, property in the Netherlands and abroad. So called Box 3 foreign assets.
The house you are living in which is also your main residence is not part of Box 3. That is in Box 1 and you can deduct the costs of the loan taken out to purchase the house from your Dutch taxable income.
Foreign bank accounts
In the United Kingdom the UK bank already withholds the tax over the interest income. However, this interest is not taxed in the UK, but in the Netherlands. The bank most likely will not accept your demand to terminate the withholding, as they cannot examine each tax position of their clients. What happens then is that you claim in the Dutch income tax return a double taxation relief for the UK tax already withheld over the assets that are taxed in the Netherlands.
Dividend withholding tax
Dutch dividend withholding tax withheld over your dividends are a so called prepayment amount of your income tax. In other words, your income tax debt is reduced with the dividend withholding tax already withheld.
Foreign dividend withholding tax should not have been withheld over your foreign dividends, as this dividend is only taxed in the Netherlands. Again, for this foreign amount you claim a double taxation relief in your Dutch income tax return.
If you own property, then the property not being your main residence is taxed in Box 3 in the income tax return. However, foreign property is taxed in that foreign country based on the tax treaty the Netherlands has with that country. You do report this property in your Dutch income tax return, but for the same amount you claim a double taxation relief.
You could chose not to report this property at all, as it is a simple plus and minus being nothing calculation. That is not correct. The moment you decide to sell the property, money arrives from abroad and the Dutch tax office could ask you why you never reported this money. If you have reported the property you simply refer to the sale of the real estate and that is self explanatory.
If you hold the 30% ruling and you have chosen to be regarded a deemed non resident tax payer, then you do not need to report anything in Box 3. No Dutch assets, no foreign assets. This also implies you cannot claim back Dutch dividend withholding tax being withheld.
Not reporting Box 3
In the situation you do not hold the 30% ruling, neither your tax partner and you decide not to report your Box 3 world wide assets, you have a problem. The problem is that you do not comply with rules and regulations and the penalty for this offence is that you receive a 300% penalty over the calculated Box 3 tax you should have paid.
The period in the Netherlands for the Dutch tax office to find this out is five years. However, when you have foreign assets, the period is extended to a 12 year period. The tax office can then impose for the 12 years a tax assessment for each year with a 300% penalty on top. This is serious money, which should help convincing you to file the Box 3 world wide asset tax return.
Orange Tax Services
Our core business is filing tax returns and applying the double tax relief where necessary. And if you should have filed the wealth tax return and you forgot, there is a limited period to request indemnity for the penalty. Also this we can arrange for you.