Box 2 vs Box 3: How to declare your Dutch taxes when you hold shares in a BV (LTD)

The declaration of shares in a BV (besloten vennootschap), or foreign equivalent of a BV (LTD), depends on the percentage of shares you hold in the business. In this article, Taxsight discusses the tax implications when an individual holds shares in a BV.

First, a quick overview of the Dutch tax system

Tax system in the Netherlands

The Dutch tax system for individuals is split into boxes. There are three types of boxes:

• Box 1: Taxable income from (freelance / employment) work and main residency
• Box 2: Taxable income from a substantial interest (5% or more shares in a BV or equivalent company)
• Box 3: Taxable income from savings and investments

When you hold shares in a BV as a private individual 

How does it work when you hold shares in a BV as a private individual?

Less than 5%

If you hold less than 5% of the shares as a private individual, the shares are considered Box 3 assets. This means that the value of the shares should be declared in Box 3.

More than 5%

If you hold 5% or more of the shares as a private individual, they should be declared in Box 2.

Threshold

The threshold is 5%. It depends on whether you hold a minimum percentage of 5% in a BV or a foreign equivalent of a BV.

Box 2 taxation

A taxpayer is regarded as having a substantial interest in a legal entity (for instance a BV) if they, either alone or together with their partner, directly or indirectly hold at least 5% of the shares in the legal entity.

The value of the shares is not taxed on an annual basis in Box 2. Income from a substantial interest consists of the dividends received on such shares and the profits from the sale of shares. Both are taxed in so-called Box 2 and the total tax rate is 26,9% (2022).

It does not matter whether a person holds the shares in a Dutch or a foreign LTD company. If you hold the minimum percentage of shares in the company, you are considered to have Box 2 shares.

Box 2 dividends from a Dutch BV

The Dutch dividend tax is an advance tax that a Dutch company is obliged to withhold when a dividend is paid to an individual. The withholding dividend tax is in the Netherlands is 15%. The BV should withhold 15% on the outgoing dividends if the payment is made to a an individual. Additionally, dividends are also taxed with 11,9% in Box 2 when the shareholder files their personal income tax return. Therefore, the total tax rate becomes 26,9%.

Dividends in Box 2 from a foreign LTD

The taxation on dividends from a foreign limited company is the same in principle. The Dutch taxpayer pays 26.9% tax in Box 2. However, in the case of foreign withholding tax, a person can get a credit for the withheld foreign dividend tax. A credit for the withheld dividend tax is in most bilateral tax treaties limited to a maximum of 15%.

As a Dutch resident, you therefore pay 26,9% tax in Box 2 and can take a maximum of 15% foreign withholding tax into account, if applicable.

Box 2: 30% ruling application and shares in a foreign LTD

The dividend payments received as a substantial shareholder (5% or more) from a foreign entity could be exempt from Dutch taxes in Box 2 if a person has the 30% ruling application and is considered as a partial non-resident taxpayer, provided that the company which distributes the dividends is, on the basis of international tax residency rules, considered not to be located in the Netherlands.

Box 3 taxation

Box 3 taxation applies when a person holds less than 5% of the shares in a BV. The Dutch tax law mandates that Dutch residents with investments, savings, or property with a value of more than 50.650 euros (2022) need to declare these items in Box 3 of their annual personal tax return (Box 3 debts are also included). Tax partners have a double threshold (101.300 euros).

The net assets are valued on the reference date of January 1 of the corresponding tax year. The investment portfolio or shares in a BV / LTD company with a percentage of less than 5% are taxed as an investment in Box 3. The market value is taken for the taxation. The dividends from the shares or sale of the shares are not considered taxable income in Box 3 according to the current rules.

Although the dividend income is not taxed, the Dutch dividend tax that has been withheld can also be taken into account for Box 3. In case you receive dividends from a foreign company, you could get a credit of a maximum of 15% of the withheld dividend tax. Therefore, the withheld dividend tax lowers the Box 3 taxation.

30% ruling and box 3

If a person has the 30% ruling, they can opt to be treated as a partial non-resident taxpayer. A partial non-resident taxpayer and their tax partner do not have to declare or pay tax on savings and investments in Box 3. The only exception is Dutch real estate which is not considered your primary residence. This real estate will have to be declared in Box 3 of your personal income tax return.

Box 3 taxation after the court’s decision in December 2021

Given the court’s decision in December 2021, the government has introduced taxation on Box 3 assets based on the type of assets for the years 2017 to 2025. On the basis of these regulations, the taxation on savings is much lower than other investments.

Until 2025, the tax on assets in Box 3 will still be levied according to the same principle, but taking the type of asset into account. This leads to a lower tax percentage for people who mainly have savings.

New Box 3 system in the future

The government's aim is to have a new Box 3 system based on actual returns starting from 2026. The new Box 3 system will probably be based on capital gains tax, where an annual tax is levied on regular income such as interest, dividend, or rental income.

Box 3 rates

The Box 3 tax rate for 2022 is set at 31% and calculated on the fictional return on income. The rate will be increased for 2023, 2024 and 2025 by 1% per year, to 34% in 2025.

The Box 3 tax rate for 2021 was 31%. The fictional return of income in Box 3 is set in response to the court law case as follows for 2021:

The fictional return of income on investments is set at 5,53% for 2022 and 6,17% for 2023. The fictional return of income for savings and debts in Box 3 have not yet been published for 2022 and 2023. 

For 2022 to 2025, the rates will be determined separately, but will probably not differ much from the 2021 rates.

Box 3 taxation before the court’s decision in December 2021

Below are the Box 3 effective tax rates for 2022 before the court’s decision of December 24, 2021. The same rates were applicable on savings and investments. The type of asset was previously not relevant.

For the years 2017 to 2022, the taxation can also be based on these rates if that turns out to be more beneficial for a taxpayer. That might be the case for people who hold mainly investments instead of cash.

Do you still have questions about taxes in the Netherlands? If so, do not hesitate to get in touch with Taxsight! Their tax advisors, who have years of experience working with local and international tax matters, can provide expert tax advice and services to the highest professional standard.