When you immigrate into the Netherlands you are entitled to a step-up in value for the shares in your company, which are valued at fair market value on the date of your immigration.
You have considered London. But the real property prices are steep. You have considered Paris. But Paris is overcrowded and not tax efficient. Not to mention your French, which is not too good. You have considered Switzerland but you decided to go to Switzerland during ski season only. You considered Monaco but Monaco is too small. But have you considered Amsterdam?
Suppose you have incorporated a company years ago with a small share capital of say € 1. You have been very successful and you have created a lot of value. The shares of your company are now worth € 100 million. However, as a resident of your current home country when you sell the company you run into capital gains tax. When you distribute a dividend or when you liquidate the company, you pay dividend withholding tax or personal income tax. Or both. So what do you do? You find yourself a city palace along one of the canals of Amsterdam, which are still surprisingly affordable, and you move to the Netherlands. Why? Because when you immigrate into the Netherlands you are entitled to a so-called step-up in value for the shares in your company. In other words, your shares in your company are valued at fair market value on the date of your immigration. In your case € 100 million. And this amount is your starting point as a Dutch resident tax payer. If you sell the company shortly after your immigration for € 100 million, no tax is due. Should you sell the company for € 110 million, you only pay 25% personal income tax over the excess, being € 10 million times 25% income tax which equals € 2.5 million. Paying € 2.5 million of tax and cashing over € 100 million fully tax free. That sounds great and it is. The same goes when you liquidate the company or when the company buys its own shares. Please note the step-up in value is only available for people who have not lived in the Netherlands before and provided the company is not a resident of the Netherlands.
The reason that the Netherlands grant a step-up in value upon immigration is because in the year 1997 the Netherlands introduced a conditional exit tax upon emigration of 25% income tax, which is basically the case if your shareholding is 5% or more. The 25% income taxation takes place in the so-called ‘box 2’. Salary income and the like is subject to tax in box 1 and portfolio investments and real estate investments fall in box 3. I will tell you more about box 1 and 3 later. The conditional exit tax in box 2 is conditional because the tax is only collected if a taxable event takes place within 10 years after the emigration, such as a sale or liquidation or donation of the shares. This way the Dutch government aims to discourage tax driven emigrations by Dutch residents. But if you sell your shares before you leave the country, you won’t be bothered by the conditional exit tax. If you cannot find a third party buyer, you can sell your shares to your children or a newly incorporated holding company or you can do a share for share transfer into a newly incorporated holding company thus creating a share capital of € 100 million or more which can be repaid tax free at any time. In most countries repayment of share capital is tax free so if you move from the Netherlands to another country, you can benefit from the high share capital that has been created.
Now you may ask yourself: this sounds too good to be true. What are the down sides? Well, to be honest, from a tax point of view there is only one real downside, being the risk of passing away as a resident of the Netherlands, in which case your heirs pay 20% inheritance tax. However, depending on your age and health, the risk of the occurrence of such event may be almost negligible and can be insured through a life insurance. The insurance premiums for such insurances are surprisingly low.
If you donate assets as a resident of the Netherlands to your children, or within 1 year after migration out of the Netherlands, Dutch gift tax is due, regardless of the country of residence of the children. So tax wise it is better not to pass on assets to your children inter vivos. But of course this is not a risk because you can simply choose not to donate any assets as long as you are a resident of the Netherlands.
In the Netherlands most people speak English fluently. You will get around easily without having to learn Dutch. Amsterdam is a lot of fun. There are many museums, theaters, lively bars and restaurants and making new friends is easy. So why not hire a real estate agent, rent a bicycle and drive around Amsterdam to see where you would like to live? The real estate transfer tax on residential property is only 2%. For € 3 million you can buy a stunning property and you will only pay € 60,000 of real estate transfer tax. The future capital gain of your residential property is fully tax exempt. If you prefer to finance the property with a loan, the interest is deductible for income tax purposes in box 1.
Now how about the other income taxes in the Netherlands? Well, if you receive a salary, this will be subject to ordinary income tax rates in box 1, going up to 52% income tax. However, if you are a foreign expatriate you may benefit from the so-called 30% ruling. If a number of conditions are met, the employer – which can be your own company - is allowed to grant a tax free allowance amounting to 30% of the gross salary. Suppose your company grants you a total remuneration of € 200,000. In that case € 60,000 can be paid as a (deemed) tax free reimbursement of costs such as housing rental costs. Even when you do not rent a house but buy a property and even when you do not incur costs typical for expatriates, you are still entitled to the tax free amount. So even though you receive € 200,000, your taxable salary is only € 140,000. This results in an effective tax rate of 36.4 percent (instead of the normal tax rate of 52%).
To be eligible for the 30% ruling the following conditions have to be met:
The maximum duration of the 30% ruling is 8 years. The 30% ruling is not applicable if you have lived in the Netherlands before during the last 25 years.
The UK is well known for its non-domiciled resident tax regime. Few people know the Netherlands has a regime which is very comparable. Under the 30% ruling you can opt for the so-called ‘partial non-residency status'. How does this work? When you opt for the partial non-resident status, for Box 1 such as salary income you are still considered a resident tax payer, however, as a partial non-resident you are not liable to income tax on assets in Box 2 and 3 except for real estate located in the Netherlands and shareholdings of 5% or more in a Dutch resident company. Needless to say this regime is particularly attractive for high net worth individuals.
So you have gone through the process of moving to the Netherlands and selling your company tax free or at a low tax cost. But at some point in time you may want to move on to another country or back to your home country. Does this trigger any taxes? No it does not. And provided you do not have the Dutch nationality you will be out of scope for Dutch inheritance tax the day after your emigration. Where it comes to Dutch gift tax you will be out of scope after 1 year of your emigration.
Now suppose you have not sold or liquidated your company. What happens then? Well, normally, when people move out of the Netherlands, they are confronted with the conditional exit tax, as described above, to discourage emigration. However, if:
you are exempt from the conditional exit tax.
Should you have lived in the Netherlands for more than 8 years before you migrate, or you should you own box 2 shares in a company resident of the Netherlands, the conditional tax assessment only applies to the extent the value of your box 2 shares has exceeded the fair market value at the time of immigration (thanks to the step-up in value upon immigration). In short, with the right planning your emigration should not trigger any taxes.