The Arnhem-Leeuwarden court of appeal issued a new ruling on 5 July 2023 regarding the Dutch box 3 levy and property abroad.

Being taxed on notional return in box 3

Until 5 July 2023, as a tax resident of the Netherlands and as an owner of foreign property, you were taxed based on a notional return in box 3. It did not matter whether you rented out the holiday home abroad or not.

The question was, however, whether the Dutch tax authorities correctly calculated the deduction to avoid double taxation. The Arnhem-Leeuwarden Court of Appeal ruled on 5 July 2023 that the tax authorities miscalculated this, which meant it did not lead to full exemption.

On 5 July 2023, the Arnhem-Leeuwarden Court of Appeal ruled as follows:

‘If, as the owner of a foreign home, you do not rent out your home, and hold the second or holiday home abroad purely for your own use, the box 3 levy must match the actual return achieved.’

This means, that in doing so, the taxman should not tax more than the interest, dividends, rents, royalties and possibly other forms of direct capital gains that you actually received in practice.

In other words, the bottom line is that if you do not rent out the foreign holiday home or second home, the Dutch tax authorities will set the actual return enjoyed at zero. As a result, your foreign owner-occupied holiday home is no longer taxed in box 3 and is therefore fully exempt.