Are you the proud owner of a second home abroad? If so, it is often the case that you have to pay income tax abroad on the actual or fortuitous income from your home.

In addition, you also have to report the home in box 3 in the Netherlands. By the way, did you know that the Netherlands gives reduction of box 3 tax? Even if you don’t have to pay income tax? How that works exactly? We go into that in the article below.

Declaration of value and any debt in basis

Your Dutch income tax return must include the value of a second home abroad and the corresponding financing debt. For homes, the WOZ value is taken as the starting point in box 3.

The reference date for its valuation is 1 January of the year preceding the year of declaration. As no WOZ value is available for houses abroad, in that case the economic value in unoccupied state (‘free market value’) must be used. As determined on 1 January of the year preceding the year of declaration. So for your 2023 income tax return, that is the value as at 1 January 2022.

Determining the box 3 tax

The amount of box 3 tax you pay in 2023 depends on the composition of your assets. Thanks to the Supreme Court’s so-called Christmas ruling on box 3, the Inland Revenue makes two calculations: one based on the ‘old’ statutory system in 2022 and one based on the ‘flat-rate savings variant’ used for providing legal redress. Here, the lowest outcome counts.

Income tax abroad

Sometimes, as a resident of the Netherlands with a second home abroad, you may also have to pay income tax in the country where the home is located.

This may be because you derive rental income from your second residence. But beware, in some countries, including Spain and Italy, you also have to pay income tax if you exclusively use the property yourself. The tax is then calculated on a flat-rate rental income. Most other countries, for example France and Portugal, do not charge income tax if you do not rent out the property.

How to avoid double taxation?

The Netherlands has concluded double taxation treaties with most countries. This allows the right to levy income tax on (income from) foreign real estate to be granted to the country in which that real estate is located. While the Netherlands may include the foreign holiday home in the yield basis of box 3, it must also immediately grant a tax reduction again. This entitlement to tax relief is independent of whether, and if so how much income tax you have to pay abroad.

Not to worry, fortunately there is the Double Taxation Avoidance Decree 2001. Based on this, the Netherlands unilaterally grants a reduction of box 3 tax. Even if the Netherlands has no tax treaty with the country in which your second home is located.

No relief for most other taxes

That many other countries levy some form of income tax on the realised increase in value of your foreign home is a fact. Moreover, the tax treaties the Netherlands has concluded with other countries also allow this.

Precisely the reason why the Netherlands does not grant relief for any wealth tax you may have to pay abroad.

As a resident of the Netherlands, do you donate or bequeath a property abroad? If so, the country where the property is located may also levy gift or inheritance tax. In that case, the Netherlands does give a reduction to avoid double taxation.

Visit the Second Home Expo

Would you like to know more about this topic or talk to an expert? Then visit Second Home Expor and take part in one of the seminars on this subject. Tip: take a look at the exhibitor list and seminar programme before your visit. That way you will be well prepared.