Wealth Taxes in the Netherlands: A Shock for US Expats

Welcome to Passport to Wealth.

I'm your host, Arielle Tucker, certified financial planner and fellow US Expat.

On this show, we bring together cross border experts and global Americans to help you make confident decisions about your life, your money, and your next move abroad.

Let's get started.

Welcome back to Passport to Wealth.

My name is Arielle Tucker and today's guest is Kaitlyn Kroezel, a certified public accountant and founder of Crozell Capital, a firm specializing in tax and financial planning for US Expats and globally mobile families.

Caitlin works at the intersection of cross border taxation, international wealth management, and expat financial strategy, helping Americans abroad navigate the complexities of living and investing across borders.

What sets her apart is that she understands the expat journey, not just professionally, but personally, bringing both technical expertise and lived experience to the clients she serves.

And actually, Caitlin, I just realized you, we're talking to you and you're in Chile, but you were just saying you're moving to Malta.

Have you lived anywhere else?

And are we missing other countries that you've lived in?

We've lived in Spain.

I've lived in Spain for four years in the south in the province of Cadiz.

And that was 2018 to 2022.

So Covid.

Covid was Spain.

And from 2009 to 2011, I lived in Singapore.

So Singapore, Spain, Chile, and upcoming Malta.

Very cool.

I love that.

But today we're going to focus our time and your expertise.

We're going to borrow that today as we deep dive a little bit into the Netherlands.

Yes, yes.

A country I've never lived in, but I know a lot about.

Yeah, I want to start a little bit with, you know, why has the Netherlands been so attractive for us expats?

So there's a few reasons.

But the big one, for U.S. employees or that are moving over to the Netherlands to become employees, there is something called the 30% ruling.

And the 30% ruling was codified and made, you know, kind of real in 2001, but it had informal beginnings since the 1960s.

So what is the 30% ruling?

It's kind of a tax regime in the Netherlands to try to help make the Netherlands more internationally competitive in attracting higher skilled migrants.

So for multinational companies, tech, financial services, scientific research institutions, it was, you know, a way to attract workers from other countries to come in because the Netherlands has a pretty high tax rate.

The highest tax rate in the Netherlands is 49.5%.

And the.

The key features of the 30% ruling are 30% of your gross income from your salary is tax Free.

So it's, it's a pretty big benefit.

But there is a time limit.

So the maximum duration used to be 10 years.

It, over the years it's kind of shortened and changed a little bit and the rules are, have changed recently even more.

But right now it's five years.

So that's one reason the, just for tax purposes, the Netherlands is kind of a popular place for people to come and a lot of people just really like it there.

They, they want to get over to Europe.

Maybe they've been to Amsterdam before because it's such a travel hub and if you've ever, if you've ever been to the Netherlands, it's, it's just a really lovely place.

So I think that also applies to the attraction of going to the Netherlands.

And when we, before we hit record we were talking a little bit about the Dutch American Friendship Treaty and we were just talking about how that's also, it makes it like so that if you have a business and you can show that you have income from that business moving into the Netherlands, it's a little bit easier for Americans specifically because of that treaty than it is in other destinations in Europe.

Especially when I think about like northern Europe, a lot of people would love to like just move to Germany or move to Switzerland or these kind of more northern European countries.

There's a lot of pathways for entry in southern European countries and those I think have also have some interesting like tax incentives.

But getting to the northern European countries can be a little bit trickier.

So if you do have a business and you're thinking about exploring that, that's something to talk, talk to an immigration specialist about.

But both the Dutch American Friendship treaty and that 30% ruling, those do often require some kind of pre planning.

Right.

And we with a client last year who had originally was just going to move there to be with his partner and then we were able to kind of go through and support him with being able to get that 30% ruling with working with the right immigration team.

So again, it's really important that these things are done preemptively and you don't just kind of show up and expect to get these special tax provisions.

It's something that you need to do your homework and plan for in advance.

Now moving on, we wanted to talk about some new and proposed tax changes in the Netherlands.

And so like you were just saying, we have seen this huge transition in the Netherlands, right.

We used to have like you know, 10 years for the 30% ruling.

We're down to five.

And even within that there's even some more restrictions.

Now, can you just talk a little bit about how does the Dutch tax system differ from the U.S. tax system?

Yes.

So U.S. tax system, worldwide income of its citizens, regardless of residents, we know that it is based on different income categories, right?

So we have ordinary income or capital income, and we have progressive federal rates and we also have state tax.

So some expats are still subject to some form of state tax, some aren't.

The Dutch system is based on residency.

It uses a.

But it says it's based on residency, but kind of.

And I'll explain that it uses what they call a three box structure.

So there's box one income, which is wages and salaries.

Boxes two income, if you have an over 5% interest in a, in a company, and box three income, which is their version of, I guess our capital income.

But it is a little bit different currently and it's going through some massive changes right now that are being discussed and debated very heatedly in government.

And so we can go into that a little bit and talk about that.

So US Focus.

I want to stop you right, very quickly because you said capital income.

I just want to give a definition, definition to our listeners.

When we say capital income, right.

We're talking about almost like passive income.

So think about capital gains or.

And actually we can go into that because the Netherlands doesn't have capital gains in the same way, but interest income, dividend income.

That's what we mean when we're saying capital income.

US focuses heavily on realized income.

So for example, Sarah has a brokerage account in the United States with 100k and over the year it goes up to 110,000.

And she sells everything in the brokerage account.

Right.

So she has, she earned $10,000.

She has $10,000 of capital gain.

She started with 100, she sold when it was 110, she earned $10,000.

That $10,000 is capital gain, capital income.

And in the United States we have different tax rates for ordinary income versus capital income.

So let's assume she sold it and she held this account for over a year, that capital income would be taxed at our long term US Capital gains tax rate.

Depends how much money she makes in the United States.

So it's either 0%, 15% or 20% in the Netherlands.

It's a little bit different.

The current system, and it's what's under their box three tax is they deem income earned on your account.

So they have an imputed interest amount that they put on your accounts, whether you sold the stocks or not?

Right.

So if we go back to Sarah and now Sarah is a US citizen living in the Netherlands and she has the same 100k brokerage account.

And the now she, let's say she is subject to this box three wealth tax.

Well, the Netherlands says, okay, we're going to deem that you earned 5.88% on this account.

And let's assume Sarah didn't sell anything.

So she sold nothing that year.

And let's assume she didn't even make any dividends.

So she started with a hundred K. It's still sitting in the account.

She hasn't sold anything in the United States.

Sarah wouldn't pay tax at all on that 100k.

She earned no dividends.

And even if the value went up from 1 to 110, she didn't sell, she didn't realize anything.

But in The Netherlands, box 3, they do it a little bit differently.

They say, okay, Sarah, we're going to take your 100k and we're going to deem an interest amount, I think it's about 5.88% in the Netherlands right now.

And then we're going to tax that amount at 36%.

So think about 36% which is now the same kind of capital income in a different way being taxed versus the 0:15 or the highest tax rate, capital gains tax rate long term in the United States of 20%.

So 20% versus 36%.

It's quite a hard pill to swallow for us expats that become subject to box three.

And I'm just curious, if you are doing pre planning, you can kind of, right, help get like a bit of a step of basis over a period of time.

But if you are just like heaven done that pre planning, you're already a Dutch resident, you're just kind of stuck paying this 36%.

Right, right, right.

And the interesting part is that the, the Dutch Supreme Court, so this is their current system right now for box three.

But the Dutch Supreme Court actually ruled, I think it was back in 2021, that this was unconstitutional.

Like they, you can't do this.

This doesn't work.

And now the government is trying to come up with, with a new way.

And so this is, I mean if you, if you search the current headlines, you will find that the House of Representatives in the Netherlands passed a few weeks ago a new option, a new way of doing things, which is making a lot of people pretty angry.

But instead of doing this imputed interest, they're moving to when you first read it, you go, oh, they're moving to taxation of realized gain.

Oh, it kind of sounds a little bit more like the United States.

I won't pay tax until I sell.

No, that is not what it says.

So if we go back to Sarah with her $100,000 right, in the Netherlands, if she's a US citizen living in the Netherlands under the new proposed rules that passed the House of Representatives, it hasn't passed the Senate yet, so it's not in play yet.

Still being discussed.

But what they would do is if Sarah had her 100k at the beginning of the year and it went up to the end of the year of 110, and she hadn't sold anything, no dividends paid, she hadn't sold anything.

The they are going to tax her, the Netherlands, in this new proposed box 3.

Instead of imputing an interest rate of 5.88%, then taxing that at 36%, they're going to say, well, Sarah, you had a gain of $10,000.

You now owe stock with 110 or funds or ETFs with 110k of value.

the beginning of the year, they were 100K, and we are going to tax you at 36% of that $10,000 gain.

And Sarah goes, well, holy moly, I didn't sell anything.

I still have all of my cash.

How am I going to pay you this €3,600 when I haven't even cashed out yet?

Right?

So in the United States, yes, you have to pay tax when you sell, but you essentially have received your gross income, you've received your capital gains, and then you pay a cut of that to the government, where this taxation is saying, we don't care if you've sold, we're still going to tax you.

And, you know, in this case, €3,600, it's still a chunk of change.

Or, but imagine, you know, we've got clients that have $1 million of assets that are going to be rolling off their 30% ruling and subject to box three tax in the next few years.

And they're freaking out.

They are trying to figure out, what do I do?

In addition to this, what we're trying to help clients with is, you know, clients come into the Netherlands.

Oftentimes they've worked in the United States for a while.

The clients that we see, they're not fresh out of college, you know, coming the Netherlands and working, and they don't have any account set up yet.

So the clients that we see coming over, they have, you know, in the States, they might have an old 401k sitting there.

They've got an IRA.

They might have rolled over their first company's 401k to a rollover.

So they've got 401k, Roth IRA, traditional IRA.

Many of our clients have children.

They might have already started 529s and now they're, they're wondering what's going to happen to all these accounts and what is going to be subject to box three.

Because if you assume as a US Citizen, which oftentimes, Ariel, I'm sure, you know, people go, oh, there's a treaty.

There's a treaty.

All good.

My, my life is fine.

This, they think this treaty is, is a rainbow that's going to protect them.

And unfortunately, it doesn't always do that.

And it's, it's, it doesn't cover everything that you would think.

So not every type of account.

And I, I recently spoke to a firm over in the Netherlands and they special taxes for expats living in the Netherlands.

They just do the Dutch taxes.

Our Firm just does U.S. taxes.

And their name is Hillbrook.

And I asked them, I said, hey, what exactly is box three?

What, what would be subject to box three?

And so we went through, and this is, this is what they told me.

401k likely not most 401ks would fall under kind of protections of the treaty.

They see it like a proper retirement account.

And that normally would not fall under box three.

So if you are leaving a job in the United States to go to the Netherlands and you're going, oh, I need to roll over my 401k.

I don't know.

Especially if you think you're going to be in the Netherlands long term and you might be subject to this.

Fox 3.

So this is why pre planning is so important.

So we take 401k.

No.

Then I said, okay, traditional Ira.

And they said, traditional Ira, we think not either.

Box three, Roth Ira.

Roth Ira.

They said, that's different.

We believe that subject to box three.

And what's happening right now, we're seeing tons of people doing Roth IRA conversions.

So you have to think ahead.

So Roth ira.

And then my last one, which blew me away, I said, because I'm working with clients right now.

They're a couple, they live in the Netherlands.

They have almost 200k saved in 529 plans, college savings plans for their two kids.

And guess what?

The person that I spoke to said, I think those are going to be subject to boxes three and so then we're trying to think, oh my goodness, well, what do we do with this money?

Can they.

And we don't know yet.

We don't know the answer to this yet.

Should they, could they even transfer it to a grandparent, an aunt, somebody who's US based.

But then you have different issues with that.

You have to think about, well, then I'm taking this 200k and putting it in the name of somebody else.

How much do I trust that person?

They're going to hold, you know, my college education for my children.

But you don't want your college education for your children being subject to box three tax either at 36%.

So this is where the planning comes in.

And we're kind of in the stages of this right now with a lot of clients.

Yeah, I think what you just said is so important because there is, I mean, Right.

I'm a US person.

We're still subject to US Taxation and reporting.

And so we're always trying to play by the US rules.

But then while we move or prepare to move abroad, we're like walking that tightrope of, okay, we've got the US rules and reporting requirements on one side and on the other side we have this new country that we're going to be, we're going to be a resident on.

And what you just said about Roth IRAs or 529 accounts or essentially every other type of account Besides like a 401k, sometimes a traditional IRA or rollover IRA, I see this all the time in Europe.

Right.

They just don't recognize these types of accounts.

The same tax incentives, the same rules do not exist.

And oftentimes, just like on the US side, we have all these like really ridiculous rules about foreign, foreign accounts that are not accepted on the US side.

And so the US taxes those punitively.

It's the same on the other side.

And this is really the huge tax trap that so many expats fall in.

And if they just think, oh, it's going to be the same and then we, and then they move and now you're a resident, you can't.

It's very hard to roll that back.

Right.

It really requires doing this pre planning before you establish residency and understanding.

What I like to do sometimes is like, let's just run a draft return.

Let's see the numbers.

Like I love running a foreign draft return, seeing what the numbers are actually going to be and then comparing that and say, okay, what's going to happen on the, on the US US Side.

And that's why that, that tax planning piece is so important.

And I love that you guys are doing that in your firm.

You're not just doing the tax prep, which is always backward looking, you're doing that forward looking piece which is super, super important to make sure that there's no surprises, especially if you're nearing retirement or in retirement, you have the, you're ever going to have right when you're making that move.

So anyway, thank you so much for explaining those different boxes and the different taxation.

Yeah.

And I'll add one more thing in there.

If you're currently, if you're a US citizen right now currently in the Netherlands, you're on the 30% ruling.

There was something that you would get called the, I might not have the words exactly right, but it's like the partial non resident, you know, exemption.

And so not only did you get the 30% ruling, you also aren't subject to box three tax for five years.

That's huge.

That has now changed.

So that has now been abolished.

And starting in 2025 you could have the 30% ruling.

So if you're in the US right now and you are US citizen considering moving to the Netherlands and you're in talks with the firm to move over there and they explain the 30% ruling and they go, oh, you get this 30% ruling and even that has started to, they have some new rules for that.

So it's going to go 30% to 27% which isn't huge, but a little bit lower.

Make sure they explain to you say, what about box three?

Because they have now, you are now also going to be subject to box three from the second you move there.

So when we started working with a lot of Dutch clients, they were 30% ruling, not paying box three and they don't start paying that until they roll off the 30% ruling.

That's going to change now.

And so I think it's important and I hope that headhunters are explaining this because what you don't want to do is not pre plan and you pop over to the Netherlands, you go, I'm up, I'm 30%, everything's great.

And then all of a sudden you do your return year and you go, you're going to tax, you're going to tax my Roth ira.

What you know, or you're going to, you're going to impute, you know, taxes on me or I'm going to have to pay 30% tax on a brokerage account gains when I didn't even make any Sales, I have no actual realized capital gains.

And you don't want to be surprised at all.

So is.

Yes, I'm a big fan of what Ariel's saying is what you just pre plan before you go because the rules are changing and they're changing fast, very fast.

And your recruiter is not.

They're aware of the package you're getting.

They are not aware of your assets.

And as Americans, we are, we don't think about wealth tax.

Right.

Again, which, and these different types of imputed taxes and wealth taxes.

And they exist in other countries.

Right.

They just don't exist currently in the US So we're not used to thinking about this and advocating for this ourselves here.

If you are moving over with a company, I would be asking, you know, are you providing me with, with, with tax preparation?

Will you provide me with pre immigration, a pre immigration tax consult to make sure that I can actually talk with an educated person about what potentially is going to happen with my case?

And we used to see this, I don't know if you see this still, right.

Tax equalization for so many years on the 30% ruling, if you were moving from Massachusetts, New York, California, and you got that 30% ruling, it was very likely that you were pay tax than you were living in the US but that's all changed now with this.

So having the, I'm curious if companies are going to start having to kind of reopen that tax equalization conversation to kind of get that, get the talent.

Because the salaries in the Netherlands are lower than they are in the US So we have to re kind of calibrate what it's going to look like to make that move.

I agree.

And I've quickly or recently I guess, seen a little bit of a shift because a lot of the clients I've been working with over the years, they want to stay in the Netherlands.

They're happy there, right?

They, their kids are going to school there, they're settled there, they just bought a flat.

They're, you know, they go, okay, I'm ruling, I'm rolling off this 30% ruling, but I need to plan for it.

Okay, help me.

I'm already here.

I had a call last week.

It was the first call I had with a woman who is a US citizen currently working for a firm in the Netherlands.

And we were talking about the upcoming changes and she, she pretty much just said, I'm out.

When I'm done, I'm out of here because I'm not doing that.

And that was really the first time that I I went, whoa, the, the sentiment is going to change.

And so I think the Netherlands is going to have to be prepared for, okay, even if we keep this 30%, we might get people here for a little bit.

But then if they're too shocked when they get here with the wealth tax and didn't understand it and didn't plan, they might leave early because mad or all of a sudden you think you might have them longer and you're, and these firms are used to having people get off 30% and maybe they go, okay, 75%, you know, stay and 25% leave.

And I think that's really going to shift.

I think they're going to have to plan to seeing a lot more potentially leave.

So we'll see.

We'll see how it plays out.

When I saw the news come through, I saw a firm in Spain saying, okay, Dutchies, we're going to help you move.

It was so, I mean, when I saw that, I was like, like, this is so interesting.

This gets back to like the, the all the conversations around lifestyle versus shopping around for the best kind of tax deal I do think will be.

And there's been so many other things like we're just Talking about the 30% ruling and the box three, 36% imputed interest.

But there have been major changes in real estate.

How real estate is taxed if it's your primary residence versus if you want to have it be converted into a rental, how your real estate is, is calculated if it's in the US or outside of the Netherlands.

Like, that's a big consideration.

Right.

And it's very interesting planning opportunity for a lot of people with, with US real estate.

So there's a lot of, like, we're just talking, we're like, we are just talking about a sliver of policy.

And I just want to highlight that because there are so many other things to consider besides this, this one, this one change.

If you could give one piece of advice to Americans building wealth in the Netherlands right now, what would it be?

Mine would be to plan and to consider the changes in the law and to keep updated because two weeks ago, the House passed this new law.

And I didn't mention this before, but if it does pass, it's supposed to start in 2028.

The way that they're going to change the box 3 tax from imputed interest to realized gains.

And just to throw this out there, it also, I didn't say this before is it applies to crypto too.

If this passes, and there's a lot of Money in crypto.

And people, you know might go, I haven't sold it, I haven't done anything with it.

Guess what?

They're trying to tax it.

But I also just read that the Minister of finance has come out and said, okay, because there's been such debate over this.

And you know, the Minister of Finance has come out and said, okay, we're going to relook at this and see what we do.

But the Dutch government is between a rock and a hard place because the Supreme Court said, hey, you can't do what you're currently doing, but if they switch over to an actual realized gain system like the United States, they've figured the amount of revenue that they're going to lose.

And they said, we just can't sustain that.

So there's people in the government that are voting and voted for this new way that actually don't like it, but they feel like they have no other choice because they can't see the government fall or it would just be too much loss in revenue.

So my biggest piece of advice is to keep in touch with the news and to plan ahead.

So if you are thinking of going to the Netherlands, get more information and don't just assume you have the 30% ruling and you're totally covered.

Because as Ariel said, your recruiter or whoever's talking to you may not be as well versed in these tax laws and may not tell you about them and it may not be malicious.

They just may not know and they're changing very quickly.

So get good advice.

Hire an advisor.

Especially if you have a significant amount of assets in the States and you're trying to figure out how to manage and organize everything in your best interest before you go.

And something I learned just to I thought this was interesting.

I had a client buy a flat in Amsterdam within the last few months.

And some people think, okay, well, because if you take cash, let's say, okay, well I have cash and I'm going to stick it into instead of having a high mortgage, I'm going to pay off a flat and I will do that.

And then guess what?

That's not subject to box three.

It takes all that cash that might have been in a brokerage account, stuck it into a flat and now it's not box three income.

But there are restrictions.

Make sure you understand.

Sometimes you have to live in your flat for so many years before you can sell it it or not before you can sell it, apologies before you can rent it out and make it a rental.

So you think, I'll six months to a year and if I don't like it, I'll just rent it out.

Well, you might have a two or three or four year restriction before you could do that.

I have a friend right now who bought her flat years ago, bought her house in, in Leiden, and now all of a sudden she is going to be moving and her mortgage wording actually says you cannot convert this into a rental.

So they're trying to.

They're either going to have to refi and they have a really low rate right now, so they're scared about refiing or they're going to have to sell.

And so make sure you understand the terms and to not assume that it's done like in the United States.

Every.

Every country is different.

So just ask a lot of questions and be inquisitive.

Yeah.

Not to scare people from Europe, but the more I learn about different, like European tax law, I'm like, wow, in the US we actually have it really easy, right, to build wealth very quickly because of how, like, the barriers to entry are so low, the compliance considerations are so low.

It's not like that in the rest of the country or the rest of the world.

And it's just things that you need to just know.

You have to go out and educate yourself.

I also want to put a quick time stamp on this because I know things are changing and probably by the time this episode comes out, there could be another vote on this or some updates.

So timestamping this, we are.

It's March 2nd today that we're recording.

Kaylin, it was so good to have you on.

Thank you so much for kind of deep diving into Dutch taxation with me today.

Yeah, thank you so.

Yeah, talk to you soon.

The content shared in this podcast is intended for informational and entertainment purposes only and should not be considered financial, tax or legal advice.

We encourage you to consult with a qualified financial advisor, tax professional, or other licensed expert before making any decisions based on the topics discussed.

Everyone's financial situation is unique and personalized Guidance from a trusted professional is the best way to ensure your choices align with your individual goals and circumstances.