To summarize the current Dutch personal income system: besides income from salary and income from own business (these are taxed quite high), income from investments (stocks, passive investments, real estate excluding your first home) is taxed quite low. The amount is simply a percentage based on the value (as per the start of the year) of your investments.
So in the Dutch tax system there is no difference between realized and unrealized gain. As such it doesn't matter when you buy/sell your investments. It doesn't impact your tax burden. The effect you get is that everyone's wealth just slowly erodes away, just like with inflation (unless your yield outpaces that).
It is essentially a wealth tax system. But I wouldn't call it low: currently, 6.17% fictional yield x 32% tax rate = 2% wealth tax rate - it is at the high end among countries with a wealth tax (https://en.wikipedia.org/wiki/Wealth_tax)
One important thing the article omits is that there is threshold under which you don't pay anything in box 3. If you own less than 57.000 eur (or 114k for a family) you don't pay this tax.
That seems like a reasonable approach. That's much preferable to a tax on realized gains and a tax on unrealized gains. In the US when you buy a mutual fund you're already paying a "tax", for example, Fidelity eats 0.83% if you invest in their FSLVX mutual fund [1].
That's not a tax, that's the expense ratio, which is basically describing fees captured by the fund manager. Funds accessible to Dutch investors involve similar ERs. It's not an alternative.
About a year ago, Draghi released this report on European Competitiveness (https://commission.europa.eu/topics/competitiveness/draghi-r...). In it he says "A key reason for less efficient financial intermediation in Europe is that capital markets remain fragmented and flows of savings into capital markets are lower."
I don't have data readily to hand (and Draghi probably mentions this in the report, I can't remember), but anecdotally based on what I hear from many of my European friends, Europeans basically keep their savings in bank savings accounts. That means that there is less investment capital floating around, which in turn means that the tiny fraction that finds its way into innovation is in turn greatly diminished. Europeans are dependent on bank loans for funding, and banks want to see assets as security for their loans.
Policies like this would further disincentivize Europeans to invest in their own stock markets, further damaging the ability of Europeans to innovate.
> Europeans basically keep their savings in bank savings accounts.
USA is not much different. The wealthiest 10% of the U.S. population holds the vast majority of stock market wealth. Recent data shows this group owns around 90-93% of all stocks, with the top 1% controlling about half of the total household equity.
Many people hold cash in savings to prepare buying a house, paying for a child's college and more. IMHO, there is also less short-term need to invest your money as an adult.
If you're happy with your job and don't need the extra money (or risk), then why invest in the stock market?
> If you're happy with your job and don't need the extra money (or risk), then why invest in the stock market?
Because parking money in a savings account essentially erodes its value over time due to inflation. It’s safer, sure, but it’s a safe way to be guaranteed to lose money over time.
Equity investing is essentially the only way for savings to outpace inflation.
That’s exactly the issue, there’s so many taxes and frictions that people don’t think it is worth it, and that’s one of the reasons why Europe is stagnating. Investment in business creates strong economies.
The title here mostly doesn't match the article right? Quote: "But unlike the capital growth tax, capital gains tax will, in principle, only be levied at the time of realisation. This is usually when the relevant asset is sold, but also when immovable property exits Box 3 for another reason, such as emigration."
Looks like they're coining a new legal term "Capital Growth Tax", under which they are going to tax unrealized capital gains. I'm not aware of any other country that taxes them like that (besides wealth/exit taxes), so maybe they're the world's first here!
Some countries have wealth taxes - but they are usually flat or scale with wealth, not the yearly increase in wealth. Note that currently NL does de facto have a wealth tax in Box 3 system - shares are presumed to have a fictional fixed yield of around 5-6% per year on which they charge you income tax, so it works out to about 2% wealth tax.
> The bill regarding Box 3 introduces two main categories of taxation: capital growth tax and capital gains tax. The capital growth tax will apply to most assets, taxing both realised and unrealised returns, including appreciation in value and income from assets like shares, cryptocurrencies, and savings. Exchange results on bank balances in currencies other than EUR will also be taxed.
And normally unrealized capital gains on these sorts of assets aren't taxed.
I think in more general usage if you asked people what assets "taxing unrealized capital gains" would cover, you could get a basket if things like shares, real property, businesses, etc.
The article indicates that the Dutch government has decided to treat startups and real estate under the bucket "capital gains", and stuff under "capital growth".
So for an more informal standpoint, the title is a reasonable way to summarize what's happening to the layish person.
As I understand it most things like stocks with be under the capital growth scheme, taxed yearly, but they left a carve out for real-estate where it only is levied at sale/realization time.
Classic loophole. We tell ourselves this is to protect the little people who own homes, but the actual little people don’t have homes at all and rent. Meanwhile, anyone with money will get the picture invest all of it in real estate, once again enriching homeowner as well impoverishing the rest of us.
“The capital growth tax will apply to most assets, taxing both realised and unrealised returns, including appreciation in value and income from assets like shares, cryptocurrencies, and savings.”
How are situations like lack of liquidity to pay the taxes handled?
i.e, As an employee you get stock options, which you exercise when you leave the startup. Then long before the company has a liquidity event the FMV shoots up because the business is doing well. How do you as a wage worker pay the taxes on your paper riches without a way to sell your shares?
I know several people that got cleaned out in IPOs partially due to how taxes work on no-liquidity (lockout) periods. If you IPO'd at $10 ($3 goes to the tax man), and when you can finally sell it 6mo later and stock is only worth about $3, the IRS makes more money than you.
Checkout what happened at Uber [0].
My cousin at Aurora borrowed money for his tax bill on IPO. I don't know the final numbers, but I hope he at least broke even.
Isn't this already a problem in many situations? If you exercise your options when you quit, pay only a very small strike price, but acquire private shares with a much larger fair market value, in the US at least you'd owe the IRS a lot of money but have no liquidity to pay it. Though this new tax would make that a yearly problem instead of just a problem when you exercise. (and mean that early exercise doesn't let you avoid it)
I think in that case, you, the hypothetical wage worker, got hoodwinked pretty effectively by the beancounters when they were able to get away with compensating you in contracts that are apparently worthless to you.
Do you think about the things you say, or is it just reflex?
Everyone working for a startup knows it may be 5 years to a liquidity event. We're all big boys, we work on uncertainty and expectation. If the government changes the rules halfway through, it's pretty brain-damaged to blame the beancounters for hoodwinking the employees, and not using their magic oracular powers to predict how the laws would change under their feet.
> The capital growth tax will apply to most assets, taxing both realised and unrealised returns, including appreciation in value and income from assets like shares, cryptocurrencies, and savings. Exchange results on bank balances in currencies other than EUR will also be taxed.
Ouch. I suppose this is supposed to combat the trend of share buybacks over dividends. Gonna seriously suck to be anyone Norwegian and having to sell stocks to pay for taxes on your unrealized gains.
Also if the euro dives as well during inflation its gonna be painful.
Ah ha, but it would for expat Norwegians living in the Netherlands ! If we're not worried about the minority Norwegian expat groups, what has the world come to.
Seems like it would also result in capital investors covering more year-to-year tax revenue, which could reduce some pressure on other tax payers.
In theory, capital gains should average out over time. But in practice, I think an increasing amount of wealth is being held and not realized over many decades.
It doesn’t help anyone that a few billion $ of gains will be taxed eventually if that is so far into the future that most citizens alive today will have passed away by then.
Such a policy will collapse the markets almost immediately. Everyone who would have held onto their assets will suddenly have to sell to cover taxes. This will cause a spiral of fire sales.
This is extremely regressive and means that lower income people will be forced to shed their assets every year to avoid paying this unrealized gains tax. This means they will NEVER get the chance to accumulate generational wealth by holding onto stocks or other assets that have the capability of increasing tremendously like real estate.
It means they will need to sell their assets in order to pay this tax and only rich people will be able to afford holding onto assets long enough to become very rich.
It’s stupid, regressive and the Netherlands will learn a great lesson. The other thing that makes me laugh is that no other taxes are going down so this is a straight up tax hike on top of every other the Dutch pay.
I don't get how this works in practice. I am not wealthy, I don't even own an house. But I have a decent salary and buy some stocks occasionally.
Most of my stocks are kinda volatile, so by paying taxes on unrealized gain I am taking much higher risk for owning them every year I don't sell. I would literally be paying taxes on money I don't own yet and could easily lose at the first mayor market upset.
Readit News
So in the Dutch tax system there is no difference between realized and unrealized gain. As such it doesn't matter when you buy/sell your investments. It doesn't impact your tax burden. The effect you get is that everyone's wealth just slowly erodes away, just like with inflation (unless your yield outpaces that).
But with this new law that all might change.
[1] https://fundresearch.fidelity.com/mutual-funds/summary/31612...
I don't have data readily to hand (and Draghi probably mentions this in the report, I can't remember), but anecdotally based on what I hear from many of my European friends, Europeans basically keep their savings in bank savings accounts. That means that there is less investment capital floating around, which in turn means that the tiny fraction that finds its way into innovation is in turn greatly diminished. Europeans are dependent on bank loans for funding, and banks want to see assets as security for their loans.
Policies like this would further disincentivize Europeans to invest in their own stock markets, further damaging the ability of Europeans to innovate.
USA is not much different. The wealthiest 10% of the U.S. population holds the vast majority of stock market wealth. Recent data shows this group owns around 90-93% of all stocks, with the top 1% controlling about half of the total household equity.
Many people hold cash in savings to prepare buying a house, paying for a child's college and more. IMHO, there is also less short-term need to invest your money as an adult.
If you're happy with your job and don't need the extra money (or risk), then why invest in the stock market?
Because parking money in a savings account essentially erodes its value over time due to inflation. It’s safer, sure, but it’s a safe way to be guaranteed to lose money over time.
Equity investing is essentially the only way for savings to outpace inflation.
Some countries have wealth taxes - but they are usually flat or scale with wealth, not the yearly increase in wealth. Note that currently NL does de facto have a wealth tax in Box 3 system - shares are presumed to have a fictional fixed yield of around 5-6% per year on which they charge you income tax, so it works out to about 2% wealth tax.
Real estate taxes.
> not the yearly increase in wealth.
Real estate taxes.
In the US, certain traders can elect to mark to market [1].
[1] https://www.irs.gov/taxtopics/tc429
My home's property taxes operate this way. The county calculates the current value of my home and charges me a % of that in taxes every year.
Deleted Comment
> The bill regarding Box 3 introduces two main categories of taxation: capital growth tax and capital gains tax. The capital growth tax will apply to most assets, taxing both realised and unrealised returns, including appreciation in value and income from assets like shares, cryptocurrencies, and savings. Exchange results on bank balances in currencies other than EUR will also be taxed.
And normally unrealized capital gains on these sorts of assets aren't taxed.
The article indicates that the Dutch government has decided to treat startups and real estate under the bucket "capital gains", and stuff under "capital growth".
So for an more informal standpoint, the title is a reasonable way to summarize what's happening to the layish person.
(Submitted title was "Netherlands to start taxing unrealized capital gains yearly from 2028")
i.e, As an employee you get stock options, which you exercise when you leave the startup. Then long before the company has a liquidity event the FMV shoots up because the business is doing well. How do you as a wage worker pay the taxes on your paper riches without a way to sell your shares?
Remember London and Amsterdam have extremely strong finance industry lobbying, and that shows up in their lawmaking.
Checkout what happened at Uber [0].
My cousin at Aurora borrowed money for his tax bill on IPO. I don't know the final numbers, but I hope he at least broke even.
Real examples include: $GRAB, $AUR, $UBER
[0] - https://www.cnbc.com/2020/08/28/nearly-200-uber-employees-su...
Dead Comment
Everyone working for a startup knows it may be 5 years to a liquidity event. We're all big boys, we work on uncertainty and expectation. If the government changes the rules halfway through, it's pretty brain-damaged to blame the beancounters for hoodwinking the employees, and not using their magic oracular powers to predict how the laws would change under their feet.
Skimming the article I couldn’t tell whether that’s the case here.
If not, it seems like it would have pretty bad implications for the average person who isn’t super wealthy but who are trying to build wealth.
Ouch. I suppose this is supposed to combat the trend of share buybacks over dividends. Gonna seriously suck to be anyone Norwegian and having to sell stocks to pay for taxes on your unrealized gains.
Also if the euro dives as well during inflation its gonna be painful.
In theory, capital gains should average out over time. But in practice, I think an increasing amount of wealth is being held and not realized over many decades.
It doesn’t help anyone that a few billion $ of gains will be taxed eventually if that is so far into the future that most citizens alive today will have passed away by then.
It means they will need to sell their assets in order to pay this tax and only rich people will be able to afford holding onto assets long enough to become very rich.
It’s stupid, regressive and the Netherlands will learn a great lesson. The other thing that makes me laugh is that no other taxes are going down so this is a straight up tax hike on top of every other the Dutch pay.
Most of my stocks are kinda volatile, so by paying taxes on unrealized gain I am taking much higher risk for owning them every year I don't sell. I would literally be paying taxes on money I don't own yet and could easily lose at the first mayor market upset.