International Taxation

Netherlands: Carried Interest Taxation

An overview by Taxand Netherlands:

In the Netherlands, people earning carried interest – i.e., profit shares from investments – currently pay a lower rate of tax on this income (24.5% for the first €67,000 and then 33% for any amount above), than they would on regular income (to a maximum of 49.5%).

However, the Dutch parliament has recently proposed that carried interest earnings should be treated as regular income, which could mean a higher tax rate for those who receive it.

Tax experts from Netherlands Taxand member firm, Taxand Netherlands, provide an overview of this proposed motion. Read the full article shared below.

Netherlands: Carried Interest Taxation

In the Netherlands, carried interest income may benefit from a preferred income tax treatment by qualifying as income from substantial interest (In Dutch: inkomen uit aanmerkelijk belang) in Box 2 (24.5% for the first EUR 67,000 and 33% for the amount above EUR 67,000 in 2024).

The preferential box 2 treatment means that income derived from carried interest is currently in principle taxed at a lower rate compared to ordinary income in Box 1, which is taxed at a progressive rate with a maximum of 49.5%.

On the 9th of April 2024, the Dutch parliament accepted a motion calling upon the government to shift the carried interest taxation from Box 2 to Box 1. In addition to this, the motion asks the government to examine (and already discuss upfront with tax treaty partners) whether the potential shift to ordinary income (i.e. from Box 2 to Box 1) can also be effectuated under the respective tax treaties.

According to the Dutch State Secretary for Finance, the proposed motion is interpreted as an “investigative” motion, meaning that first it should be investigated how the current taxation of carried interest takes place and whether any changes are desirable taking into account – amongst other – the current investment climate in the Netherlands.

No timeline is given, and it is uncertain what the outcome of the investigation will be. It is nevertheless important for fund managers and others receiving carried interest to closely monitor further developments and to understand the potential implications for their personal tax situation.

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