As we mentioned in our article Progress in Box 3 as well. Those proceedings concerned the tax treaty with Switzerland. Gelderland District Court has recently confirmed that the same applies to the tax treaty with France.
World income
It starts with the principle that anyone living in the Netherlands is a resident taxpayer for income tax purposes. In that case, their worldwide income is taxed in the Netherlands. Worldwide income is all the income received by a resident taxpayer, wherever in the world it is generated.
Income from a (holiday) home in Switzerland or France is therefore also taxed in the Netherlands. However, the owner is also taxed on this income in Switzerland and France. Foreign taxpayers pay income tax on income that is linked to a particular country. Income from property is regarded by most countries as being linked in this way and is therefore taxed.
Tax treaty
The result is double taxation of income tax. And that is, of course, undesirable. That is why most tax treaties stipulate that income from property is subject to income tax in the country where the property is situated. This is also the case under the tax treaties that the Netherlands has concluded with Switzerland and France.
You might think that’s it, then. But that’s not the case. You still need to declare the value of the foreign (holiday) home in your income tax return under ‘Income from savings and investments’ (Box 3). A flat-rate income is then calculated on the basis of your assets in Box 3. Income tax is calculated on that income. And finally, the ‘tax paid elsewhere’ deduction is calculated for the foreign (holiday) home.
Deductions taxed elsewhere
When calculating the ‘taxed elsewhere’ allowance, the progressive tax scale comes into play; this has been incorporated into the calculation of the flat-rate income in box 3 since 2017. In our article You’ll find a sample calculation from August last year. The end result is that you’ll pay some Dutch income tax on your overseas (holiday) home.