Box 3 and Foreign Real Estate: Key Considerations for Expats
Do you own a holiday home abroad? If so, the Supreme Court ruling of July 2025 (ECLI:NL:HR:2025:1176, V-N 2025/34.20.1) may have caused some confusion.
Some taxpayers assumed that Dutch Box 3 taxation no longer applies to foreign real estate, such as a holiday home abroad. This is not correct. The Court’s wording about disregarding foreign property for the OWR form was misleading, but the interpretation is different in practice. Foreign property remains relevant in your Dutch tax return, whether you apply the fictitious return method or the real return method, the only difference lies in how double tax relief is calculated.
The Current System: Fictitious Return vs Real Return
Since 2023, taxpayers can choose between two methods in box 3:
- Fictitious return method – tax is calculated based on an assumed rate of return, depending on the type of assets.
- Real return method – tax is calculated on the actual income and gains achieved.
To apply the real return method, you must submit the new OWR form. While this may seem attractive if your real return is lower, the way double tax relief works with foreign property can lead to unexpected results.
You can read more about the above in our previous blogs here and here.
Double Tax Relief: How It Works
Most tax treaties give the country where the property is located the first right to tax it. The Netherlands still includes this property in your worldwide wealth, but then reduces your Dutch box 3 tax to avoid double taxation.
- Under the fictitious return method:
The reduction is based on the fictitious income linked to the foreign property compared to your total fictitious income. This often gives a relatively stable and predictable relief. - Under the real return method:
The reduction is based on the actual income or gains from the foreign property compared to your total actual returns. If your foreign property produces little or no income (for example, a privately used holiday home), the reduction may be very limited. This can lead to a less favorable outcome, even if your overall real return is lower.
Conclusion
The July 2025 ruling did not abolish Dutch taxation of foreign real estate. The Court only clarified that changes in the value of a foreign holiday home do not affect the Dutch calculation, due to the way double tax relief is applied.
Foreign property therefore continues to play a role in deciding which method is more beneficial, even if its final impact in the Dutch return is sometimes limited.
If you are unsure which approach is best for your situation, Dutchtaxadvice can assist you in reviewing the options and making the right choice.
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