Trading for a living & taxes in the Netherlands

[DHB]

Are there any Dutch traders here, who trade for a living, but for themselves, i.e., not as a trader for a trading firm or bank? If so, how have you arranged your taxes? Have you created an onshore, or perhaps even an offshore business entity, through which you trade? Do you (still) pay ordinary income tax? What are the options that are available, and from what level(s) of equity does it pay to go for construction ABC or go for construction XYZ?

Additionally, does it matter what you trade, tax wise? For example, is there a fiscal difference between making a living trading cash forex, which is traded in the interbank market (so not in any specific country), and trading US stocks?

If there's anyone who could shed some light on this matter, I would be very grateful.

Cheers

 

[ehlaban]

As i understand it trading profits are not taxed in the Netherlands.
You do have to pay " vermogensbelasting" propertytax. So it's
a perfect country to tarde from.

Are there any Dutch traders here, who trade for a living, but for themselves, i.e., not as a trader for a trading firm or bank? If so, how have you arranged your taxes? Have you created an onshore, or perhaps even an offshore business entity, through which you trade? Do you (still) pay ordinary income tax? What are the options that are available, and from what level(s) of equity does it pay to go for construction ABC or go for construction XYZ?

Additionally, does it matter what you trade, tax wise? For example, is there a fiscal difference between making a living trading cash forex, which is traded in the interbank market (so not in any specific country), and trading US stocks?

If there's anyone who could shed some light on this matter, I would be very grateful.

Cheers

 

[DHB]

Hi ehlaban,

Thanks for your response. I cannot help but think that what you're saying is too simplistic. I have very limited tax knowledge, but as far as I know, property tax (vermogensbelasting) only deals with the assets you have, not with the income you receive (or generate via your assets).

As an example, let's say you've got €200K in assets and are making 5% a month, which you use entirely to live off. My uneducated guess would be that not only would one have to pay property tax (vermogensbelasting) on the 200K of assets, but one would also have to pay income tax and contribute social security premia each month on the 10K income you receive. And I'm not even yet talking about the added complexity of having your trading account in another country, such as Britain or Switzerland, which might imply that your assets and/or income are liable for taxation in another country (although I'm not sure about this).

If any of the aforementioned is correct, I can image it being beneficial to create an onshore or offshore legal entity in which to put in your assets, and trade via this entity. This might also help to obtain financing for a mortgage for example, which I think will be difficult to get if you don't have any official sources of income, other than (what the average banker is likely to perceive as) financial speculation. Maybe it would be even more beneficial to migrate altogether to some tax haven, but let's not delve into that subject just yet.

Now don't get me wrong, I do intend to go and see a tax specialist about the possibilities in due course, but before doing so, I would like to be a bit more informed about what's possible than I am now.

Again, anyone who would like to share some of their experiences with taxation in Holland, you're welcome to do so!🙂

 

[Hittfeld]

I used to live and pay taxes in NL: Then dividends, interest and profits from writing options were normal taxable income at different levels. Trading income used to be taxed at 1.2 % of the value of the assets ( they assumed you make 4% on those assets which were to be taxed at 30%). But this friendly taxation is by law restricted to "gains from your assets which were managed in a careful way", so max 50 trades per person and year. Still this restriction is generally waved and no additional taxatiion was asked.

CMC ( when they were still named Deal4Free) used to deliver an official paper to their dutch clients, explaining the tax exemtion of cfd and forex trading.

But all this was 4 or 5 years ago. So check the web!

Regards

Hittfeld

 

[DHB]

Hi Hittfeld,

Thanks for sharing this info. The 30% tax on the fictitious 4% gains (i.e., the 1.2% you were talking about) still applies nowadays, with the first 20k for singles and 40k for couples being exempt from that tax to boot, see this link (which is in Dutch btw).

However, that 1.2% should only be paid over the average asset value over the year. If you trade for a living, your capital gain will be substantial over the course of a year, but you withdraw part or perhaps even all of that gain every month to live from. Would these withdrawals from your trading account not be seen as regular income, and would these then not be subject to ordinary income tax and social securities blah blah? Again, if that's the case, I suspect that it might be advantageous to set up a onshore/offshore legal entity if your assets and/or monthly income from trading exceed a certain threshold value.

Knowing how tax happy our government is, I find it hard to believe I'm living in a trading tax haven, but who knows if this is a loophole 😀

 

[blancspa]

yeah, would be good to know, I am thinking of giving Holland a try

 

[Hittfeld]

Hi Hittfeld,

If you trade for a living, your capital gain will be substantial over the course of a year, but you withdraw part or perhaps even all of that gain every month to live from. Would these withdrawals from your trading account not be seen as regular income, and would these then not be subject to ordinary income tax and social securities blah blah?
.....

Knowing how tax happy our government is, I find it hard to believe I'm living in a trading tax haven, but who knows if this is a loophole 😀

You ARE living in a tax haven!!!!! The trick is NOT to look for a tax heaven in general, but to look for a country where YOUR KIND OF ICOME GENERATION is taxfree. For example gains from sale of real estate property are (with certain restrictions) free from any tax in NL and GErmany, but taxed heavily in many countries (incl SWITZERLAND). Gains from betting are taxed (and due to social security) in Switzerland, but not in Germany or UK - in NL depending on the subject you are betting on! So is Switzerland a tax heaven? GErmany a tax hell? It depends.

To my knowledge NL is a traders tax heaven. I used to play the following game: A self created Day-Job ( 15 hrs per week ) for the taxation and social security. Savings accounts ( taxed als interest), broker accounts for monthly traded investment strategies ( 1.2% - additionally 15% on received dividends) broker accounts for trading (1.2%). The cash stream from the accounts are not subject to any taxation or ss. Everything to be declared in iots proper "box".

As long as you can proof to have another job, there was no risk involved to be considered as a professinonal trading firm (which would be a different kind of taxation).

Regards
Hittfeld

p.s. I `m going to leave CH within 2 years. Guess where!

 

[blancspa]

uk ? lol

 

[DHB]

(...)

To my knowledge NL is a traders tax heaven. I used to play the following game: A self created Day-Job ( 15 hrs per week ) for the taxation and social security.

(...)

As long as you can proof to have another job, there was no risk involved to be considered as a professinonal trading firm (which would be a different kind of taxation).

Hittfeld,

So basically what you're saying is that, as long as you've got some form of other income (albeit for the record, since your primary source of income would be your monthly trading profits), your trading income is seen as investing gains (beleggingswinsten) and as such, only taxed @ 1.2%?

Secondly, what exactly did you mean by a "self-created day-job"? Self-employed (eenmanszaak or something)? Or just some ordinary part-time job?

Regards,
Boy

 

[soldintime]

You ARE living in a tax haven!!!!! The trick is NOT to look for a tax heaven in general, but to look for a country where YOUR KIND OF ICOME GENERATION is taxfree. For example gains from sale of real estate property are (with certain restrictions) free from any tax in NL and GErmany, but taxed heavily in many countries (incl SWITZERLAND). Gains from betting are taxed (and due to social security) in Switzerland, but not in Germany or UK - in NL depending on the subject you are betting on! So is Switzerland a tax heaven? GErmany a tax hell? It depends.

To my knowledge NL is a traders tax heaven. I used to play the following game: A self created Day-Job ( 15 hrs per week ) for the taxation and social security. Savings accounts ( taxed als interest), broker accounts for monthly traded investment strategies ( 1.2% - additionally 15% on received dividends) broker accounts for trading (1.2%). The cash stream from the accounts are not subject to any taxation or ss. Everything to be declared in iots proper "box".

As long as you can proof to have another job, there was no risk involved to be considered as a professinonal trading firm (which would be a different kind of taxation).

Regards
Hittfeld

p.s. I `m going to leave CH within 2 years. Guess where!

I have been so long out of the Netherlands that I have forgotten that it is good for traders. I had a friend going to the Haags Juristen College for advice and their answer was a lot more complicated than what you described. It involved at least 2 offshore entities.

Hittfeld, Switzerland is one of the most beautiful countries in the world and a tax heaven for NON Swiss.

I have stayed in the UK for 10 years but they started changing the Non Domicile rules. The next conservative government might scrap it completely is my feeling.

 

[DHB]

I have been so long out of the Netherlands that I have forgotten that it is good for traders. I had a friend going to the Haags Juristen College for advice and their answer was a lot more complicated than what you described. It involved at least 2 offshore entities.

That's interesting info, Soldintime. Thanks for sharing. Looking at their website it seems that the HJC is specialized in tax minimization constructions. Excellent. 👍

Btw, the little flag in your profile says you're currently residing in Malta. I know a few senior airline pilots who have officially migrated to Malta due to its tax and ordinary climate. Is Malta any good for traders? How does it compare to other countries/territories, to your knowledge?

 

[soldintime]

That's interesting info, Soldintime. Thanks for sharing. Looking at their website it seems that the HJC is specialized in tax minimization constructions. Excellent. 👍

Btw, the little flag in your profile says you're currently residing in Malta. I know a few senior airline pilots who have officially migrated to Malta due to its tax and ordinary climate. Is Malta any good for traders? How does it compare to other countries/territories, to your knowledge?

Malta is brilliant for Traders. They have a non-domicile taxation which is excellent for foreigners moving there. They do not tax overseas income as long as that income is not remitted within the same tax year. So when the new tax year starts Income from previous year can be remitted free of tax to Malta.

Other benefits are low rent, I rent a 4 bedroom 5 bathroom house with 5 car garage and a 13 meter pool for €1000 a month. No council taxes. The only high tax is on buying a car. I have not paid a cent of tax. Childcare is a joke at €1 an hour. Beer is 1.10 and so is capuchino.

Of course you will be stripped of any benefits, pension and health. So you need to sort that out yourself.

 

[soldintime]

That's interesting info, Soldintime. Thanks for sharing. Looking at their website it seems that the HJC is specialized in tax minimization constructions. Excellent. 👍

Btw, the little flag in your profile says you're currently residing in Malta. I know a few senior airline pilots who have officially migrated to Malta due to its tax and ordinary climate. Is Malta any good for traders? How does it compare to other countries/territories, to your knowledge?

Hier nog wat meer informatie.

Other good things in Malta are the absence of inheritance tax. If you move away from the Netherlands it will take you 10 years to fall outside the Dutch inheritance tax laws.

If it comes to settling with a family, the Maltese school system is bad. Also the UN happy kid index ranked Holland the number one place. Malta ranked on the bottom in the EU. These are things to consider.

You could move to the UK or Ireland and they both have a Non-Domicile rule as well but there you have to keep your income offshore. However you can always remit capital to live from. After 7 years in the UK as a NON dom you will have to pay for the privilege to use it. Which is why I have left the UK. I do not fancy the Irish weather so hence I am in Malta.

However when my kids come to school age I will have to look for an alternative destination. But that is me, my UK neighbour who runs an online accountancy with UK customers from Malta is happy and his kids go to school there.

 

[DHB]

Hier nog wat meer informatie.

Other good things in Malta are the absence of inheritance tax. If you move away from the Netherlands it will take you 10 years to fall outside the Dutch inheritance tax laws.

If it comes to settling with a family, the Maltese school system is bad. Also the UN happy kid index ranked Holland the number one place. Malta ranked on the bottom in the EU. These are things to consider.

You could move to the UK or Ireland and they both have a Non-Domicile rule as well but there you have to keep your income offshore. However you can always remit capital to live from. After 7 years in the UK as a NON dom you will have to pay for the privilege to use it. Which is why I have left the UK. I do not fancy the Irish weather so hence I am in Malta.

However when my kids come to school age I will have to look for an alternative destination. But that is me, my UK neighbour who runs an online accountancy with UK customers from Malta is happy and his kids go to school there.

That's excellent info. Again, thanks a lot for sharing. I'm a real tax newbie, and I still have a lot to learn about what is possible in terms of tax migration and/or tax burden reduction via business entities, so your input is very much appreciated👍.

I don't have any immediate migration plans, and although neither Ireland nor the UK would rank high on my list of ideal emigration destinations, what do these Non-Domicile rules you were referring to mean in a nutshell?

 

[soldintime]

Your domicile is where you were born. My domicile is in the Netherlands. Countries that have a non-dom rule mean that your domicile is not with the country that you are resident. There are only a few countries in the world that have favourite taxes for NON-DOM: UK, Ireland & Malta. The rule is mainly that income and capital gains that are generated outside the country is tax free as long as they are not remitted. Malta has a more favourable version that allows the income to be remitted in the next tax year free of tax.

There are other countries that allow all foreign earnings to be tax free where the rule applies to domiciled and non domiciled. Panama is such a country.

 

[DHB]

Well, I've been doing some more research into this matter, and it seems that traders might actually get away with only paying capital gains tax (box III) of 1.2% on trading profits.

On the website rechtspraak.nl, which is the website that publishes Dutch court decisions (which are only in Dutch unfortunately for those who don't speak the language. Don't know if google translate can be of any help with judicial jargon...), take a look at case AWB 07/2843 (search for the bold case number and you should be able to find it without any difficulty).

In short, this man, who has worked as an investment professional for years, and who should be considered to know a thing or two about financial products, traded in options privately, made a few (big) losses, and tried to deduct these losses from his taxable income, which in the Netherlands one can do, provided that the trading losses (or gains) are income in box I. One of the requirements to be eligible for that is that a profit from this trading activity was objectively and reasonably to be expected. And that's where the judge has ruled that despite this man's extensive experience in the financial world, which he claimed should give him an advantage over others (and therefore a profit from his trading activity should have been expected reasonably and objectively), still was not sufficient. Unless the man had insider knowledge, which he hadn't, this loss was considered part of normal portfolio management (i.e., box III, capital gains tax of 1.2%), because the judge ruled that the man had no information advantage over other experienced/professional traders, and therefore, a profit was not to be expected objectively and reasonably.

In summary, the judge considers trading an activity that people without insider knowledge should not be expected to profit from (they believe in the efficient markets theorem! :clap🙂. And therefore, any gains are only taxed at 1.2% in box III, and any losses are not deductible from other sources of income. I should think that with this court ruling in hand, one could easily convince the tax man who thinks otherwise, that trading income should only be taxed at 1.2% as box III income. If not, then you'll be taxed significantly more, but, then again, you can also deduct your losses! And precisely for that reason (given the well known statistic that around 90+% of traders are net losers) I believe that the tax and judicial authorities will leave home traders who are able to live off of their profits alone.

 

[Hittfeld]

DHB, thanks for your research (and kind publication here without asking for an enormous fee...) . Its in line with what I was told from dutch taxation office.

Just for clarification: Are the gains taxed or the capital (substance)? My understanding was, I had to pay 1.2% of my used capital - if I make profits or even if I make losses - just like a property tax.

Kind regards and thanks

Hittfeld

 

[DHB]

DHB, thanks for your research (and kind publication here without asking for an enormous fee...) . Its in line with what I was told from dutch taxation office.

Just for clarification: Are the gains taxed or the capital (substance)? My understanding was, I had to pay 1.2% of my used capital - if I make profits or even if I make losses - just like a property tax.

Kind regards and thanks

Hittfeld

Hi Hittfeld,

Bear in mind that the following information is coming from other people who claim to have experience with this matter, but that I haven't verified any of this yet myself with any official authority, but from what I understand, the following applies:

Your taxable assets in box III are calculated as follows:

(net asset value January 1st + net asset value December 31) / 2 * 4% * 30%

Net asset value = assets minus taxfree discount ("heffingsvrij vermogen") - debts not related to box I or box II.

From what I understand, only the asset values on 1/1 and 31/12 are relevant. Any withdrawals (e.g. for your cost of living etc.) in between are irrelevant for the calculation. Also, it appears that since it's all box III, you also don't have to pay any social security premiums ("premies volksverzekeringen"), but it also means you don't have any rights on welfare etc., which is fair imho.

Hope that clarifies things a little?

Personally, I still think it all sounds a little too good to be true, but the court ruling to me seems very convincing that we may have a loophole here...

Anyway, what did you learn from the tax office you said you consulted? Did you go to the belastingdienst directly, or did you consult a fiscal advisor?

B.

 

[Hittfeld]

DHB, thanks for the clarification. Actually this is compliant with my experience. I once was a dutch tax subject for a few years. So my information is from both: taxman (Belasti...) and internatonal advisors.

But to make everything stormproof, taxman and advisor gave me the hint, to have a "main occupation" of min 15 hrs p week for insurance purposes. To comply with this, I made arrangements with a firm in neighbouring Germany. They employed me in (a low paid - low insurance - no tax) position ( the firm deducted y cost from tax - I reimbursed the pay and costs to the owner privately). So taxwise in Holland I was treated as employed (but taxed in Germany), with a decent side job (trading) in NL - taxed to the favourable dutch BoxIII rate.

Regards
Hittfeld

 

[DHB]

DHB, thanks for the clarification. Actually this is compliant with my experience. I once was a dutch tax subject for a few years. So my information is from both: taxman (Belasti...) and internatonal advisors.

But to make everything stormproof, taxman and advisor gave me the hint, to have a "main occupation" of min 15 hrs p week for insurance purposes. To comply with this, I made arrangements with a firm in neighbouring Germany. They employed me in (a low paid - low insurance - no tax) position ( the firm deducted y cost from tax - I reimbursed the pay and costs to the owner privately). So taxwise in Holland I was treated as employed (but taxed in Germany), with a decent side job (trading) in NL - taxed to the favourable dutch BoxIII rate.

Regards
Hittfeld

Oh, if you have an ordinary job (however small) besides your trading, even though the latter is your main source of income, your trading income definitely belongs in box III. But unless you're able to create the type of arrangement you had going on back then, you're still a (part-time) wage slave and not 100% free to do what you want, when you want, which is after all one of the biggest perks of being able to trade for a living.

So basically one more question remains: do you still need that (part-time) job or will the tax man leave you alone even if you don't have one. With the obligatory health insurance nowadays in Holland, I wonder if you still need a job for insurance reasons.

How long has it been since you were a dutch tax subject, Hittfeld? I'm asking, because maybe the health care system in those days differed from how things are today? Did you necessarily have to have a job to be health insured in those days?

Regards,
DHB