Netherlands to Implement Tax on Unrealized Gains in Stocks and Crypto

Netherlands to Tax Unrealized Gains

The Dutch government is moving forward with plans to impose taxes on unrealized capital gains across various investments, including stocks, bonds, and cryptocurrencies. This decision is raising concerns about potential capital flight. A majority in the Dutch parliament is poised to support amendments to the Box 3 asset tax system, mandating annual taxes on both realized and unrealized gains, even if assets remain unsold, according to a report by NL Times. The move comes after court rulings invalidated the previous system based on assumed returns. The Tweede Kamer recently debated the proposal, with over 130 questions directed at caretaker State Secretary for Taxation, Eugène Heijnen.

Despite acknowledging the plan's flaws, lawmakers seem inclined to endorse it, citing a potential revenue loss of 2.3 billion euros ($2.7 billion) annually if postponed. Under the new proposal, investors in equities, bonds, and cryptocurrencies will face yearly taxes on paper gains. Heijnen indicated that taxing only realized returns would be preferable but unfeasible before 2028. The urgency stems from fiscal pressures, preventing further delays. Various parties, including the VVD, CDA, JA21, BBB, and PVV, are expected to support the bill, while left-leaning parties like D66 and GroenLinks–PvdA argue that taxing unrealized gains is simpler and prevents budget deficits.

Criticism and Potential Impact on the Crypto Market

The plan has faced significant backlash from investors and the crypto community, who warn of potential capital flight. Prominent Dutch crypto analyst Michaël van de Poppe criticized the proposal as "insane," suggesting it could sharply increase tax burdens and drive residents to emigrate. "It's no surprise people are leaving," he commented. Some liken the tax on unrealized gains to pivotal moments in history, such as the Boston Tea Party or the Reign of Terror. Additionally, the updated Box 3 system is more favorable for real estate investors, permitting deductions for costs and taxing only realized profits, although secondary homes will incur an additional levy for personal use.