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Questions about protective assessments when moving abroad?

advice on protective assessment

Protective assessment when moving abroad

If you move away from the Netherlands, the Dutch tax authorities will in some cases impose what is commonly known as a protective assessment. These assessments are levied on certain types of shareholdings in companies and pension and annuity accruals. As a rule, payment is deferred for ten years, after which the assessment lapses. However, if you perform certain prohibited actions during those ten years, you will as yet have to pay.

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Purpose of protective assessments

Protective assessments are levied on income that would be taxed by the Dutch tax authorities at some point in the future, if the taxpayer remained in the country. If you move abroad the Netherlands generally loses its rights of taxation: you could then sell your shares or cashing in your pension accrual out immediately without triggering a Dutch tax levy. You could then return to the Netherlands after having avoided the Dutch tax claim. By imposing a protective assessment, the Dutch tax authorities retain their rights of taxation for ten years, allowing them to block this course of action. Any prohibited actions within those ten years, for example cashing in your pension accrual or annuity or selling shares in a company or winding it up, will as yet trigger the claim.

In what situations are protective assessments imposed?

If you hold a substantial interest (a shareholding of 5% or more) in a company.
If you have accrued a pension and/or an annuity and deducted the premiums from your income.
If you have accrued rights in a mortgage-linked endowment insurance.

advice on protective assessment

Substantial interest

If you move away from the Netherlands, the Dutch tax authorities will treat you as if you had sold your shareholding. The difference between the value of the shares and the acquisition price for tax purposes (generally the amount that you paid for the shares in the past) is qualified as Box 2 income. The notional income is subject to 25% tax in Box 2. A protective assessment will be imposed for the tax due, which lapses after ten years. Performing any prohibited acts in the meantime, for example selling your shares, wind up the company or distribute almost the entire reserves and discontinue the business, will trigger the claim.

Shortening the ten-year period

In practice, careful planning offers possibilities for withdrawing funds from the company before the end of the ten-year period, without triggering the claim under the protective assessment. You might even be able to reduce the assessment to zero, and so save a significant amount of money. This is another area where it is important to prepare your move abroad well in advance. In light of the amounts that are potentially involved, it is vital to consider what your options are.

Short-stay facility

Some taxpayers can invoke the short-stay facility (passantenregeling) to avoid a protective assessment. This facility is available to taxpayers with substantial interests in companies established outside the Netherlands whose stay in the Netherlands is (or was) only temporary: no more than 8 years. The shares must have been held by the taxpayer both when moving to the Netherlands and when moving away. The maximum duration of the stay in the Netherlands is a total of 10 years over a period of 25 years.

Pension rights and annuity insurances

Premiums paid toward accruing pensions and annuities are deductible. If you are living in the Netherlands when the government pays out, you pay tax on the payout at the progressive rate. However, emigration causes rights of taxation to drain away from the Netherlands. To prevent this, if you move abroad the tax authorities will impose a protective assessment on the accrued rights. The protective assessment is based on the value on the date of your emigration, plus a 20% interest adjustment. Terminating your pension rights other than through regular payout – e.g. if you choose to cash in the policy before the maturity date, including if you pledge the rights – during the term of the protective assessment will as yet trigger the claim.

Mortgage-linked endowment insurance

If you move abroad, it is possible that the tax authorities will similarly assume that your mortgage-linked endowment insurance (kapitaalverzekering eigen woning) was paid out at fair market value, i.e. the amount that the goods would yield if they were sold on the open market. Although part of the payout is exempt, anything in excess will be subject to a protective assessment. Various other rules apply to these endowment policies, which you should examine carefully before you move abroad.

Protective assessments: questions and further information

Feel free to contact our experts if you have any questions. We can examine the likelihood of protective assessments, and for what amounts, and how you can avoid the consequences.