Taxation of Fixed-Term Deposits in the Netherlands and Abroad

In the context of rising inflation in the European Union and the Netherlands, term deposits have become an increasingly key tool for capital preservation and growth with minimal risks. However, a crucial aspect is understanding the tax obligations associated with this financial instrument.

In this article, we will discuss the taxation of fixed-term deposits in the Netherlands, as well as the tax implications for Dutch citizens who open term deposits online in banks of other EU countries, and examine ways to minimize or avoid taxes in these situations.

Taxes on Term Deposits in the Netherlands

In the Netherlands, the taxation of income from savings and investments, including term deposits, is regulated through the Box 3 system. This system encompasses incomes from various assets such as bank deposits, investments, and debts.

For 2023, bank deposits are taxed at a yield rate of 0.36%, investments at 6.17%, and debts at 2.57%. The total income from all these assets forms the tax base. After deducting a tax-free threshold of 57,000 euros, the remaining sum is taxed at a rate of 32%.

Let's consider an example of tax calculation for a term deposit of €50,000 placed for 12 months at 4% annually:
 

The interest income for the year would be €50,000 * 4% = €2,000.
According to the 0.36% yield rate for bank deposits, the income calculated for tax purposes is €50,000 * 0.36% = €180.

Since the deposit does not exceed the tax-free threshold of €57,000, the tax liability for this term deposit would be zero, as the entire income falls within the tax deduction limit.

This example demonstrates how incomes from fixed-term deposits are processed within the Dutch tax system. It's important to note that the tax burden depends not only on the actual interest income but also on the overall structure of your assets in accordance with the rules of Box 3.

Taxes on Term Deposits Opened in Other EU Countries

The situation becomes more complex when discussing term deposits opened outside the Netherlands. Here, Dutch citizens must consider both the local tax rules of the deposit country and the tax requirements of their homeland.

Declaration Specifics in the Netherlands

Dutch residents are required to declare all their foreign investments and savings, including term deposits. Incomes from such deposits are subject to taxation in the Netherlands, but thanks to bilateral tax agreements with many countries, taxes paid abroad can be accounted for when calculating taxes in the Netherlands, thereby avoiding double taxation.

Interaction of Tax Systems

A significant aspect is the interaction of tax systems of different countries. If incomes from deposits are taxed in the country where they are placed, the issue of double taxation may arise. The Netherlands has bilateral tax agreements with many countries, allowing for the avoidance of double taxation. Thus, the tax paid abroad can be taken into account when calculating the tax burden in the Netherlands.

Examples of Taxation in Various EU Countries

Let's consider how taxation will be calculated for Dutch residents opening fixed-term deposits in Latvia, Italy, and Spain, considering the tax agreements between the Netherlands and these countries.

The Netherlands indeed has bilateral tax agreements with several countries, including Latvia, Italy, and Spain, to prevent double taxation. These agreements typically allow tax residents of one country to reduce or avoid taxation in another country or to consider taxes paid abroad when calculating taxes in the home country.

Fixed-Term Deposits in Latvia

Deposit amount: €50,000.
Interest rate: 4.45% for 2 years.
Interest income for 2 years: €4,450.
Tax in Latvia (20%): €890.
Tax in the Netherlands: The resident must declare the income in the Netherlands. However, thanks to the tax agreement, the tax paid in Latvia can be considered when calculating the tax burden in the Netherlands, thereby reducing or completely eliminating double taxation.

View Term Deposit Information →

Fixed-Term Deposits in Italy

Deposit amount: €80,000.
Interest rate: 4.30% for 12 months.
Interest income for a year: €3,440.
Tax in Italy (20%): €688.
Tax in the Netherlands: Similarly, the tax paid in Italy will be considered when calculating taxes in the Netherlands.

View Term Deposit Information →

Fixed-Term Deposits in Spain

Deposit amount: €25,000.
Interest rate: 4.25% for 12 months.
Interest income for a year: €1,062.50.
Tax in Spain (21%): €223.13.
Tax in the Netherlands: The tax paid in Spain will be considered when calculating taxes in the Netherlands.

View Term Deposit Information →

In each of these examples, taxes paid abroad can be considered when calculating taxes in the Netherlands. This means that Dutch residents opening term deposits in other EU countries will not be subjected to double taxation on the same income. Instead, they can reduce their tax burden in the Netherlands, considering the taxes paid in the country where the deposit was opened.

For accurate tax calculations and consideration of all possible allowances and exemptions, we recommend consulting a qualified tax advisor.