Netherlands Plans to Tax Unrealized Gains: Growing Concern Over Capital Flight

The Netherlands is at a critical juncture regarding its fiscal policy. The Dutch government is considering a tax reform that would significantly impact investors in stocks, bonds, and cryptocurrencies. The most controversial measure is the tax on unrealized gains, a policy that has raised alarms about a potential mass capital outflow from the country. This initiative arises after judicial decisions invalidated the current system for being based on assumed returns rather than actual ones.

The Box 3 System: Understanding the Tax Reform

The core of this reform is to modify the tax regime on assets in Box 3, which would apply to investors with significant wealth. The proposed system would maintain annual levies on both realized and unrealized gains, regardless of whether the assets have been sold. Eugène Heijnen, acting State Secretary for Finance, recently presented the proposal to the House of Representatives (Tweede Kamer), responding to over 130 questions from legislators.

Although Heijnen acknowledged the technical shortcomings of the plan, he emphasized that no viable alternatives exist in the short term. The government considers that imposing taxes only on realized returns would be the ideal approach, but maintains that such a system cannot be implemented before 2028. With public finances under strain, further delays have been ruled out.

Growing Legislative Support Despite Concerns

Most Dutch legislators lean toward supporting the reform, citing estimated tax losses of €2.3 billion (approximately $2.7 billion) annually if implementation is postponed. Parties across the political spectrum have expressed willingness to support the measure, including the People’s Party for Freedom and Democracy (VVD), the Christian Democratic Appeal (CDA), JA21, and the Farmers-Citizens Movement (BBB).

Even left-wing parties such as Democrats 66 (D66) and the Green–Labor Party (GroenLinks–PvdA) favor the changes, arguing that taxing unrealized gains is administratively more manageable and prevents significant budget deficits. This legislative convergence suggests that approval is likely in the coming weeks.

Investors Warn of Capital Outflow Risks

However, the investment sector and the crypto community have raised red flags. Michaël van de Poppe, a widely followed cryptocurrency analyst in the Netherlands, publicly called the plan “insane.” He warned that it would substantially increase investors’ annual tax burdens, which could foster an exodus of residents from the country.

“It’s not surprising that people are leaving the country, and to be fair, it’s completely right that they do,” van de Poppe commented. His observations reflect a broader concern: that excessive fiscal pressure on unrealized assets could accelerate the migration of capital holders to more favorable jurisdictions.

Other users and analysts have made provocative historical comparisons, linking this policy to events like the Boston Tea Party, the French Revolution, or Bolshevik movements, emphasizing the feeling that the state is unjustly confiscating citizens’ unrealized wealth.

Differentiated Treatment for Real Estate

Interestingly, the fiscal proposal offers a different regime for property owners. This sector would benefit from the possibility to deduct maintenance and improvement costs, paying taxes only upon realizing gains. However, secondary residences would be subject to an additional personal use levy, a measure aimed at discouraging property accumulation by investors.

The Dilemma for the Netherlands: Tax Revenue versus Capital Flight

The reform presents a classic dilemma for welfare states with progressive tax systems. On one hand, the government needs to raise revenue to fund public services. On the other hand, excessive taxation on wealthy investors’ assets could trigger capital outflows that, paradoxically, would reduce the tax base in the long run.

With the vote expected in the coming months, the decision in the Netherlands will have implications not only locally but also globally. International investors and the cryptocurrency industry will be closely watching whether Holland implements this controversial tax policy or if the pressure from mobile capital will influence the legislative course.