The Dutch have done something that sounds fiscally impossible: they taxed imaginary money for over two decades, got slapped down by their supreme court, and are now replacing it with a system that taxes profits you haven’t actually made. If you’re a French investor considering European diversification, this Dutch experiment in financial fiction should set off alarm bells about where wealth taxation is heading.
The Box 3 System: Taxing Money You Never Earned
Since 2001, the Netherlands has operated one of Europe’s strangest wealth tax systems, known as Box 3 (the third box of the Dutch income tax system). Instead of taxing actual capital gains, the Dutch tax authority assumed your assets earned a fixed percentage each year, regardless of reality. For investments, they assumed a 6.00% fictional return, for savings, a mere 1.28%. They then taxed this made-up number at 36%, creating an effective wealth tax rate of 2.16% on investments above the €59,357 exemption.
This wasn’t a mistake or oversight. It was deliberate policy. The logic, if you can call it that, was that everyone should easily earn 4% annually, so taxing a fictional amount was “fair.” When interest rates crashed after 2008, the system became absurd, savers earned nearly nothing but paid tax on fictional 1.28% returns. Investors who lost money still owed tax on fictional 6% gains.
A French resident living in Paris explained the math: “You could have €100,000 in stocks that dropped to €70,000, and you’d still owe tax on €6,000 of fictional profit. It broke the basic principle that tax should relate to actual income.”
The Constitutional Crisis That Changed Everything
In December 2021, the Dutch Supreme Court delivered what became known as the “Kerstarrest” (Christmas ruling), declaring this fictional return system unconstitutional. The court ruled it violated property rights and anti-discrimination principles under the European Convention on Human Rights. Taxing people on income they never received, especially during periods of low interest rates, was fundamentally unjust.
The ruling opened the floodgates. The government faced a €14 billion compensation bill for wrongly collected taxes. Worse, they had no functioning wealth tax system. The political scramble began.
From Fiction to Forced Realization: The 36% Unrealized Gains Tax
The replacement system, approved by parliament in February 2026 and taking effect January 2028, seems straightforward: tax actual returns instead of fictional ones. But the implementation is radical. The new law imposes a 36% tax on unrealized capital gains each year. If your crypto portfolio, stock holdings, or bond investments increase in value, even if you don’t sell, you owe tax on that paper profit.
The Dutch government calls this a “vermogensaanwasbelasting” (wealth growth tax). Critics call it a disaster for long-term investors. Here’s why:
Liquidity Crunch: You must pay tax with cash, but your gains exist only on paper. This forces investors to sell assets annually to cover tax bills, disrupting compound growth. One calculation showed that under this system, an investor’s final capital could be 3.5 times smaller after decades compared to the old fictional system.
Market Volatility: If markets crash after you’ve paid tax on gains, you’re left with losses and no refund. The system allows loss carry-forwards, but only against future gains, not past taxes paid. A market downturn could wipe out your portfolio while you still owe taxes from previous boom years.
Administrative Nightmare: Tracking cost basis, calculating annual gains, and managing loss carry-forwards for complex portfolios will require sophisticated accounting. The Dutch tax authority estimates implementation costs in the hundreds of millions.
The Political Theater Behind the Numbers
The parliamentary vote on February 12, 2026 revealed deep political fractures. The motion passed with the smallest possible majority, 76 out of 150 seats, after right-wing parties who philosophically oppose wealth taxes voted yes purely to avoid a €2.4 billion annual revenue shortfall.
Remarkably, the VVD (center-right liberals) voted for the tax while their future coalition partners CDA and D66 voted against. The adopted motion requires the government to present a plan by September 2028 for a full vermogenswinstbelasting (capital gains tax on realized profits), potentially replacing the unrealized gains system as early as 2029.
This creates a bizarre scenario: investors face a punitive unrealized gains tax for what might be just one or two years before the system changes again. Many are asking whether it’s worth restructuring their finances for such a short period.
Why French Investors Should Pay Attention
You might think this is a Dutch problem. It’s not. Here’s why this matters for French investors:
1. The PEA Vulnerability: Your PEA (Plan d’Épargne en Actions) protects you from capital gains tax after five years, but only for French tax residents. Move to the Netherlands for work, and your PEA becomes a regular taxable account overnight, subject to this 36% unrealized gains tax. The Dutch system has no equivalent to the PEA’s tax-free growth.
2. Cross-Border Investment Traps: French investors using Dutch brokers or investing in Dutch funds could face unexpected tax consequences. The system taxes worldwide assets of Dutch residents, creating complex residency questions. One French expat in Amsterdam noted: “I had to choose between keeping my French assurance-vie (life insurance) contracts or facing Dutch taxation on their annual growth.”
3. A Preview of EU Trends: The Dutch experiment reflects broader European frustration with wealth inequality. Belgium already introduced a 10% tax on realized crypto gains this year. France has debated wealth tax reforms for years. If the Dutch system “works” (meaning: raises revenue without capital flight), other EU countries will study it closely.
4. The Assurance-Vie Alternative Looks Better: With Dutch stocks and bonds facing annual taxation, French assurance-vie contracts, with their tax-deferred growth and favorable inheritance treatment, become relatively more attractive for long-term European wealth building.
The Liquidity Problem No One’s Solving
The core flaw in taxing unrealized gains is the liquidity mismatch. Governments demand cash payment for paper profits. In volatile markets, this creates perverse incentives:
- Forced Selling: Investors must liquidate positions during market peaks to pay taxes, potentially missing further gains
- Debt Spiral: Some may borrow against portfolios, creating leverage risk
- Emigration Trigger: Wealthy individuals might relocate to countries with realization-based taxation
One Dutch FIRE (Financial Independence, Retire Early) blogger calculated that the new system could force investors to work nearly 4 extra years to reach the same retirement goal, because annual tax drag compounds dramatically over time.
The Silver Lining (If You Can Call It That)
Oddly, the system has one advantage: loss absorption. Since you don’t pay tax in losing years and can carry losses forward, the government acts as a “shock absorber” during market crashes. This reduces “sequence of returns risk”, the danger of retiring just before a market crash.
But this benefit only materializes if you stay invested through downturns. If you need to sell for a house purchase or emergency, unused loss carry-forwards vanish, and your effective tax rate can exceed 60%.
What Happens Next
The Dutch government must present a revised plan by September 2028. Many expect a shift to a traditional vermogenswinstbelasting (realized capital gains tax) by 2029, possibly at the same 36% rate but with loss carry-forwards and step-up in basis at death.
This uncertainty creates planning paralysis. Do you:
– Restructure into a BV (private limited company) to access different tax rules?
– Shift to pension investing to defer taxation?
– Emigrate to Belgium, where only realized gains are taxed at 10%?
– Accept the tax and adjust your SWR (safe withdrawal rate) downward?
For French investors, the lesson is clear: tax residency matters more than ever. The difference between French and Dutch tax treatment of the same portfolio could mean a 30% variation in after-tax returns.
The Broader Warning
The Dutch experiment reveals something unsettling: when governments need revenue and constitutional courts block easy fixes, they’ll resort to taxing economic fiction. First it was fictional returns. Now it’s unrealized gains. Next could be mark-to-market taxation of real estate, art, or private business valuations.
French investors have long enjoyed relatively stable tax rules around the PEA and assurance-vie. But as European tax harmonization pressures grow and deficits widen, the Dutch model offers a template for desperate finance ministers.
The question isn’t whether this affects you. It’s whether you’ll adapt before the tax authority sends its first bill for money you never actually made.
The Broader Warning
The Dutch experiment reveals something unsettling: when governments need revenue and constitutional courts block easy fixes, they’ll resort to taxing economic fiction. First it was fictional returns. Now it’s unrealized gains. Next could be mark-to-market taxation of real estate, art, or private business valuations.
French investors have long enjoyed relatively stable tax rules around the PEA and assurance-vie. But as European tax harmonization pressures grow and deficits widen, the Dutch model offers a template for desperate finance ministers.
The question isn’t whether this affects you. It’s whether you’ll adapt before the tax authority sends its first bill for money you never actually made.
Key Takeaways for French Investors:
– Residency planning: Moving to the Netherlands could cost you 36% annually on portfolio growth
– PEA vulnerability: Your French tax advantages disappear under Dutch rules
– Assurance-vie appeal: Tax-deferred growth looks increasingly attractive compared to annual wealth taxes
– Cross-border complexity: EU investment freedom doesn’t mean tax freedom
– Political risk: Constitutional courts can upend decades of tax policy overnight
If you’re considering European diversification, the Netherlands just became a cautionary tale, not an opportunity. Sometimes the best tax strategy is knowing which borders not to cross.
For more on how European tax changes affect French investors, see our analysis of unrealized gains tax implications for European investors and hedging strategies in tax-advantaged investment accounts. If you’re thinking about long-term wealth planning under high inheritance taxes, our guide on long-term wealth planning under high inheritance taxes offers practical alternatives. For those exploring life insurance as a tax-advantaged investment alternative, the comparison with Dutch policies is stark. Finally, understanding investor behavior under uncertain tax regimes and tax-efficient savings vehicles in uncertain fiscal environments has never been more critical.
