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Save Tax While Skiing

Freemont Group
03 December, 2013

Next to skiing, hiking and opera, Dutch residents have an additional reason to love Austria: They can save a lot of money by purchasing a property there.

This is how a tax treaty can be used in their favor:

Dutch inheritance legislation is based on the rule that the heirs of a deceased person (decedent) who, at the time of his death, was resident of The Netherlands, are in principle taxed on all worldwide assets of the testator in The Netherlands.

The inheritance tax varies between 10 % and 40 %, depending on the degree of relationship between the deceased and the heirs (Article 24 Inheritance Law).

Based on the Article 3 paragraph 1 of the Inheritance Law, even if the deceased person at the time of his death was no longer resident of the Netherlands, the inheritance tax may be payable in the Netherlands. The tax duty does not apply only if the decedent was not a Dutch resident for longer than ten year prior to his death.

Luckily there are exceptions to these basic rules, often defined in bilateral tax treaties to avoid double taxation. Treaties, that The Netherlands concluded with other countries. In the field of inheritance and gift tax, the number of treaties is relatively small. One of them was concluded in November 2001 (Treaty Series 2002/27) between The Netherlands and Austria.

Under Article 5 of the said Treaty, real estate property located in Austria and owned by deceased Dutch residents, is being taxed by the Austrian inheritance tax. But in 2008, the inheritance tax in Austria was abolished. This leaves all Austrian houses and apartments belonging to Dutch decedents untaxed!

A simple calculation example to clarify the situation: A Dutch resident who owns a second home in the Alps, a house valued at EUR 500,000, dies leaving two children (=heirs) behind. The tax saving here represents 20% of the value of the property = EUR 100,000. (Should this house be located in The Netherlands, the children would owe EUR 100,000 on inheritance tax).

And it is getting better: Exactly the same rules apply to gift tax. Currently, based on the aforementioned Article 5, the donation of such an Austrian located property e.g. to the children of a Dutch resident, remains untouched by the gift tax as well.

For Dutch residents, an investment in an Austrian property can be used as a powerful estate planning tool.

All while skiing and enjoying the beautiful mountains and operas.

Tags: Law

About the Author

Freemont Group

Freemont Group is a comprehensive provider of fiduciary services, including corporate formation and administration, trust, fund formation, legal-and tax services. Contact: info@freemontgroup.com


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