Dutch Tax Implications of investing in Dubai

TLDR: The main takeaways in a nutshell

• The right to taxation of Dubai property owned by Dutch tax residents lies with the UAE
  According to the tax treaty between the Netherlands and the UAE, the right to tax income from immovable property (such as real estate) rests with the country where the property is located. This means that Dubai property owned by Dutch residents is subject to taxation in the UAE, not the Netherlands.
  
  
• Dubai real estate must still be reported in Box 3 of the Dutch income tax return
  Even though the Netherlands may not tax the income from Dubai property, Dutch tax residents are still required to declare the property in their annual Dutch tax return under Box 3 (wealth tax). The property’s value is included in the overall asset base used for calculating the deemed return on investment.
  
  
• The Netherlands grants an exemption, but it is calculated through a complex formula
  Based on the double tax treaty and Dutch tax law, a reduction of the Box 3 tax must be granted for foreign real estate. However, this exemption is not simply a full write-off—it’s calculated proportionally based on the deemed return of the foreign property compared to the total deemed return, which can be intricate and highly dependent on one’s specific financial situation.
  
  
• The exemption leads to partial use of the Box 3 tax-free threshold
  Because Dubai real estate is included in the asset base before the exemption is applied, it affects how much of the tax-free threshold in Box 3 is considered "used." This can lead to less room for other assets to benefit from the threshold. In most cases, this effect is minor, but for larger investors it may be worth exploring investment through a BV (private limited company) instead.

‍

For centuries, Dutch traders have had a connection to the Persian Gulf. Back in those days the Dutch were already engaging with the Trucial States (now the UAE), seeking to control lucrative trade routes for spices, pearls, and other goods. Today, this historical link has taken on a new dimension as Dutch investors turn their attention to Dubai’s booming real estate sector.

With its tax-friendly policies, high rental yields, and world-class infrastructure, Dubai has become a prime destination for Dutch citizens looking to invest in property. However, navigating the tax implications—both in the UAE and the Netherlands—is crucial for making informed investment decisions.  

Dutch International Taxation 101

To fully understand the tax consequences of investing in Dubai real estate, it is vital to first understand the basics of Dutch taxation from an international perspective. There are two important questions that determine if and how an activity such as (investing in real estate) leads to Dutch taxation:

1. Does the Netherlands want to tax my activity (according to Dutch domestic tax law)?
2. Is the Netherlands allowed to tax my activity (according to double tax treaties or unilateral avoidance of double taxation)?

The first question is important because it determines whether the Netherlands will even want to tax the activity in the first place. For example: profit related to a fixed place of business abroad that is already subject to taxation there. For example a factory in Germany of a Dutch company.  

In the example below a Dutch BV has a factory in Germany. Based on Dutch domestic tax law, profits related to this factory will not be taxed. Without needing to refer to a double tax treaty, the Netherlands grants an exemption on these profits for the corporate income tax calculation of the BV.

Once it is established that the Netherlands intends to tax the activity, it may still be restricted by double tax treaties with other countries. The Netherlands has concluded around 100 double tax treaties to prevent double taxation. Therefore, the Netherlands may be prohibited from imposing taxation, even if it wants to. According to the Dutch constitution international treaties take precedence over domestic legislation, meaning domestic legislation must be disregarded if it conflicts with treaty provisions.

Example: A Dutch tax resident is employed by and working for a German company in Germany. In this case the Netherlands wants to tax the income from this activity, as all income of Dutch tax residents is included in the Dutch taxable base.. However, the Dutch-German double tax treaty grants the exclusive right of taxation to Germany, prohibiting the Netherlands from taxing it.

‍Tax Implications of Investing in Dubai Real Estate

What are the tax implications of investing in Dubai real estate from a Dutch tax perspective? To answer this question, the principles explained above will be applied to this scenario. For the following tax implications, it is assumed that the investor is a Dutch tax resident.. 

Does the Netherlands want to tax my activity

Firstly, it must be determined whether the Netherlands intends to tax this activity. In principle, the Netherlands levies tax on the ‘worldwide income’ of every Dutch tax resident. This means that taxation applies to all income received, including foreign income.

According to article 5.3 of the Wet Inkomstenbelasting 2001 (Wet IB/Personal Income Tax Act) the Netherlands want to tax assets such as real estate. Such assets are taxed in ‘Box 3’ of the Dutch Income Tax system, which is the ‘wealth tax box’. In Box 3 income from (non-savings)assets is taxed at 36% based on a deemed return on investment (ROI) (in 2025: 5,88%). 

When investing in Dubai real estate, the acquired real estate is included in the Dutch wealth taxation. A deemed ROI of 5,88% is taxed against 36%. Thus, the Netherlands wants to tax the income derived from real estate, regardless of its location abroad. This means the first question is answered affirmatively. 

Is the Netherlands allowed to tax Dubai real estate?

Now it is established the Netherlands wants to tax the Dutch tax resident investing in Dubai real estate, the question is whether it is allowed to do so. 

In international taxation, the ‘situs principle’ applies, meaning the right to tax is almost always exclusively granted to the country where the real estate is located.

To determine whether this principle applies to a Dutch tax resident investing in Dubai real estate, we must assess whether the double tax treaty between the Netherlands and the UAE applies.Article 6 of the double tax treaty between the Netherlands and the UAE states the following:

“Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.”

Put simply this means that if a Dutch tax resident derives income from (immovable) property in the UAE (the other state), that income may be taxed in the UAE (the other state). This however does not directly mean that the Netherlands is not allowed to tax the real estate as well. To avoid this possibility of double taxation, the double tax treaty with the UAE states in article 22, paragraph 2:

“However, where a resident of the Netherlands derives items of income which according to Article 6, […] of this Convention may be taxed in the United Arab Emirates and are included in the basis referred to in paragraph 1, the Netherlands shall exempt such items of income by allowing a reduction of its tax. 

In plain language, this means that because income from Dubai real estate may be taxed by the UAE, the Netherlands has to grant an exemption for Dutch tax residents. Even though the Netherlands wants to tax the worldwide income of its tax resident, including the income from Dubai real estate, the double tax treaty with the UAE prohibits the Netherlands from levying tax on Dubai real estate. 

How is double taxation avoided?

Based on the double tax treaty with the UAE, the Netherlands is not allowed to tax income derived from Dubai real estate. So, what does this mean for the Dutch tax situation? The above-mentioned way to avoid double taxation as included in the double tax treaty with the UAE results in a fairly complicated formula, and the outcome is very dependent on your personal tax situation.

This can be illustrated with the following example:

Walter is a Dutch tax resident and owns property in Dubai. This property is included in his Dutch wealth taxation, Box 3. The value of the property on the Dutch wealth tax (Box 3) reference date (January 1^st 2025) is € 200,000. For the acquisition of the property, Walter took out a loan of € 100,000. In addition Walter has € 50,000 in savings and a crypto fund worth € 300,000. Walter also has a student loan of € 100,000 (he had a wonderful time studying). 

The taxable base for the Box 3 calculation is (according to article 5.3 Wet IB 2001) the net amount of all assets and debts: € 350,000. However, according to articles 5.2 and 5.5 Wet IB 2001 the deemed ROI is based on the taxable base exceeding the tax free threshold of € 57,684 (2025), thus in this case € 292,316 (all assets offset against all debts exceeding the threshold).

Based on article 5.2, paragraph 2, Wet IB 2001, the deemed ROI for the different categories is:

• € 460 (€ 50,000 x 0.92%) for his savings account 
• € 29,400 (€ 500,000 x 5.88%) for the property in Dubai and his crypto fund
• -/-€ 4,920 (€ 200,000 x 2.46%) for both the loans.

The total accumulates to a deemed ROI of € 24,940. The effective deemed ROI percentage is therefore 7.13% (€ 24,940 / € 350,000 x 100%). 

Application of this percentage to the total taxable base (assets -/- debts exceeding the threshold) leads to an overall deemed ROI of € 20,842 (7.13% x € 292,316).

This is taxed at 36%, amounting to € 7,503 (€ 20,842 x 36%).  

However, based on the double tax treaty with the UAE, the income from the Dubai property is not taxable in the Netherlands. The exemption is calculated according to article 24 of the Besluit voorkoming dubbele Belastingen (BvdB/Prevention of double taxation resolution). 

Based on this complex exemption, the percentage of deemed ROI for foreign real estate and debts of the total deemed ROI has to be calculated. This percentage is then multiplied by the total box 3 tax. 

The deemed ROI for the Dubai real estate is € 9,300 ((€ 200,000 x 5.88%) -/- € 2,460 (€ 100,000 x 2.46%)).

The percentage of deemed ROI for Dubai real estate compared to the total deemed ROI is 37.29% (€ 9,300 / € 24,940 x 100). 

The percentage deemed ROI attributable to the Dubai real estate is then multiplied by the total Box 3 tax, which amounts to € 2,798 (37.29% x € 7,503). 

The total Box 3 tax on after the exemption for Dubai real estate is € 4,705 (€ 7,503 -/- € 2,798)

The exemption in the example above will be granted whether or not the UAE taxes your investment. ‍

Conclusion

In conclusion, if you plan to invest into Dubai real estate, the right to taxation belongs to the UAE, no question about it. However, the way the Netherlands calculates the exemption it must grant is extremely complex and can vary based on your specific situation. 

Due to the way the exemption is calculated, investing in foreign real estate will lead to a ‘partial use’ of the tax-free threshold in Box 3. Often this is not an important factor, as the threshold will be exceeded in a domestic situation as well. If this is a potential issue, investing through a corporate legal entity (BV) might be a better alternative!

Do you want to know more about your investment opportunities in Dubai and the tax implications? Alexander Blom and the tax lawyers of Port Sight Tax are at your service!