The Netherlands’ Unrealized Gains Tax: What It Means for Startups and Innovation
The Netherlands has passed legislation to tax unrealized investment gains at 36% annually, a policy virtually no other country on Earth implements, but the actual impact on startups is far more nuanced than headlines suggest. Founders holding 5% or more of their companies are entirely unaffected, as they fall under a separate tax regime. Angel investors in qualifying startups also receive an exemption. The real risk lies in the broader signal this sends to mobile capital in a Europe already struggling to compete with the United States for venture investment.
The bill passed the Dutch House of Representatives on February 12, 2026, awaits Senate approval, and is set to take effect January 1, 2028, though the new governing coalition has already committed to eventually replacing it with a realized-gains-only system.
How the Dutch Box 3 reform actually works
The Netherlands taxes personal income through three separate "boxes." Box 1 covers employment income (up to 49.5%). Box 2 covers substantial business interests (anyone holding 5% or more of a company's shares) taxed at 24.5% on the first €68,843 and 31% above that, only on realized income. Box 3 covers savings and investments for everyone else.
For decades, Box 3 operated on a fiction: the government assumed all taxpayers earned the same percentage return on their wealth and taxed that assumed return at a flat rate, regardless of actual performance. On December 24, 2021, the Dutch Supreme Court's landmark "Christmas ruling" declared this system a violation of the European Convention on Human Rights. Savers earning near-zero interest were being taxed as if they'd earned 5–6% returns. The court ordered taxation based on actual returns — and the legislature has spent four years trying to comply.
The resulting law, the Wet werkelijk rendement box 3, introduces a two-track system. The default track — the vermogensaanwasbelasting (capital growth tax) — requires annual mark-to-market valuation of assets including listed stocks, bonds, and cryptocurrencies, with unrealized appreciation taxed at 36% each year. If your portfolio rises by €10,000 on paper, you owe €3,600 in tax — even if you sold nothing. A survey by the Dutch Association of Tax Advisors found that none of 12 comparable countries uses a capital growth tax of this kind.
The second track, the vermogenswinstbelasting (capital gains tax), applies to real estate and qualifying startup shares, taxing value changes only upon realization (sale, gift, emigration, or death). Annual income like dividends and rent is still taxed yearly. The new system replaces the old €57,684 per-person tax-free capital threshold with a €1,800 tax-free annual return, meaning roughly 400,000 additional taxpayers will need to file. Losses can be carried forward indefinitely, provided they exceed €500, offering a critical safeguard for volatile investments.
The legislation passed the Tweede Kamer on February 12, 2026, with 93 out of 150 votes. It awaits Eerste Kamer (Senate) approval, where the supporting parties also hold a majority. Each year of delay costs the treasury an estimated €2.3–2.4 billion in lost revenue, creating intense pressure to implement.
Why startup founders and angels are largely shielded, for now
The headline "Netherlands taxes unrealized gains" masks a critical structural distinction that most commentary overlooks. Startup founders are overwhelmingly taxed under Box 2, not Box 3. Any individual holding 5% or more of a company's shares falls into Box 2's aanmerkelijk belang (substantial interest) regime, which taxes only dividends received and capital gains upon sale. A founder who raises at a billion-dollar valuation but holds illiquid equity owes zero tax on that paper appreciation. This has not changed.
Angel investors holding less than 5% in qualifying startups receive a specific carve-out within Box 3. Companies must be incorporated no more than five years ago, have annual revenue below €30 million, and not be more than 25% owned by a non-startup business. Investments meeting these criteria receive capital gains treatment: of tax only upon realization. The Techleap-commissioned Archipel Tax Advice report of October 2023 was instrumental in securing this exemption, using case studies of known Dutch tech companies to demonstrate the problem.
Employee stock options received a separate, significant reform effective January 1, 2027. The taxable base drops to 65% of the gain, yielding an effective maximum rate of approximately 32.17%, which is roughly comparable to Box 2's top rate of 31%. Crucially, taxation is deferred until actual sale of shares, not exercise or vesting. An international benchmarking study found the Netherlands had ranked 22nd out of 25 countries in attractiveness of employee equity schemes, and Techleap's Thomas Vrolijk called the reform something "we have been pushing for a lot of years."
The asymmetry problem, where VCs diversify across portfolios but founders concentrate in a single company, is therefore substantially mitigated in the Dutch context. Founders are in Box 2 (no unrealized gains tax), angels in qualifying startups get capital gains treatment, and employees benefit from the new ESOP regime. But the protection has limits. When a startup outgrows the exemption criteria, exceeding five years of age or €30 million in revenue, a deemed sale is triggered, and small shareholders shift to the capital growth tax regime. This "cliff" creates perverse incentives. An original proposal to extend capital gains treatment to family business shares was dropped due to EU state aid concerns, though Parliament has mandated the government to revisit this by 2029.
The real concern is the signal
If the direct statutory impact on startups is limited, why has Shopify CEO Tobi Lütke called this "the dumbest policy being pursued by any government on this planet"? Because the indirect and signaling effects matter enormously in a mobile-capital world.
Venture capital fund structures face genuine complexity. Individual LP interests in transparent VC funds (cooperatives or commanditaire vennootschappen) are "looked through" to underlying assets. If those assets don't qualify for the startup exemption, LPs face annual unrealized gains taxation at 36%. The carried interest regime for fund managers is simultaneously being aligned upward to a 36% rate, up from potentially lower Box 2 rates. Dutch tax advisors at Meijburg/KPMG have warned the capital growth tax "is internationally divergent and may encourage high-net worth individuals to emigrate for tax reasons."
The broader investor psychology matters. The Netherlands ranked 5th in European VC funding in 2025 with $3.4 billion deployed. Tax advisory firms report emigration inquiries rising sharply, with Dubai, Singapore, Portugal, and Andorra cited as popular destinations. While the Netherlands imposes exit taxes upon emigration, these can be deferred over 12 years in some circumstances. VNO-NCW, the country's largest business lobby, pushed hard for the new coalition's commitment to eventually scrap unrealized gains taxation, describing the shift as essential to "promote long-term investments."
The political response has been telling. A parliamentary majority, including parties that voted for the bill, passed motions requiring the government to present a realized-gains-only alternative by Budget Day 2028, before the unrealized gains system has even been fully implemented. The new D66/VVD/CDA coalition's January 2026 agreement explicitly states the intention to convert Box 3 to a pure capital gains tax. State Secretary Eugène Heijnen called the current bill "an intermediate step." The system was born not of policy conviction but constitutional necessity; the Supreme Court demanded actual-returns taxation, and a mark-to-market system was the only design the tax authority could implement by 2028.
Three decades of European wealth tax failures tell a consistent story
The Netherlands' experiment arrives against a backdrop of European countries systematically abandoning similar approaches. Of 12 OECD countries that levied net wealth taxes in 1990, only four remain: Norway, Spain, Switzerland, and Colombia. The pattern of adoption and repeal is remarkably consistent.
Norway offers the most direct contemporary parallel. After the Labour-Centre coalition increased wealth tax rates in 2022, creating a two-bracket system of 1.0% and 1.1%, an exodus followed. Civita, a Norwegian think tank, documented 261 wealthy residents leaving in 2022 and 254 in 2023, more than double pre-increase levels. Fredrik Haga, co-founder of blockchain analytics firm Dune, became a widely cited case: after raising $80 million in VC, he faced wealth tax bills "many times larger than his after-tax income" despite earning approximately $50,000 in salary. He moved to Switzerland. Norway tightened its exit tax in 2024, eliminating a five-year deferral loophole and imposing 37.8% on unrealized gains above NOK 3 million, a measure Bloomberg warned could "trigger a wave of departures by startup founders."
Sweden provides the most dramatic cautionary tale. Its wealth tax, introduced in 1911, reached marginal rates of 4% in the 1980s. The result was catastrophic capital flight: the Swedish Tax Authority estimated more than SEK 500 billion in illicitly transferred offshore assets. IKEA founder Ingvar Kamprad left for Denmark in 1973 and then Switzerland in 1976, spending over 40 years abroad. Tetra Pak founder Ruben Rausing similarly emigrated. Sweden abolished its wealth tax in 2007. The aftermath was striking: approximately 4,000 wealthy Swedes returned, and the country experienced an entrepreneurial renaissance that produced Spotify, Klarna, and one of the world's highest ratios of dollar billionaires per capita. A major NBER study using Swedish administrative data found the repeal reduced wealthy out-migration by approximately 30%, with entrepreneurs showing even larger migration responses.
France tells a similar story on a larger scale. The ISF (Impôt de solidarité sur la fortune), levied from 1982 to 2017, drove an estimated 60,000 millionaires out of the country between 2000 and 2017, with capital flight of roughly €200 billion since 1988, dragging GDP growth down an estimated 0.2% annually. President Macron replaced the ISF with the IFI (Impôt sur la Fortune Immobilière) in 2018, taxing only real estate wealth, explicitly to "incentivize risk-taking over rent-seeking." Revenue losses were minimal; the ISF had generated only 1.5% of total French tax receipts despite enormous enforcement costs and economic distortion.
Europe's startup funding crisis makes this timing especially problematic
The Netherlands' move arrives at a precarious moment for European venture capital. European startups raised $51 billion in 2024, barely 16% of global VC and far below the $117 billion peak of 2021. Through Q3 2025, European VC firms raised only €8.3 billion in new funds, on track for the lowest GP fundraising total in a decade. Median European startup valuations run at roughly 0.45× US levels according to Equidam analysis, with founders giving up more equity for less capital. Without AI mega-rounds, European venture deal value actually declined in 2025.
The contrast with competitor nations' tax policies is stark. The United Kingdom's SEIS and EIS schemes offer 50% and 30% income tax relief respectively on startup investments, with capital gains exemption after three years. Over 90% of all UK angel investments flow through these schemes, which have channeled more than £1.5 billion into 15,000+ startups since 2012. France offers up to 50% income tax deductions for investments in qualifying innovative startups under its 2024 JEIR program. Germany's INVEST program reimburses business angels 20–25% of their investment tax-free and has mobilized approximately €1.4 billion in venture capital since 2013. Italy offers up to 65% tax deductions for individual investments in innovative startups. Estonia charges 0% corporate tax on retained earnings.
Mario Draghi's September 2024 competitiveness report called the innovation gap an "existential challenge" for Europe, noting that roughly 30% of European unicorns relocated their headquarters abroad between 2008 and 2021, predominantly to the United States. The report called for €800 billion in annual investment and warned that Europe is "failing to translate innovation into commercialisation." Nobel laureate Philippe Aghion cautioned that wealth taxation "risks penalising entrepreneurship and weakening high-growth start-ups." By September 2025, only 11.2% of Draghi's 383 recommendations had been fully implemented.
What academic research shows about taxing wealth and innovation
The academic evidence is more nuanced than either side of the political debate acknowledges. The strongest empirical work (a NBER study by Jakobsen, Kleven, Kolsrud, Landais, and Muñoz using Swedish administrative data) confirms that wealthy migration responses to wealth taxation are real and statistically significant, with entrepreneurs showing larger elasticities than the general wealthy population.
However, a separate line of NBER research by Guvenen, Kambourov, Kuruscu, and Ocampo reaches a counterintuitive conclusion: a revenue-neutral shift from capital income taxation to wealth taxation could deliver welfare gains of approximately 7.5% by shifting the tax burden toward unproductive capital holders and allowing productive entrepreneurs to retain more wealth. Their 2024 extension found that with endogenous innovation, wealth taxes can actually incentivize more entrepreneurial effort compared to capital income taxes. A 2025 NBER paper using comprehensive US venture capital data found that moving from realization-based to accrual-based taxation would reduce founder ownership at exit by 25% on average — but would increase the fraction of founders receiving positive payoffs from 16% to 47% through an insurance effect, as tax credits on down rounds partially offset the cost.
The tension between these findings reflects a fundamental design question. Switzerland is often cited as proof that wealth taxation can coexist with entrepreneurial dynamism, but the Swiss model is structurally different from what the Netherlands is implementing. Switzerland levies no capital gains tax on private investors' sales of stocks, bonds, or crypto. Its wealth tax is an annual levy on the total stock of net wealth at rates ranging from approximately 0.05% to 0.88% depending on canton, not on the annual change in value. Unrealized appreciation is captured only indirectly: assets must be declared at market value each December 31, so a portfolio that has risen in value increases the wealth tax base, but the tax itself is a fraction of a percent of the total holding, not 36% of the year's gain. Switzerland generates 1.16% of GDP in wealth tax revenue, the highest among wealth-taxing countries, while maintaining its status as a destination for global talent and capital. A founder whose startup equity doubles in value in a Swiss canton faces a wealth tax increase measured in basis points; a Dutch investor in the same position under the new Box 3 regime faces a 36% tax on the entire year's paper appreciation. The distinction between taxing the stock of wealth at a low rate and taxing the annual flow of unrealized appreciation at income-tax rates matters enormously for incentive structures.
Conclusion
The Dutch Box 3 reform is simultaneously less alarming and more concerning than it appears. Less alarming because startup founders, qualifying angel investors, and employees receiving equity compensation are all substantially shielded through Box 2, the startup exemption, and the 2027 ESOP reform. More concerning because the 36% annual tax on unrealized gains for all other investment assets is genuinely unprecedented globally, and the historical record from Norway, Sweden, and France demonstrates that capital responds to tax signals with geographic mobility.
Three insights emerge from this analysis.
First, the law was born of constitutional necessity, not policy enthusiasm, even its parliamentary supporters voted for motions demanding its replacement by 2028. The political trajectory points toward an eventual pure capital gains system, making the unrealized gains regime potentially temporary.
Second, Europe's competitive position in venture capital is deteriorating, and the Netherlands' move runs directly counter to the trend in the UK, France, Germany, and Italy, all of which are expanding startup investment incentives.
Third, the academic evidence suggests design details matter more than the binary question of whether to tax wealth. Switzerland's low-rate, broad-base model coexists with thriving entrepreneurship; Sweden's high-rate model drove decades of capital flight before its repeal sparked an innovation renaissance. The Netherlands has chosen to occupy an extreme end of this design spectrum (36% on annual unrealized appreciation) while simultaneously building in exemptions that acknowledge the damage such a rate would inflict on the startup ecosystem.
Whether the exemptions hold, and whether the promised transition to realized-gains taxation materializes before significant capital departs, will determine whether this episode becomes another chapter in Europe's long history of wealth tax failures or a genuinely novel approach to taxing investment returns.