Professional Oath

On April 23th José took a Professional Oath for Financial Consultants:

I solemnly swear/promise,
That I shall faithfully discharge my duties to the best of my knowledge.
That I shall carefully consider all the interests involved in the company, including those of the clients, shareholders, employees and the society in which the company operates.
That in considering matters,  I shall focus attention on the clients’ interests informing them to the best of my knowledge and ability.
That I shall observe the laws, regulations and codes of conduct that apply to me.
That I shall maintain secrecy concerning the information entrusted to me.
That I shall never improperly use the knowledge that I have.
That I shall adopt a transparent and verifiable attitude and I that am well familiar with my social responsibility.
That I shall invest best efforts to protect and promote faith in the financial sector.
So help me God!

Official Document: Professional Oath

Leasehold

There are quite a few houses in Holland which are built on land leased from a third part owner. These are called ‘leasehold properties’ and bring certain rights to the land and the property itself. Instead of owning the land, you are in effect renting it. The difference between renting a home and renting the land (leasehold) on which it stands is that this right is transferable and one can establish a mortgage right with respect to it. This type of lease does not end when the lessor (the land owner) dies, nor can the lessor terminate the leasehold without the consent of the lessee (ie the tenant). The lessee therefore holds real property rights from a financial point of view. This means that the lessee has building rights and also the right to sell the leasehold property. The lessee pays the land owner (lessor) an annual fee, called the ‘canon’ which these days is quite often paid in advance for the duration of the leasehold. In bygone days, a canon was often symbolic, paid simply in order to formally register the lessor’s ownership of the land.

In case of perpetual leasehold, the lease is normally granted for periods of 50 or 99 years. Leasehold is an ancient concept, and has an agricultural background. As early as in ancient Egypt, land was issued leasehold for the farmers to work on. The Romans too used the leasehold concept so as to levy additional tax. In Holland it has also been known for centuries; but in more recent history, several municipalities started working with the leasehold concept in order to be able to influence the planning and housing development of their town. Amsterdam, in the 15th century, was the first city to issue leasehold plots, and in a more structured way, since 1896. By leasing out land rather than selling it outright, it enabled (and still enables) the municipalities to enjoy the appreciation in land value. In practice, the lease is renewable at the end of the leasehold term, but the lessor has the right to demand a reappraisal which usually results in a higher canon. In so doing, municipalities can profit from the appreciation in the value of the land. Because of this, some private landowners/developers have adopted the leasehold concept when developing and selling property. Private leasehold is, however, somewhat controversial in the current market, since banks are reluctant to give mortgage loans on privately held leasehold property. This is because the system is inadequately monitored. Ironically, though, home owners whose leasehold is held by their municipality arealso equally uneasy about their landlords. Nevertheless, the banks differentiate between these two groups when it comes to the granting of mortgages on the property.

One of the few good points about leasehold is that the periodic payment for the leasehold, the canon, is tax deductible. And a property built on leasehold land is often (but not always!) cheaper than a property that is not. The disadvantage however is that the annual canon is an additional recurring cost on top of mortgage payments. Regretfully, though, if you decide to pay off (ie surrender) the canon for the leasehold in perpetuity, the amount you pay to that effect is not tax-deductible. However, increasing your mortgage in order to finance the surrender of the leasehold, does at least enable you to deduct the interest payments on the mortgage increase. Generally speaking it is cheaper in the long run to own a property with land owned outright rather than to own a leasehold property.

For this reason it may be worth your while to pay off the leasehold in perpetuity.

Very often it is possible to pay off the leasehold for its term or better still, to acquire full ownership of the land. Whether or not this makes sense depends on the circumstances and I would urge everyone to seek advice first. But the possible advantages are clear since:

  • one is no longer dependent upon the whims of the municipality or the private land owner
  • it is much easier to get a mortgage (especially in the case of private leasehold!)
  • it is easier to sell your property, since the new owner will face fewer uncertainties (and, of course, it is easier for the buyer to get a mortgage)

Most municipalities in The Netherlands are gradually abolishing their system of leaseholds. However, Amsterdam is sticking to its guns and is still issuing new leaseholds. More than 80% of Amsterdam land is owned by the municipality and is thereby earning Amsterdam roughly €50 million per year. Strangely enough, there is virtually no monitoring, either by legal organisations or by the Financial Authorities (AFM) of this leasehold market. And it is also remarkable that the tax authorities, for their determination of the value (WOZ) for municipal taxes etc., do not differentiate between a leasehold property or one where the land is actually fully owned.

Thus there are plenty of reasons to seek advice before buying a leasehold property. And should you already be the proud owner of a leasehold property, from a financial point of view it does not hurt to find what your options are…..

 

The Dutch Tax System

 

In this article, I will attempt  to explain the Dutch Tax System as briefly as possible. I realize that this is not a subject dear to anyone’s heart (except possibly the tax inspectors!), but if you are living and working in The Netherlands, it is something that probably affects you and so it may make sense to have some understanding of it.

The Dutch Tax System is split into three so called ’Boxes’ each related to three different types of taxable income. Each Box has its own rules and rates. Your income or assets will be taxed in one, two or possibly all three of these boxes. This does not necessarily apply if you are working for an international organization and are enjoying a tax free income.  If you fall into this category, you should ask your employer to clarify your liability or otherwise for Dutch tax.  And for those of you who have the benefit of a 30% ruling, Box 3 does not apply (yet).

Box 1 concerns income from work (labour) and the value of your principal residence (ie your own home).

 A progressive rate applies. The higher your income, the more tax you pay. Below are the rates that apply for 2010.

 

Rates up to age 65
  Income

Up to

Amount of tax

Tax rate

18.218

33,45%

18.218

32.738

6.093

41,95%

32.738

54.367

11.184

42,0%

54.367

21.268

52,0%

 

Rates for ages 65+

Income

Up to

Amount ot tax

Tax rate

18.218

15,55%

18.218

32.738

2.832

24,05%

32.738

54.367

6.324

42,0%

54.367

15.408

52,0%

 

In Box I you may deduct certain costs from your taxable income. Mortgage interest payments and also certain costs for obtaining a mortgage are deductible.  So are premiums for future income, such as pension and annuities. There are some other deductions possible, but only income and deductions related to working and owning a home are explained in this article.

So in Box I, tax is levied on income from one’s own company, salary from employment or freelance employment. But also included are pensions, social security benefits, partner alimony and income from annuities.

If you own your own home, you will have to pay tax on the so-called “eigenwoningforfait”. This is fictitious income and it is calculated by taking a percentage of the so called WOZ-value of your home, the WOZ value being the value that the municipality (gemeente) of your town has put on your home. As already mentioned, mortgage interest payments for your principal residence are tax deductible, though this deduction is limited for a maximum of 30 years. The tax deductibility of your mortgage interest payments may be affected if you have made a capital gain (profit) on the sale of your previous home if this took place after 1st January 2004. Your financial advisor can calculate for you how much of your mortgage interest is still tax deductible.

Box 2 concerns income from a limited company (a so-called B.V or N.V.) is taxed. This applies if you have a substantial interest in this B.V. or N.V.

You are considered to have a substantial interest in a B.V. or N.V. if you, possibly together with your partner, own at least 5% of the shares or have options to acquire at least 5% of the shares. Any income you receive from this company will be taxed at a rate of 25%.

Box 3 concerns Wealth (Assets)

In Box 3 your World-wide assets are taxed. These include stocks, shares, bonds, savings accounts etc that you possess, wherever they may be held or deposited. Tax is levied on the total value of your assets over and above a so-called exemption limit. This currently € 20.661 per person, and thus twice this amount for couples (if you are tax partners). Your children’s savings or assets are part of your assets from a tax point of view for as long as they are minors. Again, if you have the benefit of 30% ruling you are not required to pay tax in this Box for the duration of your 30% ruling. Your principal home (the house that you live in) is not taxed in this Box, since it is taxed already in Box 1. To calculate your taxable assets is simple: it is the sum of all your assets (excluding your principal home), minus any debts you have. The mortgage for your principal home cannot be used to reduce your taxable wealth, since this also belongs in Box 1.  The tax rate for Box 3 is 1,2% of the total value of your assets over and above the exemption limits above, minus your debts.

For example: if you own a second home, tax is calculated on the so-called WOZ value of this home, minus a possible mortgage or other loan you may have.  Any surplus value, if it exceeds the exemption, is subsequently taxed at 1,2% per year. However, if this home, not being your principal residence, is outside the Netherlands, other tax rules and exemptions may apply, especially if The Netherlands has a double taxation agreement treaty with the country concerned (thus ensuring that you are not taxed twice on the same assets).

This articles aims to give you some idea of the Dutch Tax System. If you have any questions, you should contact a financial advisor or a tax advisor.

Start Over, Finish Rich

 

I recently “listened” to a book with this title. I like to listen to audio books whilst I am driving– or   rather not driving, often being stuck in traffic. Anyway, I would like to recommend this book to everyone. It is written by David Bach and is an absolute bestseller in the US. Although a lot of David Bach’s tips are very US-oriented (like the 10-step plan to improve your credit score), we can use most of his advice worldwide here and now.

The bottom line of David’s powerful message is this:

Most of us have suffered a financial hit during the recession. Although here in Holland we’ve not been hit as hard as in the US, the housing market has not exactly blossomed during the past year. Some of us have lost our jobs and many of us have lost part of our savings  to banks like Icesave or DSB. Many stocks will have fallen in value, along with most pension plans and many mortgage savings accounts. All of these are related in one way or another to the stock market. So I think it is safe to assume that very few of us have really become richer these last two years. And although this may have discouraged people from saving or investing more money at this point in time, David’s message is that there has never been a better time to do so than now! His slogan is: Recessions Make Millionaires.

The reasoning behind this is as follows

  1. Houses are cheap at the moment (not as cheap here as in the US, but certainly not over priced at the moment).
  2. Home owners who are selling at the moment are very motivated to negotiate.
  3. Interest rates are low.
  4. Stock markets are low, a great time to get in.

“But”, many of us will say “it is hard enough to make ends meet, let alone having any money left to save or invest”. Well, here is David’s secret: “The Latte Factor®”.  The Latte Factor® is based on the idea that all you need to do to get rich is to look at the little things you spend your money on every day. This could be a Latte on your way to work (koffie verkeerd in Dutch), your daily packet of cigarettes, fast food etc. Most of us just do not realize how much we spend on these little purchases every day. If you are able to change some of your daily habits, such as taking sandwiches to work, stopping  smoking , taking public transport instead of a taxi etc. whilst  keeping track of what you are saving and  setting this aside, you will find that this can really make a difference to your future wealth.

You can start tomorrow by downloading the Latte Factor®  Calculator on your I-pod or simply copying it into a note book. Track your expenses for a week or even a month. Use any money you have saved at the end of the month  first of all to repay your credit card debts or other credit facilities. Once these are repaid, you can start saving cash in a special savings or investment account or alternatively  add to your pension plan. I recommend you begin today by checking out David Bach’s website: finishrich.com/lattefactor. Give it a try!

How sure is insurance?

According to Wikipedia, Insurance, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. This  can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss.

Insurance is as old as the appearance of human society. Initially insurance would be in the form of people helping each other. If for instance a house burned down, the neighbours would help to build one. And should a neighbour not be willing to help, he or she would not receive help in the future! Continue reading How sure is insurance?