The Netherlands: consultation on real estate transfer tax

Following a consultation on changes to the application of real estate transfer tax (RETT) and VAT to share based real estate transactions, the Dutch government has presented revised proposals which will both limit the scope of the rules, introduce transitional provisions and defer the date of implementation until 1 January 2025.

Consultation

Under current Dutch legislation, it is possible to transfer new real estate through a share transaction in such a way that neither VAT nor real estate transfer tax (RETT) is due. This structure is of particular interest for buyers of new real estate who are unable to deduct input VAT - and for whom that VAT constitutes a cost – such as, landlords of homes, educational institutions, pension funds, insurance companies and healthcare providers.

According to the Dutch Government, the starting point is that VAT should be due when new real estate is being transferred and to combat this ‘scheme’, draft legislation has been drawn up. The proposed approach is to amend the exemption in the RETT in such a way that the acquisition of new immovable property through shares is no longer exempt from RETT. This means that when a sufficiently large shareholding in a real estate legal entity is acquired (at least one third), RETT is levied at the rate of 10.4%.

Implementation of this new legislation was proposed for 1 January 2024. The proceeds of this measure have been provisionally estimated at €155m. However, before implementing the draft legislation, the Dutch Ministry of Finance carried out a consultation on the proposals which was open until Monday 27 March 2023.

Consultation update

Following the consultation, the Dutch government laid down amendments to the draft legislation. In order to prevent the new legislation operating too widely, which was broadly recognised during the consultation, the government proposes that the exception to the exemption that prevents the overlap of Dutch VAT and RETT should not always apply. Under the amendments, the exception will not apply, and the exemption will therefore remain available on acquisitions within two years after the immovable property has been taken into first use, if the immovable property in question is used to the extent of 90% or more to make VAT taxable transactions. In these cases, there is no tax-saving construction that must be combated. The Bill is not intended to create an additional transfer tax levy in these situations so that the aforementioned concurrency exemption can apply in those cases.

Moreover the new Bill provides for the levying of RETT on real estate share transactions that relate to real estate where the use is more than 10% for VAT-exempt activities. In order to prevent the Bill levying excessive amounts of VAT and RETT on new real estate intended for VAT-exempt use, the government proposes to set the applicable RETT rate for this situation at a maximum of 4%. In this way, the government expects the cumulative tax burden for many transactions to amount to about 21% (in the preliminary phase, tax has already been paid in the form of non-deductible VAT). This corresponds to the VAT rate of 21% that is levied on new real estate where there is a transfer of the building itself instead of a share transaction.

In addition, based on the strong feedback from the “market”, the government will include transitional provisions in the Bill in relation to current projects. These transitional provisions will be based on the time of submission of the new Bill. The transitional provisions will cover projects for which agreements have been concluded/signed at that time, provided that the acquisition is completed before 1 January 2030.

The details of the Bill are now being finalised and, since the Bill forms part of the Tax Plan 2024, it will therefore be submitted on Budget Day. The intended date of entry into force of the proposed has now been put back to 1 January 2025.