Dutch Spring Memorandum 2023: Proposed Real Estate Tax Measures

On 28 April 2023, the Dutch Ministry of Finance presented the 2023 Spring Memorandum. In this Memorandum, several tax proposals were announced that are highly relevant for Dutch real estate entities. Below, we have summarised these proposals.

Tightening of the earnings stripping rule

Under the Dutch earnings stripping rule the deductibility of net interest expenses is limited to the higher of EUR 1 million or 20% of the taxpayer’s tax EBITDA. This general interest deduction limitation rule applies to both related and unrelated party debt, fees related to attracting such debts, as well as foreign exchange results.

As the government noticed that real estate entrepreneurs are commonly seeking to optimise interest deductibility possibilities by splitting their investments into multiple companies, each of which would be eligible to apply the EUR 1 million threshold, the government intends to exclude ‘real estate companies that lease out real estate (to third parties)’ from making use of the threshold as of 1 January 2025. In practice, this is expected to result in a substantial further restriction of the deductibility of interest on shareholder and third-party debt attracted by in scope real estate companies, given that such companies typically rely on the EUR 1 million threshold.

Abolishment of the RETT exemption for the acquisition of shares in companies that hold “newly built” real estate

The real estate transfer tax (“RETT”) exemption for the purchase of shares in companies that hold “newly built” real estate was abolished in a legislative proposal which was released for public consultation earlier this year (please see our previous alert for more information). The consultation period ended on 27 March 2023. Under this proposal, the RETT exemption would no longer apply to purchases of shares in these entities. The purchase of shares in companies that, for value added tax (“VAT”) purposes, own “building plots” (eg, in forward funding transactions), would also be impacted by this repeal. For investment property, the current RETT rate is 10.4%.

It was noticed during the consultation that the proposal could result in overkill in certain situations. The Spring Memorandum confirmed that a revised legislative proposal is being prepared with transitional law to prevent the addressed overkill. This proposal should be presented on next Budget Day (September 2023) and the measure should enter into force on 1 January 2024. However, a postponed implementation date is still an option, given the complexities that have been highlighted with regard to the transitional law.

Other measures

Furthermore, the RETT exemption for demergers may be amended as to no longer allow untaxed third party sales by making use of the exemption, and the adoption of a revision period for the VAT deduction on the supply of “valuable services” is being investigated. Such a revision period would apply to certain capital expenditures (such as renovations and refurbishments) and would be comparable to the revision period that currently applies to the transfer of newly built real estate. No specific timelines have been published for these other measures and the adoption of the VAT revision period for valuable services is conceivably subject to a public consultation.

Should you wish to learn more on how these proposed amendments may impact your business, please do not hesitate to contact us.