Budget Day 2023: main Dutch tax proposals and amendments as of 2024

On 19 September 2023, the Dutch Government presented its budget for 2024. Below, we address the most important proposed changes for financial institutions, asset managers, investment funds and real estate investors.

Amendments classification of Dutch and foreign entities and funds for joint account

Under current Dutch tax law, a Dutch limited partnership (CV) can only be transparent if the admission or replacement of the limited partners in the CV is subject to prior written unanimous consent of all (general and limited) partners in the CV ("Unanimous Consent Requirement"). Due to the similarity approach for foreign entities under the current rules, also foreign entities similar to a CV can only be transparent (for Dutch tax purposes) if the Unanimous Consent Requirement is met.

As of 1 January 2025, the Unanimous Consent Requirement will be abolished and, as a consequence, all CVs will be transparent. The similarity approach as such will remain in place, so also foreign entities similar to a CV will be transparent (for Dutch tax purposes) due to the abolished Unanimous Consent Requirement. If the similarity approach will not provide for a clear Dutch equivalent, there are two solutions: (i) the foreign entity is based outside the Netherlands, in which case the Netherlands follows, generally, the classification of the other jurisdiction (symmetry approach) or (ii) the foreign entity is based in the Netherlands, in which case the foreign entity will be classified as non-transparent (fixed approach).

In addition, as of 1 January 2025, Dutch funds for joint account (FGR) will only be non-transparent if (i) regulated following the Dutch Financial Supervision Act (Wft) and (ii) the participations are tradeable (which is not the case if the participations are only transferable to the FGR by way of redemption). This means that all non-regulated FGRs and regulated FGRs without tradeable participations will be transparent. It also means that (non-regulated) 'family funds' structured as an FGR will no longer be non-transparent.

The transition from non-transparent to transparent means that the non-transparent entities (and FGRs) with regard to the assets, as well as their participants with regard to their participations, may realise a (deemed) capital gain (while no cash is generated). As of 1 January 2024, the following facilities are proposed: (i) a rollover facility, (ii) merger facility (including an exemption of real estate transfer tax) or (iii) a deferred payment arrangement (over a period of 10 years).

Amendments Dutch exempt investment institutions and fiscal investment institutions

As of 1 January 2025, an investment entity that is eligible for the regime of an exempt investment institution (VBI) (exemption from Dutch corporate income tax) will no longer be able to apply that regime if the entity is not regulated following the Dutch Financial Supervision Act. As similar to the changed classification rules for FGRs, this means that in particular 'family funds' structured as a VBI will no longer be eligible for the VBI-regime.

Also, as of 1 January 2025, a Dutch fiscal investment institution (FBI) (subject to 0% Dutch corporate income tax) will no longer be allowed to directly invest in real estate assets in the Netherlands. Indirect investments, for example through equity investments in real estate companies, or direct investments in non-Dutch real estate assets, are not affected by the new rules.

Amendments RETT concurrence exemption

The acquisition of Dutch commercial real estate assets is in principle subject to 10.4% real estate transfer tax ("RETT"). Where a real estate asset is transferred within two years after it has been put into first use or is a qualifying building plot (hereinafter referred to as new real estate), the transfer thereof is subject to 21% Dutch VAT. If so, the transfer is exempt from RETT pursuant to the RETT concurrence exemption. Pursuant to Dutch case law, under the current RETT rules the concurrence exemption may also be applied to the acquisition of shares in an entity that owns new real estate. However, as share transfers are exempt from Dutch VAT, the application of the concurrence exemption results in neither RETT nor VAT. In practice, new real estate that is used for VAT exempt activities (eg private residences or offices of financial institutions) is transferred to investors by way of a share transfer.

The proposed amendment, which is intended to enter into force on 1 January 2025, denies the application of the RETT concurrence exemption in case of a transfer of new real estate by way of a transfer of shares, unless the new real estate will be used for 90% or more for taxable activities. This 90% test is applied at the moment of acquisition and during the following two years. If the test is not met, which may typically be expected in the case of private residences or offices of financial institutions, the transfer of the shares will be subject to RETT at a (new) rate of 4%, as the circumstance that the entity will also have suffered VAT costs in connection to property development is taken into account. Grandfathering rules apply pursuant to which the concurrence exemption continues to apply if an intention agreement was signed before 15:15 CET on 19 September 2023.

Amendments Dutch carried interest rules

The personal income tax regime for (management) participations qualifying as lucrative interest will be amended following a recent ruling of the Supreme Court. The Supreme Court ruled that 'standard, non-equity like' shareholder loans should be excluded from the calculation of the minimum leverage ratio of 10% in respect of certain equity investments. However, as leverage can also be created through such non-equity like debt, this type of shareholder loans should, according to the legislator, remain included in the calculation of the leverage ratio when assessing the presence of a lucrative interest. This is explicitly stipulated in the amendment.

Amendments Dutch anti-dividend stripping rules

Pursuant to the Dutch anti-dividend stripping rules, a recipient of dividends on shares will not be entitled to any refund, credit or reduction of, or an exemption from, Dutch dividend withholding tax, if such recipient is not considered to be the beneficial owner of such dividends. The recipient will not be considered the beneficial owner of these dividends pursuant to these rules, if, in connection with such dividends, the recipient has paid a consideration as part of a series of transactions in respect of which it is likely (i) that the dividends have in whole or in part accumulated, directly or indirectly, to a person or legal entity that would (A) as opposed to the recipient paying the consideration, not be entitled to an exemption from Dutch dividend withholding tax or (B) in comparison to the recipient paying the consideration, to a lesser extent be entitled to a reduction or refund of Dutch dividend withholding tax and (ii) that such person or legal entity has, directly or indirectly, retained or acquired an interest in the shares comparable to the interest it had in such shares prior to the series of transactions being initiated. The following amendments have been proposed that are intended to become effective as from 1 January 2024:

1. The burden of proof that the recipient of a dividend seeking a refund, credit or reduction of, or an exemption from, Dutch dividend withholding tax, is also the beneficial owner thereof as defined pursuant to the Dutch anti-dividend stripping rules will shift from the Dutch tax authorities to the taxpayer.

2. For listed shares the dividend record date - two trading days following the ex-dividend date - will be codified in the Dutch dividend withholding tax act. This is in line with the current dividend record date as per the dividend withholding tax decree of the Dutch Secretary of Finance.

3. The scope of a series of transactions forming part of the definition of beneficial ownership pursuant to the Dutch anti-dividend stripping rules will be broadened such that transactions in connection with shares entered into by several related (33.33% interest) parties to the recipient of the dividend forming part of a group are also considered part of a series of transactions for purposes of these rules.

4. It will be clarified that the definition of beneficial ownership pursuant to the Dutch anti-dividend stripping rules is a de minimis threshold and that also under other circumstances than the ones described in these rules a recipient of a dividend cannot be considered the beneficial owner thereof.

The above proposals are subject to parliamentary approval. Should you wish to learn more on how these or other changes in Dutch tax law may impact your business, please do not hesitate to contact us.