Real Estate Alert - September 2024

On 17 September 2024, the Dutch Budget Day proposals were published. The Dutch Budget Day proposals include several tax proposals that are highly relevant for Dutch real estate companies and buy-to-let residential real estate investors. Below, we have summarised these proposals.

Further restriction of interest deductions under 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.

In the Dutch Budget Day proposals, it has been proposed to increase the aforementioned threshold of 20% to 25% effective as from 1 January 2025. This will conceptually allow for a higher amount of interest deductions.

However, at the same time it is also proposed to reduce the EUR 1 million threshold to nil in case of real estate companies that lease out real estate to third parties. This means that these real estate companies can no longer rely on the EUR 1 million deductible interest threshold but solely on the - to be increased to - 25% threshold. 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.

Under the proposed rules, in brief a real estate company is defined as a company the assets of which mainly consist for at least half of the tax year for 70% or more of real estate or parts thereof that are directly or indirectly made available to third parties. This measure will apply per taxpayer / real estate company. In case the real estate company is consolidated in a fiscal unity for corporate income tax purposes, the proposed rules are applied at the level of such fiscal unity.

Announced reduction of Dutch real estate transfer tax rate

In the accompanying letter to the Dutch Budget Day proposals, it is indicated that in order to increase the access to affordable housing the Dutch real estate transfer tax rate of currently 10.4% will be decreased to 8%. The reduced 8% rate will apply to acquisitions of buy-to-let residential real estate. For acquisitions of commercial real estate, the current 10.4% rate will continue to apply. The proposed reduced rate is intended to become effective as from 1 January 2026. Further details are expected to be released in the course of October 2024.

Adoption of a revision period for the VAT deduction on the supply of valuable services

It is proposed to introduce a revision period for the VAT deduction on the supply of valuable services effective as from 1 January 2026. The proposed VAT measures aim to address tax-saving structures involving short-term rentals that allow landlords to deduct VAT on renovation costs by initially renting out the renovated properties under VAT-taxable conditions before switching to VAT-exempt lease, without the need to revise / repay the initially deducted VAT. To counteract this, the revision period for these services is set at effectively 5 fiscal years. A threshold amount of EUR 30,000 per investment service in real estate is introduced to exclude very small investment services from the measure, aiming to reduce administrative burdens and prevent the artificial splitting of services.

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