Tax

Dutch push ahead with legislative proposals to change investment and funds regime

Published on 26th Sep 2023

New rules on investment institutions and entity classification could impact existing fund structures

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Two legislative proposals have been published following a public consultation earlier this year to amend the Dutch tax-exempt investment institution (VBI), fiscal investment institution (FBI) and fund for joint account (FGR) regime.

The proposals to amend the investment regime went for public consultation March. Following the consultation, they were published on Dutch Budget Day on 19 September 2023.

Main changes

The most important changes under the proposals are:

  • The FBI may no longer directly invest in Dutch real estate as of 1 January 2025 (indirect investments through a regularly taxed company are still allowed). Due to the input on the consultation, the legislative proposal has been amended so that the FBI may still invest directly in real estate situated outside the Netherlands.
  • The definition of an FGR would be changed in a way that only FGRs that are regulated under the Dutch financial supervision legislation (the WFT) and have publicly traded participations, are opaque for Dutch tax purposes.
  • The proposed changes to the VBI regime are in line with the changes to the FGR. Only entities regulated under the WFT are eligible for the VBI regime.
  • Contrary to the consultation document, the changes with respect to the FGR and VBI are envisaged to enter into force as of 1 January 2025 (as opposed to 1 January 2024).

FGRs favoured over FBIs?

Currently, these investment institutions are commonly used by foreign investors and high net-worth individuals and families to structure their investments. The new rules aim to bring the actual use of these investment institutions in line with their original purpose – joint investments by a (large) group of investors – and to reclaim taxing rights on Dutch real estate investments by foreign investors.

The intended purpose may not currently reflect what is happening in reality, because of the 0% tax rate of FBIs, in conjunction with a (partial) relief under applicable tax treaties or a domestic exemption.

As a result, if this legislative proposal becomes effective, it could be favourable for high net-worth individuals and families to restructure their investment from FBIs to transparent FGRs.

The Dutch government has anticipated the need for restructurings as a result of the proposal. The proposal encompasses a number of facilities – rollover, share-for-share merger and deferred payment –  including a specific temporary exemption from real-estate transfer tax to facilitate restructurings during 2024.

Osborne Clarke comment

As described above, the proposed rules could potentially have a significant impact on existing fund structures. The Osborne Clarke team is working with clients to assess the impact of the proposed rules on existing fund structures and the scope for potential restructuring alternatives, including the set-up of regulated fund entities under the proposed rules.

If you would like to discuss these issues, please get in touch with your usual Osborne Clarke contact, or one of our experts below.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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