There are several Dutch tax measures expected to become effective on 1 January 2024 that can be relevant for real estate funds investing in or via the Netherlands.
It is important to timely identify the impact of these measures as action may be required in 2023 to minimise adverse tax effects.
Introduction of a conditional withholding tax on dividends
On 1 January 2021, the Netherlands introduced a conditional on
interest and royalty payments. This withholding tax will be
extended to cover dividends. This extension has already been
adopted by the Dutch Parliament and will become effective on 1
January 2024. This withholding tax can have a significant impact
given the tax rate of 25.8%. Dividends (ultimately) distributed to
fund entities and investors in low-tax jurisdictions or (reverse)
hybrid entities are at risk of being in scope.
Click here for a detailed overview of the key
considerations for real estate funds.
Revision of the tax entity classification rules for incomparable foreign legal forms and LPs
In the second quarter of 2023, a legislative proposal is
expected to be submitted to amend the Dutch tax entity
classification rules. The revised rules are expected to become
effective on 1 January 2024. This proposal will include
classification rules for entities that are incomparable to Dutch
legal forms and an abolishment of the unanimous consent requirement
for LPs to qualify as transparent for Dutch tax purposes. The
abolishment is expected to be implemented together with a deemed
disposal rule for tax opaque Dutch and foreign LPs and limited
partners that are subject to Dutch corporate income tax. This could
possibly lead to Dutch taxation unless certain transitional tax
facilities are made available.
Click here for our publication outlining the
potential impact for real estate funds.
Revision of the tax entity classification rules for funds for joint account
In the first quarter of 2023, a legislative proposal is expected
to be consulted to separately revise the Dutch tax entity
classification rules for funds for joint account and comparable
foreign legal forms (e.g., FCPs and certain trusts). This proposal
is expected to, most notably, include the abolishment of the
unanimous consent alternative for an FGR to qualify as transparent
for Dutch direct tax purposes and a continuation of the redemption
alternative. The Dutch Ministry of Finance is still investigating a
possible link to Dutch financial regulatory law for the future tax
classification rules.
Click here for more information and our views on the
expected impact for real estate funds.
Introduction of a conditional real estate transfer tax exemption for Dutch REITs
In the first quarter of 2023, a legislative proposal is expected
to be consulted to abolish the Dutch REIT regime with effect from 1
January 2025 and to introduce a transitional measure to facilitate
restructurings. This measure will broadly consist of a conditional
exemption from Dutch real estate transfer tax during 2024 for
transfers that are executed in direct relation to the abolishment
of the Dutch REIT regime.
Click here for an overview of the tax mechanics of
the abolishment and certain key considerations.
Introduction of the EU's Unshell Directive (ATAD3)
It is rumoured that a vote on the ATAD3-Directive by the
European Parliament is planned for early 2023. EU Member States may
thus still be required to implement ATAD3 into their domestic tax
laws with an effective date of 1 January 2024. The real estate
funds industry is struggling with the many moving parts within the
ATAD3-proposal and applying a wait-and-see approach. These moving
parts, for example, include whether it will be allowed to
'outsource' to associated enterprises and whether the
carve-out for AIFs will be broadened to include subsidiaries.
Industry associations have also requested the European Commission
to relax the minimum substance requirements.
Click here for our publication with practical items
that can already be considered by real estate funds.
Introduction of the EU's Global Minimum Tax Directive (Pillar 2)
The OECD's Pillar 2 Model Rules have been formally adopted by the EU and will become effective on 1 January 2024. It goes without saying that Pillar 2 is only relevant for some of the largest REITs and real estate funds in the world given the EUR 750 million revenue threshold. REITs and real estate funds with entities and investments in the EU are recommended to assess the impact of the OECD's Pillar 2 Model Rules, starting with whether they are in scope. This is also relevant to determine to what extent the OECD's transitional safe harbour rules need to be considered.
Click here for our publication outlining certain Pillar 2 considerations for REITs and real estate funds.
Introduction of the EU's Public Country-by-Country Reporting Directive
The EU's Public Country-by-Country Reporting Directive can
already apply to cross-border REITs and real estate funds with
taxable presence in the EU as of mid-2024. Similar to Pillar 2,
these rules are only relevant to some of the largest REITs and real
estate funds given the EUR 750 million revenue threshold. Such
REITs and real estate funds will be required to publicly report on
income taxes paid and other tax-related information such as a
breakdown of profits, revenues and employees. This public reporting
requirement makes an accompanying tax narrative increasingly
important.
Click here for our publication outlining tax
narrative and transparency considerations for real estate
funds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
