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Country - Netherlands
Corporate Vehicles
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A. DIRECT INVESTMENT
If a taxable foreign entity invests directly in Dutch real estate, Dutch national legislation automatically treats the real estate as a permanent establishment in the Netherlands. Most of the Netherlands' tax treaties establish a right to levy corporate tax on income and capital gains from land in the Netherlands.
1. Investment through a permanent establishment
Minimum capital
Not applicable.
Set-up costs
Not applicable.
Time required to become operative
Not applicable.
Costs per annum for corporate and accounting compliance
Costs include accounting costs for corporate tax and VAT purposes. Filing of annual corporate tax returns and monthly/annual VAT returns is also required. Annual financial statements must be prepared. Annual costs amount to around EUR 10,000.
Corporate governance
Not applicable.
Regulatory control
Not applicable.
Taxation of current income in the Netherlands
The applicable rate in 2007 is 20% for the first EUR 25,000, 23.5% for EUR 25,000 to EUR 60,000 of profits and 25.5% thereafter.
Financing costs, depreciation and other costs are deductible from rental income.
Taxation of distribution of current income to investors
No tax is charged on distribution of income to investors.
Taxation of capital gains
Capital gains are taxed at the same rates as rental income.
B. INDIRECT INVESTMENT THROUGH CORPORATE VEHICLES
Two types of corporate vehicle may be used for real estate investments in the Netherlands: limited liability companies (Besloten Vennootschap) and public limited companies (Naamloze Vennootschap).
1. Limited liability company (Besloten Vennootschap)
Minimum capital
EUR 18,000.
Set-up costs
EUR 4,000.
Time required to become operative
20 days.
Costs per annum for corporate and accounting compliance
EUR 12,000 to EUR 20,000.
Corporate governance
Considerable flexibility on corporate governance can be agreed in the by-laws. Voting and profit rights can be freely allocated, subject to certain limitations. Shareholders appoint and remove directors and may also have approval rights for management decisions, but the directors are responsible for day-to-day business decisions. The company may be managed either by a sole director or by a board of directors.
Regulatory control
Not applicable.
Taxation of current income in the Netherlands
The applicable rate in 2007 is 20% for the first EUR 25,000, 23.5% for EUR 25,000 to EUR 60,000 of profits and 25.5% thereafter.
Financing costs, depreciation and other expenses are deductible from rental income.
Taxation of distribution of current income to investors
Tax-resident shareholders
If the shareholder is a resident entity holding more than 5% of the shares, no withholding tax applies and no taxation takes place at the level of the shareholder.
Non-tax-resident shareholders
- If the Parent-Subsidiary Directive is applicable there is no withholding tax.
- If the Parent-Subsidiary Directive is not applicable, but an OECD double tax treaty applies, a withholding tax ranging from 0% to 15% is usually charged.
- If neither the Parent-Subsidiary Directive nor a tax treaty is applicable, withholding tax is charged at 15%.
Taxation of capital gains
Capital gains on the sale of real estate
Capital gains are taxed at the same rates as rental income.
Capital gains on the sale of shares in a Besloten Vennootschap
For corporate shareholders resident in the Netherlands, the participation exemption regime will apply in most cases. For individual shareholders resident in the Netherlands no tax will normally be payable. If a shareholder has a "substantial interest" (usually 5% or more) capital gains on the sale of shares are taxed at 25%. Under an OECD tax treaty no capital gains tax is normally payable in the Netherlands if the shareholder is resident there for tax purposes. In exceptional situations capital gains tax can apply but can usually be avoided by careful tax planning.
2. Public limited company (Naamloze Vennootschap)
Minimum capital
EUR 45,000.
Set-up costs
EUR 5,000.
Time required to become operative
20 days.
Costs per annum for corporate and accounting compliance
EUR 12,000 to EUR 20,000.
Corporate governance
Considerable flexibility on corporate governance can be agreed in the by-laws. It is possible to create different categories of shares with different rights. Voting and profits may be allocated freely subject to certain limitations. In principle, the shareholders appoint and remove the company directors. A sole director or board of directors manages the company. A statutory board is often installed and may be mandatory (for example, if there are more than 130 employees).
Regulatory control
Not applicable.
Taxation of current income in the Netherlands
The applicable rate in 2007 is 20% for the first EUR 25,000, 23.5% for EUR 25,000 to EUR 60,000 of profits and 25.5% thereafter.
Financing costs, depreciation and other costs are deductible from rental income.
Taxation of distribution of current income to investors
Tax-resident shareholders
If the shareholder is tax-resident and holds more than 5% of the shares, no withholding tax applies and no taxation takes place at the level of the shareholder.
Non-tax-resident shareholders
- If the Parent-Subsidiary Directive applies, there is no withholding tax.
- If the Parent-Subsidiary Directive does not apply, but an OECD double tax treaty applies, withholding tax ranging between 0% and 15% is usually charged.
- If neither the Parent-Subsidiary Directive nor a tax treaty applies, withholding tax is charged at 15%.
Taxation of capital gains
Sale of real estate assets
Capital gains are taxed at the same rates as rental income.
Sale of shares in a Naamloze Vennootschap
For corporate shareholders tax-resident in the Netherlands, the participation exemption regime applies in most cases. For individual shareholders resident in the Netherlands no tax is normally payable. If shareholders have a "substantial interest" (usually 5% or more), capital gains on the sale of shares are taxed at 25%. Under an OECD tax treaty there is generally no taxation of capital gains in the Netherlands if the shareholder is resident there for tax purposes. In exceptional situations capital gains tax may apply but can usually be avoided by careful tax planning.
3. Fiscal Investment Vehicle (Fiscale Beleggings Instelling)
Another available method for investing in Dutch real estate is to use a Dutch-resident entity that qualifies as a fiscal investment vehicle. According to Dutch civil law such an entity can be either of the types of company described above, but a special tax regime applies.
Minimum capital
EUR 18,000/45,000.
Set-up costs
EUR 4,000/5,000.
Time required to become operative
20 days.
Corporate governance
See Besloten Vennootschap or Naamloze Vennootschap above.
Regulatory control
Not applicable.
Taxation of current income and capital gains
Where the special tax regime applies, the applicable corporate tax rate is 0%, both for rental income and for capital gains. Various specific conditions apply as to the capacity of the shareholders and the number of shares they hold. There are also debt financing limitations (60% of the book value of the real estate). The annual profits of the entity must be distributed to shareholders within eight months of the end of each financial year. The dividend withholding tax rate is, in principle, 25% but is often lowered by relevant tax treaties. As a result of the shareholder conditions, a rate of 10% to 15% will normally need to be withheld. It should be noted that only "portfolio investment real estate" qualifies for this special regime. Development of Dutch real estate by a property owner will generally not qualify as a portfolio investment.
C. INDIRECT INVESTMENT THROUGH PARTNERSHIPS (Commanditaire Vennootschappen)
Partnerships are often used in the Netherlands for portfolio investments in Dutch real estate. A partnership normally has a managing partner in the form of a limited or public liability company and a number of limited liability partners, which can be both individuals and companies. The managing partner is fully liable while the limited partners are only liable up to the amount of their capital contribution in the partnership. The partnership is a contractual relationship rather than a legal entity. A partnership can either be transparent or non-transparent for corporate tax purposes. Non-transparent partnerships are treated as companies but transparent partnerships have different rules.
Minimum capital
Not applicable.
Set-up costs
EUR 5,000.
Time required to become operative
10 days.
Costs per annum for corporate and accounting compliance
EUR 10,000.
Corporate governance
Considerable flexibility can be given in the by-laws. Voting and profit participation rights can be freely allocated subject to certain limitations.
The unlimited partner is by law the managing partner. Limited partners may have certain limited approval rights regarding management decisions. Too much influence by a limited partner on the partnership's management creates a risk that the limited partner might lose its limited liability status.
Regulatory control
Not applicable.
Taxation of current income in the Netherlands
Income is allocated to partners on the basis of their profit participation rights and is subject to corporate tax if a partner is a corporate entity. Personal income tax (1% or 2% of the average market value of the real estate minus debt) is levied if the limited partner is a portfolio investor.
Taxation of distribution of current income to investors
There is no taxation of distributions. Income is simply allocated to partners and taxed at partner level.
Taxation of capital gains
Profits from capital gains are allocated to partners on the basis of their profit participation rights and are subject to corporate tax if a partner is a corporate entity. Personal tax is levied if the limited partner is a portfolio investor.
D. RULES ON LEVERAGE
1. Thin capitalisation rules
No interest deduction is normally allowed for tax purposes if the debt to equity ratio exceeds 3:1. The definition of debt only includes loans granted or guaranteed by shareholders; debt from third parties is not included. In certain circumstances, other "anti-abuse" regulations prohibit the deduction of interest paid on loans from affiliated entities.
2. Withholding tax on interest
In principle, the Netherlands does not charge withholding tax on interest.
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