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Country - Netherlands
Taxes
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A. AVAILABLE INVESTMENT STRUCTURES
Which legal structures are available for an investment in real estate in the Netherlands?
Asset deals:
- direct acquisition from abroad;
- direct acquisition from abroad through a local permanent establishment;
- indirect acquisition through a local company.
Share deals:
- direct acquisition from abroad;
- direct acquisition from abroad through a local permanent establishment;
- indirect acquisition through a local holding company.
B. TRANSFER TAXES, NOTARY FEES AND OTHER ACQUISITION COSTS
How is the purchase of a real estate asset taxed?
The following indirect taxes may apply, depending on the structure of the deal:
Asset deals:
- VAT (belasting toegevoegde waarde, BTW);
- real estate transfer tax (overdrachtsbelasting);
- cadastre tax (kadastrale rechten).
Share deals:
- Real estate transfer tax may apply.
Not all taxes apply to all investment structures.
Real estate transfer tax is charged at the rate of 6% of the purchase price and can be payable in relation to both asset deals and share deals where the company qualifies as a "real estate company" i.e. a company whose assets comprise 70% or more Dutch real estate assets. Real estate transfer tax is paid by the buyer. An exemption from real estate transfer tax can sometimes be obtained.
If newly-built real estate or vacant land is purchased, VAT is payable at 19%. (From 2008, VAT will be charged at 20%.)
VAT can usually be offset against VAT received or can be reclaimed from the tax office.
Cadastre tax is no more than EUR 500 and will often be less.
Do any specific rules for transfer taxes apply if the asset is a shopping centre or another asset used for retail activities?
An asset deal such as the purchase of a shopping centre or a hotel is usually subject to real estate transfer tax at 6%. In the case of a share deal, the purchase may, under certain circumstances, be exempt from real estate transfer tax. Neither the purchase of an ongoing business nor the purchase of shares is subject to VAT.
How is the purchase of shares in an SPV holding real estate taxed?
The purchase of shares is not subject to VAT. Real estate transfer tax may be due if the SPV qualifies as a real estate company i.e. a company whose assets comprise 70% or more Dutch real estate assets.
Who normally pays the transfer taxes, the buyer or the seller?
The purchaser normally pays the transfer tax.
Are notary fees determined by law or should they be negotiated?
The notary fees can be negotiated to a certain extent.
Are there any other costs related to the purchase of real estate assets or SPVs?
Other costs include the fees of professional advisors.
C. TAXATION OF RUNNING INCOME
How is income generated from the letting of real estate taxed in the Netherlands?
(a) Direct investment through a permanent establishment
Real estate owned by a foreign investor is deemed to create a permanent establishment in the Netherlands. The income attributable to a permanent establishment is subject to Dutch corporate income tax ("CIT") at 20% on the first EUR 25,000 of profits, 23.5% on the second EUR 35,000, and 25.5% on the remainder.
Taxable income for CIT purposes is the net income after costs have been deducted, as shown in the annual profit and loss account. With some minor exceptions, all costs relating to the activities of the permanent establishment can be deducted from income, including interest payments. Real estate transfer tax is not tax deductible for CIT purposes. Depreciation is deductible to a limited extent. Under certain circumstances, it is possible to reduce the taxable income for CIT purposes to almost zero with a loan of an appropriate size.
If the investor is an individual, the net income from letting is taxed through personal income tax at tiered rates up to a maximum of 52%. If the investor is an individual portfolio investor, however, income from lettings is not taxed. A tax of 1.2% applies on the average value throughout the year. Interest on loans can be deducted from the tax base.
(b) Direct investment without a permanent establishment
Dutch real estate is deemed to create a permanent establishment for Dutch tax purposes. The income attributable to a permanent establishment is subject to Dutch corporate income tax ("CIT") at 20% on the first EUR 25,000 of profits, 23.5% on the second EUR 35,000, and 25.5% on the remainder.
Taxable income for CIT purposes is the net income after costs have been deducted, as shown in the annual profit and loss account. With some minor exceptions, all costs relating to the activities of the permanent establishment can be deducted from income, including interest payments. Real estate transfer tax is not tax deductible for CIT purposes. Depreciation is deductible to a limited extent. Under certain circumstances, it is possible to reduce the taxable income for CIT purposes to almost zero with a loan of an appropriate size.
If the investor is an individual, the net income from letting is taxed through personal income tax at tiered rates up to a maximum of 52%. If the investor is an individual portfolio investor, however, income from lettings is not taxed. A tax of 1.2% applies on the average value throughout the year. Interest on loans can be deducted from the tax base.
(c) Indirect investment through a corporate entity
Income from letting is subject to taxation on the same basis as for permanent establishments held by foreign corporate entities. The income attributable to a permanent establishment is subject to Dutch corporate income tax ("CIT") at 20% on the first EUR 25,000 of profits, 23.5% on the second EUR 35,000 and 25.5% on the remainder.
Taxable income for CIT purposes is the net income after costs have been deducted, as shown in the annual profit and loss account. With some minor exceptions, all costs relating to the activities of the permanent establishment can be deducted from income, including interest payments. Real estate transfer tax is not tax deductible for CIT purposes. Depreciation is deductible to a limited extent. Under certain circumstances, it is possible to reduce the taxable income for CIT purposes to almost zero with a loan of an appropriate size.
If the investor is an individual, the net income from letting is taxed through personal income tax at tiered rates up to a maximum of 52%. If the investor is an individual portfolio investor, however, income from lettings is not taxed. A tax of 1.2% applies on the average value throughout the year. Interest on loans can be deducted from the tax base.
(d) Indirect investment through a partnership
In the case of a tax-transparent partnership, the partners are taxed on their share of the participation as if they were directly investing in the real estate. Tax-transparent partnerships are not taxed as corporate entities.
How can income generated by investment be transferred to a foreign investor?
(a) Direct investment through a permanent establishment
Once the profits have been taxed in the Netherlands, they can be transferred to foreign investors without further taxation, and no withholding taxes apply.
(b) Direct investment without a permanent establishment
Once profits have been taxed in the Netherlands, they can be transferred to foreign investors without further taxation, and no withholding taxes are applicable.
(c) Indirect investment through a corporate entity
Distribution of dividends to shareholders
Once the corporate vehicle has paid taxes on letting income, and on any capital gains, it can distribute dividends to shareholders. A distribution of dividends can occur without being subject to withholding tax if the corporate shareholder is resident in the Netherlands for tax purposes. Tax residence means that the shareholder has its registered office in the Netherlands (is a Dutch entity). If the participation in the corporate vehicle is held by a non-tax-resident entity or individual, withholding tax at 15% must be applied by the corporate vehicle when the distribution of dividends is made unless:
- an EU-resident shareholder has a share interest of at least 5%, and the EU Parent-Subsidiary Directive applies, in which case there is no withholding tax;
- a relevant tax treaty reduces withholding tax to a lower level. According to the OECD Model, withholding tax is reduced to between 0% and 15% depending on the shareholder's percentage of participation in the company.
If withholding tax is due, this normally creates a tax credit in the shareholder's country of residence. Please note that dividend withholding tax may be abolished in the Netherlands in the future.
Taxation at the level of the shareholder
If a tax-resident shareholder receives dividends, these are subject to taxation at the level of the shareholder, unless the participation exemption applies. This normally applies where a corporate shareholder owns 5% or more of the shares.
It is also possible to avoid additional taxation at the level of the shareholder by opting for "tax consolidation" of the corporate vehicle and the Dutch shareholder.
If the shareholder is not resident in the Netherlands for tax purposes, the dividends may be taxed, not in the Netherlands, but in the shareholder's country of residence. In this case the Netherlands may have already applied withholding tax.
(d) Indirect investment through a partnership
In the case of investment through a tax-transparent partnership, the partners are taxed directly according to their individual status. The income is distributed to the partners and no additional taxation is levied on the partnership.
Are there local taxes on the possession of real estate assets?
The main local tax is real estate tax (Onroerende Zaak Belasting, "OZB")
OZB is payable on the possession of real estate and is calculated on the basis of the value of the property, the so called "WOZ value". This tax is levied by the municipality in which the property is located.
D. DEPRECIATION
What are the basic rules for the depreciation of real estate assets?
The ordinary depreciation rate for real estate is between 2.5% and 4% per annum on a linear basis, unless specific circumstances apply. Under new legislation, the depreciation of real estate was limited from 1 January 2007. Real estate held for portfolio investment purposes cannot be depreciated below the "WOZ value". Other real estate cannot be depreciated below 50% of the "WOZ value".
Can land be depreciated?
No.
Can a participation in an SPV holding real estate be depreciated?
No, unless the participation exemption does not apply to the shareholding.
E. VAT
Is the purchase of real estate assets subject to VAT?
The transfer of real estate in the Netherlands is, in principle, exempt from VAT. However, in the case of a new building (during the two-year period after its first use as a business asset) or land, VAT applies at 19%. (From 2008, VAT will be charged at 20%.) Where real estate is purchased by a VAT-registered individual or business, VAT can normally be recovered. The purchase of property as part of a business is exempt from VAT.
How can VAT paid on the purchase price be recovered?
VAT on a property can be recovered provided the property is used for VAT taxable purposes. In principle, the letting of property in the Netherlands is VAT exempt but it is possible to opt to charge VAT on commercial property. The lessee must use 90% or more of the property for activities that are subject to VAT.
F. LEVERAGE, THIN CAPITALISATION RULES
If interest payments are to be tax deductible, is it necessary for the financing to be taken out simultaneously with the purchase of the asset?
No, but the loan must be used by the company only for activities relating to its business.
Are there rules which limit the deductibility of interest for third party (bank) financing?
Anti-abuse legislation can limit the full deductibility of interest on loans granted or guaranteed by related parties or shareholders.
Are there thin capitalisation rules in the Netherlands and if so, how do they work?
Thin capitalisation rules apply in the Netherlands. Interest paid by a resident company to a related party is subject to a debt to equity ratio of 3:1, with a threshold of EUR 500,000. Alternatively a group ratio can be applied. Interest on loans to related parties which exceed these ratios are not tax deductible.
Related parties are entities that are directly or indirectly related to the company through a shareholder which owns one third or more of its company's shares or a person who enters into certain types of loan arrangements.
Does the Netherlands apply any withholding taxes on interest paid to foreign financing banks or to foreign shareholders?
The Netherlands does not, in principle, charge withholding tax on interest. In exceptional situations, corporate income tax is levied on interest received by a foreign shareholder, if the shares in the Dutch company are investments rather than trading assets.
G. TAXATION OF CAPITAL GAINS
How are capital gains deriving from the sale of real estate assets taxed in the Netherlands?
(a) Real estate assets held by foreign investors directly without a permanent establishment in the Netherlands
Owning real estate in the Netherlands is deemed to create a permanent establishment.
Capital gains made by a foreign entity on the sale of real estate are subject to Dutch corporate income tax. Capital gains made by individuals are subject to personal income tax at tiered rates of up to 52%. Profits classified as capital gains are the difference between the book value of the property at the date of sale (with deductions for depreciation) and the agreed purchase price. Under certain conditions it is possible to re-invest the profit into a "re-investment reserve". The capital gains are then not taxed. A replacement investment must be made within three years.
In the case of individuals who qualify as portfolio investors, no capital gains tax applies.
(b) Real estate assets held by foreign investors through a permanent establishment in the Netherlands
Capital gains made by a foreign entity on the sale of real estate are subject to Dutch corporate income tax. Capital gains made by individuals are subject to personal income tax at tiered rates of up to 52%. Profits classified as capital gains are the difference between the book value of the property at the date of sale (with deductions for depreciation) and the agreed purchase price. Under certain conditions it is possible to re-invest the profit into a "re-investment reserve". The capital gains are then not taxed. A replacement investment must be made within three years.
How are capital gains deriving from the sale of shares/interests in property companies taxed in the Netherlands?
In the case of a resident corporate shareholder, the participation exemption normally applies if the shareholder owns at least 5% of the company's shares.
For resident individual shareholders, capital gains are subject to personal income tax at tiered rates of up to 52%. No capital gains tax applies to resident non-corporate shareholders that are portfolio investors. For foreign shareholders, no capital gains tax normally applies where the shareholder is resident in a country that has concluded a double taxation treaty with the Netherlands, or where the shares are trading assets of a corporate shareholder (rather than investments).
Are there any rules regarding participation exemptions in the Netherlands?
Dutch legislation provides for a full participation exemption (on both dividends and capital gains) for domestic and foreign shareholdings held by Dutch corporate entities.
In relation to resident shareholders, the following requirements apply:
- the shareholder has a direct or indirect participation of at least 5%;
- the entity in which the participation is held does not qualify as a 'REIT' ('Fiscale Beleggingsinstelling').
In relation to foreign shareholdings, The entity in which the participation is held must not be a "low taxed portfolio investment company". An entity:
- whose assets largely consist of "portfolio investment assets";
- which is subject to tax in its own jurisdiction of less than 10% of the tax base, according to Dutch standards;
- whose assets (on a consolidated basis) comprise 90% or more of real estate
is not a "low taxed portfolio investment company".
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