Drastic Dutch tax reclassifications impacting Luxembourgish funds and investors

At a glance
 

From 2025, Luxembourgish and other foreign alternative funds may be reclassified as transparent for Dutch tax purposes, potentially triggering new tax liabilities and more detailed reporting requirements for investors.

A closer look
 

Significant changes in the Dutch tax qualification of entities loom on the horizon, particularly concerning foreign partnerships and collective investment vehicles. Effective from 1 January 2025, the new legislative framework holds significant implications for these entities’ qualification and taxation.

New Dutch tax entity reclassification law

From 1 January 2025, a new law on the qualification of legal forms (Wet fiscaal kwalificatiebeleid rechtsvormen) will come into effect, including qualification rules of foreign legal forms for Dutch tax purposes. The law’s primary goal is to reduce qualification conflicts and ensure consistency in the treatment of foreign entities.

Under the new legislative framework, partnerships like Luxembourgish SCS(p) funds will generally be considered transparent. As most of these funds are currently treated as opaque, this transition could trigger tax liabilities. Additionally, Dutch investors in transparent entities will require more detailed tax information, triggering new reporting requirements for funds and their tax advisors.

Priority rule and FGRs

However, under the law’s priority rule, funds are opaque if they qualify as mutual funds (Fonds voor Gemene Rekening, or “FGRs”). This rule ensures that FGR qualification takes precedence over the legal form’s qualification.

Therefore, if a foreign entity qualifies as both an FGR and a partnership, it will be treated as an FGR and may stay opaque for Dutch tax purposes from 1 January 2025 onwards. If a partnership is transparent under the current law, the priority rule could have the effect that they become opaque as from 2025.

FGR criteria

A partnership will be considered an FGR if:

1. The entity is a collective investment fund, as defined in Article 1:1 of the Dutch Financial Supervision Act (Wft); and
2. The participation rights are tradable, which is not the case if the transfer of these rights is only allowed back to the FGR itself (the so-called inkoopvariant).

The law indicates that only regulated mutual funds (as defined under the AIFM Directive or UCITS Directive) will qualify as FGRs. This is to prevent family investment funds from being treated as FGRs, aligning with the legislative intent to treat them as transparent.

Next steps

We recommend that entities potentially affected by these changes review their current structure and assess the impact of the new rules, especially whether the entity meets the FGR criteria and the priority rule’s implications.

If you require more information or a detailed analysis of how these changes may affect your specific situation, please get in touch.  Deloitte Netherlands and Luxembourg are here to support you and your investors with these complex changes. Act now, and let us help you navigate the upcoming tax landscape.

How Deloitte can help

Deloitte Netherlands and Luxembourg are here to support you and your investors with these complex changes. Act now, and let us help you navigate the upcoming tax landscape.