An outlook on the 2025 Dutch Tax Measures and Tax Agenda impacting the Real Estate Market

As we approach the end of 2024, it is essential to be aware of the Dutch tax developments that may necessitate action before 31 December 2024.

Corporate income tax rates

The corporate income tax rates will remain unchanged based on the submitted Tax Plan package, being 19% for profits up to EUR 200,000 and 25.8% for profits exceeding EUR 200,000.

Tightening threshold of earnings stripping measure for real estate investment entities

The Dutch earnings stripping measure changes as per 1 January 2025. On the one hand, the current limit of 20% tax EBITDA will be increased to 25% tax EBITDA. On the other hand, the EUR 1 million threshold will no longer apply for real estate entities with real estate leased to third parties.

For the purpose of this new measure, an entity qualifies as a real estate entity if during at least half of the year its assets consist for at least 70% of real estate assets that are leased to third parties. Some specific assets are ignored in applying this test, such as receivables from related parties and certain foreign investments. For the definition of related parties the measure refers to an existing definition in Dutch CIT law and for the definition of real estate it refers mainly to the Dutch civil law. In case an entity is part of a fiscal unity for Dutch CIT purposes, the measure applies at fiscal unity level. The guidance published with this law proposal indicates that real estate that is in use with third parties for a very short period, such as hotel rooms, tennis courts and bowling alleys will not fall under the new measure. If a hotel room is leased out for a longer period, this can fall under the new measure.

Changes to Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities

As per 1 January 2025 the Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities will change. Entities that are now considered as tax transparent for Dutch tax purposes may become opaque and vice versa. The amendments affect the tax laws where the qualification of legal forms is relevant (e.g., personal income tax, corporate income tax, dividend withholding tax and conditional withholding tax). Please note this does not include Dutch real estate transfer tax. This measure was included in the 2024 Tax Plan and has already been adopted.

An important change in the legislation is that open CVs and foreign funds similar to Dutch open CVs will become tax transparent. Based on this tax transparency, these entities could fall out of scope of the related party definition for the purposes of article 10a in the Dutch CIT Act as per 2025. The 2025 tax plans include an amendment that includeds these entities as related parties 

The same applies to non-comparable  foreign entities qualified as transparent. This also seems to apply to limited partnerships that already qualify as transparant under current law (such as private limited partnership-like entities) Unfortunately, the proposals presented at Budget Day do not include any new guidance on the possibility that qualification as an open FGR for Dutch tax purposes can overrule the qualification as CV.

Adjustments to the regime for fiscal investment institutions

As per 1 January 2025 fiscal investment institutions (‘fiscale beleggingsinstellingen’) are no longer allowed to invest directly in Dutch real estate, whereas indirect investments in Dutch real estate through a shareholding in a regularly taxed real estate entity will remain possible. This measure was included in the 2024 Tax Plan and has already been adopted. This Budget Day, the Dutch government announced two upcoming amendments of this measure, one regarding a change in the qualification of investment assets as ‘real estate’ and one that will repair a possibility to evade the effect of the upcoming disallowance of direct investments in real estate by fiscal investment institutions. The legislative proposal for these amendments has not been published yet on Budget Day.

Financial impact Supreme Court ruling on Sondervermögen

The Budget Plan includes an estimated cost of approx. EUR 1 billon of CIT revenues that should be repaid to German Sondervermögen that have directly invested in Dutch real estate based on a recent ruling from the Dutch Supreme Court, as following this ruling these funds were not subject to CIT.
 

Real estate transfer tax rates

The existing real estate transfer tax rates will remain the same in 2025, being 10.4%, and a reduced rate of 2% for owner-occupied residential real estate. A new rate of 4% is introduced as per 2025 for certain acquisitions of an interest in real estate companies that where previously RETT exempt.

As from 2026, the real estate transfer tax rate will change for residential real estate that is not owner-occupied from 10.4% to 8%. The rate for non-residential real estate will remain 10.4%. The legislative proposal for this amendment has not been published yet on Budget Day.

VAT rates

The VAT rates will remain unchanged, being 21% and the reduced rate of 9%.

Abolition of 9% rate on hotel accommodation

The government proposes to abolish the reduced VAT rate of 9% on hotel accommodation as of 1 January 2026, and replace it with the general VAT rate of 21%. The aim of this change is to generate additional tax revenue and to simplify the tax system.

The reduced VAT rate will no longer apply to the rental of hotel rooms, furnished holiday homes, or mobile homes. Short-term accommodation for, for instance, asylum seekers, homeless people, workers, and students will also fall under the general VAT rate. However, the letting of camping sites will remain taxed at the reduced VAT rate.

The legislative proposal includes a transitional provision to prevent the reduced rate from being applied through advance payments well after 1 January 2026. The expectation is that the abolition of the reduced VAT rate for these specific services and goods will lead to a (temporary) increase in preliminary consultations and legal disputes with the tax authorities.

VAT adjustment on services relating to immovable property

The Dutch Turnover Tax Act 1968 provides for the adjustment of deducted VAT if the use of real estate or rights subject to it changes. The same applies to movable goods that can be depreciated. However, services are excluded from this regulation. The VAT Directive does, however, allow EU Member States to revise the initial deduction on services that have the characteristics of investment goods (hereafter: "investment services"). These are, in short, services with a lasting character. In the 2025 Tax Plan, it is proposed to extend the adjustment scheme to investment services for real estate as of 1 January 2026, with a threshold amount of EUR 30,000 to find a proper balance between the intended effect of the measure and the administrative burdens.

The legislator aims to counteract tax-saving structures with short-term leasing. The definition of an investment service will be: a "service to one or more real estate properties that serves them for several years, including materials, installations, machines, and tools that qualify as real estate after installation or assembly, and where the fee for this service includes at least an amount to be determined by ministerial regulation." This proposal has been further aligned with European VAT rules compared to earlier versions by applying this adjustment only to investment services. This leads to fewer administrative burdens. For example, the VAT on cleaning services will no longer be affected by this proposal. The question remains whether the adjustment period of 5 years instead of 10 years aligns with the recent judgment of the European Court of Justice in the Drebers case (September 12, 2024, C-243/23). The measure is expected to take effect on 1 January 2026. This way, VAT entrepreneurs with ongoing projects have the time to complete them or make the necessary administrative adjustments.

Conditional withholding tax

The Dutch conditional withholding tax can apply in case one participation holds a majoriry interest in a Dutch entity of (deemed) permanent establishment or if multiple participants that can be considered as acting together / related parties hold a majority interest.

As of 1 January 2025 a new definition of acting together specifically for the purpose of the Dutch conditional withholding tax is introduced. Reasoning behind this new definition is the related party definition in the Dutch CIT Act that is currently applied for the conditional withholding tax in practise leads to various discussions and uncertainties. To mitigate these discussions and uncertainties going forward, a new concept is introduced specifically for the purposes of the conditional withholding tax: a qualifying unity. This concept applies if the various participants are acting together with the main purpose or one of main purposes to evade the Dutch conditional withholding tax for one or more of these participants. It is expected that this amendment will realize that structures with hybrids where no abuse is intended and/or realized will no longer fall under the conditional withholding tax.

Taxation interest

As per 1 January 2024, the taxation interest for corporate income tax and conditional withholding tax is set at the ECB interest rate as per 30 October + 5.5%, with a minimum of 5.5%. In 2024, a taxation rate of 10% applies. If the current ECB rate of 3.5% (amended per 12 September 2024) does not change until 31 October 2024, the rate for 2025 will be set at 9%.

For other taxes the taxation interest will be set at the ECB interest rate + 3%, with a minimum of 4.5%, currently resulting in a taxation interest rate of 6.5%.

The Tax Plan package includes a technical change regarding the situation where the tax authorities are required to reimburse taxation interest to the tax payer, which is very rare in practice.