2024 Dutch Tax Plan – Proposed measures relevant for the real estate market

Back to outline Tax Plan

Related article - An outlook on the 2024 Dutch Tax Measures and Tax Agenda impacting the Real Estate Market

Corporate income tax measures

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 property companies
The Dutch earnings stripping measure remains unchanged in 2024 (in short: interest is deductible up to the higher of 20% fiscal EBITDA and EUR 1 million).

The current measure provides for the possibility to split up companies, allowing more frequent use of the EUR 1 million threshold. Although this phenomenon had already been recognised when the measure was introduced, the legislator has announced it will be taking action next year. With effect from 1 January 2025, the EUR 1 million threshold will not apply for property companies with leased property (to third parties). This measure will be included in the 2025 Tax Plan but is already accounted for in the 2024 Budget.

Changes to Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities
As previously announced, the Tax Plan includes draft bills, changing the Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities. These measures aim at reducing qualification conflicts. Where ATAD2 countered the tax effects of qualification mismatches, this legal proposal aims to counter qualification conflicts as such. The proposed 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.

Dutch open CVs
It is proposed that the non-transparent Dutch limited (liability) partnership (‘open commanditaire vennootschap’ or open CV) will cease to exist for the Dutch tax laws mentioned above, by removing the ‘unanimous consent requirement’. As a result, a Dutch CV will be classified as transparent for the Dutch tax laws mentioned above (unless the Dutch CV will be qualified as a reverse hybrid).

Dutch open mutual funds
In addition, the Dutch open mutual fund (‘open fonds voor gemene rekening’ or FGR) will be redefined for the Dutch tax laws mentioned above. Specifically, under the proposed rules a Dutch mutual fund (as an opaque entity subject to Dutch corporate income tax) must qualify as an investment fund (‘beleggingsfonds’ or ‘fonds voor collectieve belegging in effecten’) as defined in article 1:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). Additionally, for the fund to be considered an opaque corporate taxpayer, the units must be transferable in any way other than solely through the redemption by the fund itself. All other mutual funds will qualify as transparent. Following this amendment, it will no longer be possible to use the mutual fund when investing private assets within the family circle.

Transitional regime
As a result of the potential change in qualification of the Dutch open CV and the Dutch open mutual fund (qualifying as transparent), they will be deemed to have disposed of all assets and liabilities to their participants at fair market value and to have ceased all their activities in the Netherlands. All hidden reserves, tax reserves and goodwill will automatically be subject to a final settlement unless allocable to the general partners in the open CV. Also, the limited partners in the open CV or participants in the mutual fund are deemed to have disposed of their certificates of participation and loans receivable at fair market value.

The transitional regime offers the possibility of using certain tax facilities to defer (immediate) taxation. The regime provides for certain conditional facilities, e.g.:

• A roll-over relief mechanism for any tax claims of the open CV or the open mutual fund on hidden reserves, tax reserves and goodwill;
  
• A share-for-share merger regime for specific participants, including a temporary real estate transfer tax exemption;
• The corporate income tax due as a result of the deemed disposal and cessation may be paid in equal instalments spread over ten years.

Foreign incorporated entities
Foreign entities are qualified as transparent or non-transparent based on an analogy with the tax treatment of a comparable Dutch legal form (legal form comparison method). For application of the method the changed qualification of Dutch open CVs and Dutch mutual funds is also of relevance. It is proposed to codify this method in various tax laws. Additionally, two methods for the Dutch tax qualification of foreign legal entities in specific circumstances are proposed: the fixed method and the symmetrical method. These two methods only apply to foreign entities with a legal form that is not comparable to a Dutch legal form.

The fixed method will be used if such an entity is incorporated or set up under foreign law and is established in the Netherlands. In that situation, the entity is always considered a domestic taxpayer for Dutch corporate income tax purposes.

The symmetrical method provides a solution for situations in which such an entity is incorporated or set up under foreign law and is established abroad. This foreign entity is considered non-transparent for the Dutch tax laws mentioned above if that foreign entity is independently taxable under the tax laws of a state that treats that entity as a resident. Foreign entities without a comparable Dutch legal form that are not considered independently taxable under the symmetric method are considered transparent for the Dutch tax laws mentioned above.

Expected timing
Effectively, the changes to Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities are envisaged to enter into force on 1 January 2025. The proposed transitional law (including deferral possibilities) should apply for the period 1 January 2024 through 31 December 2024.

Adjustments to the regime for fiscal investment institutions
On Budget Day 2022, the government announced the introduction of the so-called real estate measure. On the back of that measure, fiscal investment institutions (‘fiscale beleggingsinstellingen’) are no longer allowed to invest directly in real estate, either Dutch or foreign real estate, whereas indirect investments in real estate through a shareholding in a regularly taxed real estate entity will continue to be possible. However, the real estate measure also entailed that a fiscal investment institution may no longer manage such a regularly taxed real estate entity, nor a property development or service subsidiary.

Contrary to the earlier announcements, the 2024 Tax Plan contains a rule which only no longer allows fiscal investment institutions to invest directly in Dutch real estate, although indirect investments in Dutch real estate through a shareholding in a regularly taxed entity or direct investments in non-Dutch real estate will continue to be possible. Also, in contrast to the earlier announcements, a fiscal investment institution may still manage such a regularly taxed real estate entity, as well as property development or service subsidiary.

For direct investments in non-Dutch real estate and indirect investments through a shareholding in regularly taxed real estate entities, debt financing will remain limited to no more than 60% of the book value of the (underlying) real estate. For other investments, debt financing will remain limited to no more than 20% of the book value of those investments.

Temporary real estate transfer tax exemption
The draft bill provides for a temporary exemption from real estate transfer tax which will be provided in the year 2024. This exemption is limited to acquisitions of beneficial ownership associated with restructurings resulting from the real estate measure. Restructurings that entail the acquisition of the legal ownership of the real estate of the fiscal investment institution are not covered by the temporary exemption but could apply the existing real estate transfer tax reorganisation exemptions provided the relevant conditions are met.

Expected timing
The measures will be introduced on 1 January 2025, providing fiscal investment institutions the opportunity to restructure. The temporary exemption from real estate transfer tax will be provided in the year 2024.

Energy investment allowance
From 2024, the percentage of the energy investment deduction (EIA) will be structurally reduced from 45.5% to 40%, while the available budget will be structurally increased as from 2025. Furthermore, it is announced that the application on the EIA, as well as the environmental investment allowance (MIA) and the random depreciation of environmental investments (VAMIL) will be extended to 1 January 2029, and not abolished as per 1 January 2024 as originally intended.

Depreciation limitation on buildings
The government proposes to eliminate the distinction between depreciation limitations on buildings in the Dutch personal income tax and Dutch corporate income tax. Practically, this means that it is proposed to consider the floor value (in Dutch “WOZ”) as the maximum depreciation point for all buildings used as business assets, similar as it has been for taxpayers subject to corporate income tax since 1 January 2019. This change means that for entrepreneurs within the personal income tax realm, there is no longer a difference whether a building is held for personal use or for investment purposes. It is also irrelevant whether a building is used in an enterprise within the personal income tax sphere or in an entity liable to corporate income tax. The background of this measure is to prevent prolonged deferral of taxation by using the reinvestment reserve and to prevent arrangements where the more generous depreciation possibilities in the personal income tax are used compared to those in the corporate income tax act.

VAT and real estate transfer tax measures

Real estate transfer tax rates
The real estate transfer tax rates will remain the same, being 10.4%, and a reduced rate of 2% for owner-occupied residential real estate. However, a new reduced rate of 4% will be introduced as a result of the adjustment of the concurrence exemption for share transactions (refer below).

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

Proposed bill to abolish the real estate transfer tax exemption in case of an acquisition of shares in a real estate company
Currently, the real estate transfer tax concurrence exemption can be applied on the acquisition of a qualifying interest in a real estate company as far as this exemption would apply in case of a direct acquisition of the real estate owned by this company, e.g. in case of building land or newly developed property for VAT purposes.

On February 28, 2023, a draft bill on real estate share transactions was submitted to the practice for consultation. It was proposed to refuse the application of the real estate transfer tax concurrence exemption for the acquisition of shares in a real estate entity. The reason behind this is to combat a VAT advantage that arises when the real estate in question is or will be used for VAT exempt or other purposes that do not allow for a deduction of VAT (e.g. residential property). In case of a transfer of shares, neither VAT nor real estate transfer tax is triggered, whereas in case of an asset deal, 21% non-recoverable VAT (and no real estate transfer tax) would be due. After an online consultation, the government has decided to amend the initial draft bill. The amendments have now been included in the new proposed bill.

The following amendments of the real estate transfer tax concurrence exemption in case of a share deal are included in the proposed bill:

• The real estate transfer tax concurrence exemption will no longer be applicable on the acquisition of shares in a real estate company where the underlying immovable property is used for less than 90% VAT taxable activities for at least two years after acquisition of the shares.
  
• The remaining acquisitions of shares in a real estate company covered by the bill will be subject to a reduced real estate transfer tax rate of 4% (instead of the 10,4% general real estate transfer tax rate).

There will also be a transitional arrangement for projects for which:

1. a letter of intent has been signed before the moment of submission of the bill, i.e., 19 September 2023 at 15:15;
2. the letter of intent has been provided to the tax inspector within three months after 1 January 2024; and
3. it can be substantiated that signing the letter of intent was not done merely to make use of the transitional arrangement.

Expected timing
The measure will be introduced on 1 January 2025.

Introduction of the cooperating group principle in real estate transfer tax
In the 2024 Tax Plan the government indicated that it will be monitored whether real estate transactions are structured in a manner that an acquisition does not qualify as a taxable acquisition for real estate transfer tax purposes, e.g., four cooperating parties each acquiring a 25% shareholding in a real estate entity.
If in practice it is determined that such transactions occur more frequently whereby the decisive motive for entering into these transactions is the evasion of taxation, it will be determined to which extent such transactions can be combatted by the abuse of law doctrine (‘fraus legis’). Alternatively, these structures can be combatted by the introduction of the cooperating group principle in the real estate transfer tax act, similar to the corporate income tax act.

Other tax measures

Business succession scheme
In its April 2022 report, the CPB Netherlands Bureau for Economic Policy Analysis concluded that while the business succession regime (‘bedrijfsopvolgingsregeling’, or ‘BOR’) is effective, certain components are inefficient. And not all BOR components contribute to the desired continuity of businesses. Given these outcomes the government wants to improve the BOR’s effectiveness and practicability and remove as many perceived bottlenecks as possible. To this end, the 2024 Tax Plan proposes the following measures:

1. From 2025, the exemption in the BOR will be 100% of the going concern value of a business up to EUR 1.5 million (currently around EUR 1.2 million), and 70% (in 2023: 83%) on the excess of the business assets.
   
2. The 5% efficiency margin for invested equity capital will be abolished.
3. Mixed-use operating assets will only qualify for the BOR to the extent that the assets are actually used within the company.
4. Access to the BOR will be limited to regular shares with a 5% interest that participate fully in the profit entitlement and liquidation proceeds. The BOR will continue to apply to preference shares issued as part of a phased business succession. The dilution facility, too, will be continued.
5. Some bottlenecks arising from the holding requirement and the continuation requirement will be removed. The employment requirement, which aims to make the BOR applicable only if the transferee is involved in the company, will be abolished as well. This requirement has turned out not to be effective in achieving this goal.
6. It is being contemplated to implement an anti-abuse provision to counter improper use of the BOR by individuals who convert their assets into business assets without there being any real business transfer.

Taxation interest
In a separate letter to the House of Representatives the state secretary of Finance announced that as per 1 January 2024, the taxation interest for corporate income tax and conditional withholding tax will be set at the ECB interest rate + 5.5%, with a minimum of 5.5%. With the current rate, a taxation interest rate of 10% will apply, where the current rate of this taxation interest is set at 8%. 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 7.5%.

Conditional withholding tax on dividends
Previously in 2021 a bill was adopted, expanding the scope of the conditional withholding tax on interest and royalties to dividends. As a result, as from 1 January 2024 withholding tax will be levied at a rate of 25.8% (equal to the headline corporate income tax rate) on dividend payments to related entities in specified low tax jurisdictions, in certain abusive situations as well as on payments to hybrid entities. This withholding tax will be levied alongside the standard 15% dividend withholding tax, with an anti-cumulation provision in place to limit the total withholding taxes on such dividends to 25.8%.

Note that the conditional withholding tax will also apply to dividend distributions by “non-holding cooperatives” to related entities located in a specified low tax jurisdiction since these cooperatives do not qualify as withholding agents under domestic tax rules and are currently not required to withhold tax on such distributions.

While the proposed changes to Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities should result in less hybrid entities existing for Dutch tax purposes, these proposed changes will enter into force as per 1 January 2025. However, given the conditional withholding tax on dividends will enter into force on 1 January 2024, there will still be an interim period during which there will be hybrid entities that have an impact the application of the new conditional withholding tax on dividends.

Timely assess impact
The above measures if enacted will have an impact on real estate market. Especially the changes to Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities as well as the adjustments to the regime for fiscal investment institutions may require substantial corporate restructuring. The entering into force as per 1 January 2025 provides some time to assess the impact on existing structures and potential amendments to these structures. We recommend timely assessing impact.

If you have any questions and/or comments in response to the above alert, please contact your Deloitte advisor.