Property investment has seen a considerable evolution in the last decades. Most investors and developers have extended their goals from the national to international level. As a result, they increasingly require the services of international property advisers. Among these services, legal and tax will be of significant importance in the property business.
A foreign corporate investor may invest in Dutch property in various manners. The investor may invest directly, through a local company (such as a Naamloze Vennootschap or NV, Besloten Vennootschap or BV), through a Dutch holding company structure, a non-resident company or through a partnership.
Companies or individuals wishing to invest in Dutch property may also acquire the shares in a company owning property rather than making a direct purchase of the property. From a tax point of view, this choice may have a significant impact for both the seller and the purchaser.
To minimize the risks of an acquirement Dutch-Company is able to carry out a due diligence review, to check the legal, corporate tax, VAT and transfer tax position of the company that you want to invest in.
Our recommendations include the following tax issues:
- Residence and substance.
If a Dutch holding company is in fact managed from abroad, the question arises whether the company involved is a real tax resident of the Netherlands. Under internal Dutch law, this is the case but the country from which the holding company is managed may challenge this situation. Risks are conflicts with the tax authorities with respect to profit allocation, qualification of income as foreign source or not or entitlement to credits.
- Fiscal unity.
A group of Dutch companies will often apply to be treated as a fiscal unity. If awarded, the profits and losses of the companies concerned may be consolidated for tax purposes. Also, reinvestment reserves may be deployed throughout the fiscal unity.
In order to be treated as a fiscal unity, the actual place of residence must be located in the Netherlands. Actual management from abroad may therefore jeopardize treatment as a fiscal unity.
Residence may be secured e.g. by:
- appointing Dutch resident directors who are experienced and credible as participants in the decision making process
- submitting evidence from management meetings/e-mails as such, that these Dutch directors were actually involved in the decision making process
- maintaining administrative records and bank accounts in the Netherlands
- holding regular Board meetings in the Netherlands.
- Clear allocation of costs.
Where substantial management and advice is obtained, a clear, defensible and documented position with respect to cost allocation, passing on of expenses and /or intercompany fees should be available. The level of fees etc. should be acceptable to both the Home Country and the Netherlands in order to avoid adjustments for the Corporate Income Tax (CIT) and the Dividend Withholding Tax.
- Value Added Tax and Real Estate Transfer Tax (VAT and RET).
Real estate companies tend to have complex VAT and/or RET positions. This is all the more true if project development takes place. Red flags are:
- claw-backs of certain tax benefits upon purchase or sale of share assets;
- transfer of “economic ownership’’ in more complex transactions;
- important renovation projects and/or new developments;
- proper allocation (and description) of outside fees in view of recoverability of VAT.
These taxes are sometimes underrated, whilst in monetary terms they are often more important than the CIT.