The Ministry of Finance announced a number of amendments, including a postponed entry into force date and transitional law, to the draft legislation that will abolish the real estate transfer tax (RETT) exemption for share deals with building land and newly built real estate. This follows from a letter that the Ministry of Finance sent to parliament on 23 June 2023.
These changes follow in response to the feedback received by the Ministry of Finance on the draft legislation that was published for public consultation.
Entry into force date postponed
The abolition of the RETT exemption for acquisitions of shares in companies owning building land or newly built real estate will enter into force on 1 January 2025, instead of the earlier announced 1 January 2024.
RETT exemption remains for real estate used for VAT taxed purposes
Further, the RETT exemption will not be abolished for acquisitions of shares in companies owning new real estate that is used for activities allowing at least 90% VAT recovery in the two years following the acquisition. Reasoning behind this exception is that the RETT proposal is aimed at countering VAT saving structures, and such VAT savings are not considered a motive for a share deal in case of at least 90% VAT recovery for the real estate asset. Consequently, share deals with newly built logistical, office and retail real estate should in most cases still qualify for the RETT exemption, as these types of assets are often rented out VAT taxed for at least 90%.
RETT rate of 4% for share deals with new real estate
To prevent overkill with this proposal, a new RETT rate of maximum 4% will be introduced which will apply to acquisitions of shares in companies with new real estate for which the VAT recovery right is less than 90%. During the construction of this new real estate at least part of the VAT on construction costs is not recoverable, justifying a lower RETT rate than the general rate of 10.4% according to the Ministry of Finance. It is still uncertain whether the RETT rate will be 4% or less, or whether there will be a differentiation depending on the VAT recovery right.
Transitional law
Lastly, there will be transitional law for ongoing development projects. Acquisitions of shares in companies owning building land or newly built real estate will qualify for the RETT exemption if a letter of intent was signed before the filing of the RETT legislative proposal, which is expected on 19 September 2023 (Budget Day in the Netherlands), provided that the acquisition of the shares takes place ultimately on 1 January 2030. The prospect of this transitional law may prove to be a financial incentive for parties to enter into a letter of intent prior to 19 September 2023.
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