- within Tax topic(s)
- in United States
- with readers working within the Accounting & Consultancy industries
- within Privacy and Finance and Banking topic(s)
The Dutch Secretary of State for Finance has published an updated version of the Fund Decree initially issued in November 2024, providing further clarity on the Dutch tax classification rules applicable to Dutch and equivalent foreign limited partnerships that may qualify as a contractual fund for joint account ("fonds voor gemene rekening," or "FGR") (the "Fund Decree").
Background
Effective 1 January 2025, new tax classification rules have come into force concerning the Dutch tax treatment of certain legal entities, including Dutch limited partnerships (commanditaire vennootschap, or "CV") and their foreign equivalents that are comparable to Dutch limited partnerships. Under these rules, such CVs or equivalent foreign vehicles are, by default, treated as fiscally transparent, unless they qualify as an FGR, which qualifies as an opaque vehicle from a Dutch tax perspective if it meets specific additional criteria. Further information on the new entity classification rules can be found in our previous tax alert: Dutch Tax Shake: What New Entity Classification Rules Mean for Investors.
Fund Decree
The Fund Decree not only introduces clarifications on the scope of 'investing' and 'family funds', but also guidance that is relevant for investment fund assessment and redemption funds.
Investment fund classification
In order to qualify as an FGR one of the requirements is that the fund is an investment fund (AIF) or undertaking for collective investment in transferable securities (UCITS) under the Dutch Financial Supervision Act ("Wft"). The Fund Decree now presumes that a (manager of a) fund registered with the Dutch regulator or another EU regulator or operating under the so-called "light regime" qualifies as such investment fund. This presumption applies only to EU regulatory registrations.
Exclusion of family funds from FGR classification
Funds that raise capital exclusively within a defined group of family members fall outside the definition of collective investment and thus outside the scope of the Wft. The Dutch tax authorities align with the Dutch Authority for the Financial Markets ("AFM") on this interpretation.
Investing in a limited partnership and lending activities
By default, a limited partnership is treated as fiscally transparent for Dutch tax purposes. For such a limited partnership to qualify as an FGR, it must inter alia not be actively engaged in running a business enterprise but rather limited to investing, which is considered to be limited to passive portfolio management.
As a CV or equivalent foreign vehicle is fiscally transparent as a default rule, its assets, liabilities, income and expenses are allocated to participants in proportion to their interests. This allocation does not, however, cause a limited partner in a limited partnership to be regarded as running a business itself. Thus, a fund holding a limited partnership interest in an operating CV or foreign equivalent vehicle is not automatically treated as carrying on a business and may still meet the investment requirement and qualify as an FGR.
Regarding debt funds investing in loans (i.e. loans that neither confer control nor involve profit participation), the Fund Decree outlines safe harbour conditions under which such lending is considered only investing for FGR purposes. These conditions, to be reflected and applied in the fund's prospectus, include clearly defined investment policies, risk limits on loan concentration and credit quality, limited leverage, absence of profit-dependent remuneration, and reasonable management fees. Non-compliance with these conditions does not automatically preclude qualification, which must be determined on a case-by-case basis.
Transferability of participation rights
In order to qualify as a FGR, the fund must have transferable participation rights capable of being transferred to third parties, including affiliated group companies and relatives. Because transferability is inherent in the Wft definitions, any fund qualifying as an investment fund or undertaking for collective investment in transferable securities within the meaning of the Wft is deemed to have transferable participation rights.
Redemption funds
The FGR definition provides for a carve-out for redemption funds, where the fund permits redemption only by selling or deemed selling interests back to the fund. Certain transfers, such as by inheritance or due to marital community changes, are excluded from being treated as transfers affecting qualification. Funds investing in other funds (fund-of-funds structures) are assessed individually.
Conclusion
The Fund Decree offers guidance on the complex Dutch tax classification regime for limited partnerships. Notwithstanding these clarifications, certain assessments remain challenging. The Dutch legislator has introduced grandfathering provisions for limited partnerships previously treated as transparent but classified as opaque under the new rules. These provisions have been expanded to also cover certain newly established limited partnerships, subject to conditions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
