On Dutch Budget Day 2024 (17 September 2024), several tax measures were proposed as part of the 2025 Budget Day Tax Plans (Belastingplan 2025) which may impact real estate investors investing in or via the Netherlands. Most changes were already pre-announced and/or leaked over the past weeks, so there were no real surprises. The most notable missing measure is the tightening of the real estate transfer tax division exemption, which was expected following a public consultation earlier this year but is not included in the proposals.
Below we have outlined the proposed measures published yesterday that are most relevant for the real estate investment sector. The most notable ones include increasing of the earnings stripping threshold from 20% to 25%, abolishment of the de minimis amount of €1 million under the earnings stripping rules for companies that directly or indirectly lease out immovable property to third parties, and an effective relaxation of the 'acting together' principle for the conditional withholding taxes.
All proposed measures may be subject to amendments throughout the legislative process and need to be approved by the Dutch Parliament to become effective. Certain measures that will enter into effect as per 1 January 2025 were already previously adopted, for which we also refer to our earlier alert.
Real estate transfer tax rate
The real estate transfer tax rate for investments in residential property will be lowered from 10.4% to 8% as of 2026.
VAT increase hospitality sector
The VAT rate on short stays such as hotels and other holiday rentals will increase from 9% to 21% as of 2026.
VAT adjustment rules for immovable property services
The Dutch government has proposed to extend the Dutch VAT adjustment rules (i.e., revision period rules) to cover certain immovable property services when the remuneration for those services amounts to at least € 30,000. The current VAT adjustment rules are limited to capital goods, such as immovable property itself. The revision period for immovable property services will be five years. The new rules will become effective as of 2026.
Earnings stripping rule
The earnings stripping measure serves as a general limit on interest deductions under corporate tax rules. Interest expenses can be deducted only up to the greater of €1,000,000 or 20% of EBITDA (gross operating income), with this threshold applying per taxpayer.
The Dutch government has proposed that the de minimis amount of €1 million under the earnings stripping rule will no longer be available effective 1 January 2025 for companies that directly or indirectly lease out immovable property to third parties. For this purpose, a company that leases out immovable property is broadly defined as a company whose assets consist for at least 70% of immovable property during at least 50% of the fiscal year. This in principle does not refer to situations involving normal commercial operations in the service sector, where use is transferred on a relatively short-term basis and there is no relationship between the owner or operator and the user(s), aside from the agreement regarding the use. Examples include hotels, cafes, restaurants, tennis halls, bowling alleys, squash courts, and similar establishments. However, this may differ if the use is not short-term, such as in the long-term rental of a hotel room or a vacation home in a holiday park.
At the same time, the current limit of 20% of the tax-based EBITDA under the earnings stripping rules will be increased to 25%, aligning with the European average.
Conditional withholding tax and 'acting together'
The Dutch government has proposed to replace the current acting together concept for conditional withholding tax purposes with a new concept. This new concept is "qualifying unity", which is broadly defined as entities that act together with a main purpose to mitigate the application of conditional withholding tax. The existing acting together concept refers to the term "cooperating group" which generally leads to uncertainty whether investors in investment funds (such as limited partnerships and mutual funds) can be deemed to form a cooperating group for the purpose of the conditional withholding tax.
The proposed concept of a "qualifying unity" consists of two elements. First, it must involve coordinated action between entities. Second, this coordinated action must have, as its main or one of its primary purposes, the avoidance of withholding tax for one of the entities. Based on this intent-based test, it is expected that the new group concept will only impact investments in the Netherlands that have been structured, at least in part, to avoid withholding tax. The burden of proof regarding the existence of a qualifying unity rests with the tax authorities.
Debt waiver exemption and tax losses
The Dutch government has proposed to remove the adverse interaction between the debt waiver exemption and the tax loss compensation rules, which led to issues in the restructuring of debt for companies. Under the current rules, income resulting from the waiver of loans can be eligible for the exemption, but before the exemption can be applied any existing carry forward tax losses must be absorbed first. The tax loss compensation rules allow for a full offset against taxable profits up to € 1 million, whereby only 50% of any excess profits can be offset against tax losses. These mechanics can result in part of the waiver income not being exempt from corporate income tax under the waiver exemption. This adverse effect will be removed, allowing for a full exemption. The proposed measure ensures that in cases where there are losses to be offset exceeding €1 million, the debt cancellation profit is fully exempt from tax, provided that the cancellation profit surpasses the losses incurred during the year.
GAAR
The Dutch government has proposed to formalise the general anti-abuse measure within corporate tax law. This proposal is aligned with the implementation of the "general anti-abuse rule" from the European Anti-Tax Avoidance Directive (ATAD). Initially, the Netherlands believed it did not need to formally adopt this rule, as it already had a similar provision known as "fraus legis." However, this stance has since changed. Despite the introduction of the general anti-abuse measure, no significant changes are expected compared to the current application of the "fraus legis" rule.
Liquidation loss regime
The government proposes two changes to the liquidation loss regime. The first change relates to the calculation of the participation's sacrificed amount, which is necessary to determine the deductible liquidation loss. The proposed change will require that when calculating the sacrificed amount, any previous write-downs of a claim against the participation that were reversed and included in taxable income must also be considered. The second proposed change concerns the intermediary holding company provision within the liquidation loss regime. This provision is intended to prevent a (non-deductible) negative participation result of an intermediary holding company from being converted into a (deductible) liquidation loss at the taxpayer level. These changes should in principle only have effect in certain specific cases and therefore should not be very relevant for the broader private equity real estate industry.
Retention of the share buyback facility
The government has decided to reverse certain tax increases announced on or after Prinsjesdag 2023. This includes reversing the proposed abolition of the share buyback facility for listed companies under the dividend withholding tax.
Expat scheme
Another reversal relates to the expat scheme, which will be partially reversed starting in 2027. For five years, an allowance rate of 27% will apply. Additionally, the salary threshold will increase from €46,107 to €50,436. The salary requirement for employees under 30 with a master's degree will also be raised.
Progressive personal income tax rates for income from substantial interests (Box 2)
The substantial interest regime for Dutch personal income tax purposes includes two brackets with progressive rates: taxable income up to EUR 67,000 is subject to 24.5% and all excess taxable income is subject to EUR 33%. The Dutch government has proposed to lower 33% tax rate to 31% effective 1 January 2025. Given the expected lower rate in 2025, it may be tax-efficient to delay any planned dividend payments or share buybacks until 2025.
Other
Income Tax
- Introduction of a slightly lower first tax bracket in Box 1 with a rate of 35.82% (applicable to income up to EUR 38,000).
- Box 3 tax rate remains unchanged at 36%.
Corporate Tax
- Standard corporate tax rate remains at 25.8%.
- Removal of the donation deduction for corporate tax purposes, effective January 1, 2025.
Earlier adopted changes
The below measures that come into effect as from 1 January 2025 were already previously adopted:
- Starting January 1, 2025, the concurrence RETT exemption will tighten following the legislative change that has already been passed last yet. It aims to eliminate the VAT benefit that can arise during a real estate share transaction when the property is used for VAT-exempt purposes. The exemption only still applies if the underlying real estate is used for at least 90% VAT-taxable activities for a minimum of two years after the share acquisition. Other acquisitions will be subject to a reduced rate of 4%. Transitional provisions are also in place.
- As of 1 January 2025, as part of a broader overhaul of the Dutch tax entity classification rules, all Dutch limited partnerships and sufficiently comparable foreign limited partnerships (e.g., the Luxembourg SCSp and Cayman LP) should in principle always qualify as transparent for Dutch direct tax purposes. We refer to our previous alert for further details.
- Subject to conditions, the Dutch regime for fiscal investment institutions (FBI regime) allows for a 0% corporate income tax rate with the requirement that profits are annually distributed (generally subject to 15% dividend withholding tax). As from 2025, an FBI can no longer hold direct investments in Dutch real estate. It in principle does remain possible for an FBI to hold indirect investments in Dutch real estate, i.e., owned by a regularly taxed entity.
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.