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

Back to outline Tax Plan

Related article - Proposed measures relevant for the real estate market

Note that most of the measures outlined below are adopted by the House of Representatives but are yet to be approved by the Senate. The Senate will vote on these proposals on 19 December 2023, and theoretically are still subject to change. We will update this article if there are material changes to the proposals.

Corporate income tax

Corporate income tax rates
The corporate income tax rates will remain unchanged, being 19% for profits up to EUR 200,000 and 25.8% for profits exceeding EUR 200,000.

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. If you are planning to invest in qualifying business assets, such as solar panels, heat pumps, or insulation, it is recommended to make that investment in 2023 to benefit from the higher allowance.

Changes in the system for taxation interest
As of 1 January 2024, the taxation interest for corporate income tax and conditional withholding tax (CWHT) will be set at the ECB interest rate + 5.5%, with a minimum of 5.5%. With the current rate of ECB interest rate of 4.5%, 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%, resulting in a taxation interest rate of 7.5% as of 1 January 2024. These interest rates underscore the relevance of filing correct and complete tax returns and requests for (revision of) provisional assessments within the set time frame.

Depreciation limitation on buildings
As per 1 January 2024, for taxpayers subject to Dutch personal income tax, the floor value (in Dutch “WOZ-value”) is also used as the maximum depreciation point for buildings used as business assets, similar as it has been for taxpayers subject to corporate income tax since 1 January 2019. 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. For both taxpayers in the corporate income tax and personal income tax sphere monitoring the WOZ-value is important.

WOZ value/local property taxes
1 January 2024 marks the date for the WOZ-values and local property taxes for 2024. The according valuation date being 1 January 2023 marks the first valuation date for WOZ-purposes reflecting the significantly changed real estate market conditions caused by the rapidly increased interest rates. If tax depreciation was (nearly) limited by the WOZ-value for 2023, it might be especially worthwhile to thoroughly check the 2024 WOZ-assessment, keeping in mind the six-week legal objection term for lodging an appeal. The majority of the WOZ-assessments are issued within the first two months of the year.

Impairments
In case in a book year the market value of a real estate asset lies below the tax book value of that property in that year, the asset could be impaired for tax purposes. The market value is the fair market value plus transaction costs (including RETT) and should be supported by a valuation report. In practice 11-12% should be added to the fair market value for purposes of the impairment calculation, but the exact percentage is to be confirmed by an appraiser.

The tax impairment is included in calculating the taxable income for the year and can thus be offset against positive results in the same year. Tax losses resulting from the impairment can be carried back for one year and carried forward indefinitely, subject to the current loss compensation rules.

In case a property has been impaired, it is in principle valued at market value going forward. As a result, any increase in market value in future years would be regarded as taxable income. This uplift would be taxed to the extent there are not sufficient tax losses available for compensation (or in case the limitation of the loss compensation rules would apply). In case the market value would be equal or exceed the historical cost price minus (continued) depreciation, no further taxable uplift would arise.

Tightening threshold of earnings stripping measure for property companies
The Dutch earnings stripping measure will remain unchanged in 2024 (in short: interest is deductible up to the higher of 20% fiscal EBITDA and EUR 1 million). However, it can be expected that as from 1 January 2025, the EUR 1 million threshold will no longer apply for property companies with leased property (to third parties). As a result, interest is only deductible up to 20% of the property company's EBITDA. A legislative proposal introducing this measure is expected to be published in the course of 2024.

Changes to Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities
As from 1 January 2025, the Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities will change. The bill includes a transitional regime with tax facilities that apply for the period 1 January 2024 through 31 December 2024. This means that in 2024 action may be required. Below we further elaborate on the changes.

The changes to the Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities 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 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
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, 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 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 introduced: 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.

Adjustments to the regime for fiscal investment institutions
As from 1 January 2025, fiscal investment institutions (‘fiscale beleggingsinstellingen’) are no longer allowed to invest directly in Dutch real estate, whereas indirect investments in Dutch real estate through a shareholding in a regularly taxed real estate entity will continue to be possible. 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 bill provides for a temporary exemption from real estate transfer tax (RETT) which will be provided in the year 2024. This means that any restructuring should be effectuated on 31 December 2024. The 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. Since these restructurings can take time, it is recommended to take timely action.

Withholding taxes

Conditional withholding tax on dividends
Previously in 2021 a bill was adopted, expanding the scope of the CWHT 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 CWHT will also apply to dividend distributions by “non-holding cooperatives” to related entities located in a specified low tax jurisdiction. For dividend withholding tax purposes “non-holding cooperatives” do not qualify as withholding agents under domestic tax rules and are currently not required to withhold tax on such distributions.

Transitional rules
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 CWHT 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 CWHT on dividends. To prevent this, transitional rules will apply during 2024. Based on these rules, dividend payments made to an open CV that qualifies as a hybrid entity and is not located in a low-taxing or non-cooperative jurisdiction, will be considered to be paid to the partners in the open CV pro rata parte their interest in the open CV. We note that these transitional rules do not apply to interest and royalty payments, since these were already subject to CWHT as from 2021.

Dividend withholding tax share repurchase facility
The share repurchase facility for quoted companies provided for in dividend withholding tax will be abolished as of 1 January 2025. As a result, repurchase of own shares will henceforth be taxed as heavily as payment of dividends. The abolition of this facility will serve to cover various income support measures.

VAT and real estate transfer tax measures

Real estate transfer tax rates
The RETT 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 (effectively per 1 January 2025) 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%.

Abolishment of the real estate transfer tax exemption in case of an acquisition of shares in a real estate company
As from 1 January 2025, the real estate transfer tax concurrence exemption for building land or newly developed property in case of a share deal will be amended as follows:

• 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 is, however, 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.

If your project is eligible for the transitional arrangement, timely action is required, i.e., ultimately on 31 March 2024. It is not yet clear how the Dutch tax authorities should be notified, but we expect the market will be informed in this regard shortly.

Potential 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 RETT 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’).

In that respect, it should be noted that the legislator has also announced that he will investigate the introduction of the cooperating group principle in the real estate transfer tax act, similar to the corporate income tax act. In addition, the legislator indicated that the coming years he will evaluate the existing RETT exemptions, as well as the lower RETT rate for owner occupied residential real estate (currently 2%).

Timely assess impact
The above measures, when enacted, will have an impact on the 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 the impact.

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