Three tax proposals that impact real estate investments

Dutch Tax proposals announced 21 September 2021 that will impact real estate investments and contemplated transactions

As you may know, last Tuesday, 21 September 2021, the Dutch tax proposals for the tax year 2022 were published. Most of these proposals were already released last March in the form of internet consultations. These concern the tax proposals regarding the reverse hybrid anti-mismatch rules, the transfer pricing anti-mismatch rules and the amendment of the Dutch tax classification rules for entities. The first two have been submitted as a formal legislative proposal last Tuesday, in relation to the last one a legislative proposal is expected later this year/early next year. For further background on these proposals and the legislative proposal regarding the conditional withholding tax on distributions to low-taxed and EU blacklisted jurisdictions, we refer to our client briefing of last March 2021. Furthermore, certain tax changes that will enter into force on 1 January 2022 have already been approved by Dutch parliament last year. These include the reduced Dutch corporate income tax rate of 15% for taxable profits not exceeding €395,000 (the marginal top rate will remain at 25%, but it should be noted that Dutch parliament is currently debating an increase of this rate in order to finance certain additional expenses sought by it) and the new limitation for carry-over of tax losses to 50% of the taxable profits to the extent these exceed an amount of €1m, whereby the tax losses can be carried forward indefinitely (carry-forward of tax losses is currently limited to 6 years).

In addition to the aforementioned proposals, the following proposals relevant for Dutch real estate investors have been published or announced, which are currently expected to enter into force on 1 January 2022. We thought it would be worthwhile to highlight these as they might have an impact on your Dutch real estate investments and contemplated transactions.

1. Extension scope Dutch conditional withholding tax

Effective as from 1 January 2021, the Netherlands levies a conditional withholding tax at a rate of 25% on interest payments made or deemed to be made by a Dutch resident taxpayer or a Dutch permanent establishment of a non-Dutch resident taxpayer to a related party which is resident in a low-tax or non-cooperative jurisdiction. For purposes of the Dutch conditional withholding tax rules, real estate situated in the Netherlands and held by a non-Dutch resident taxpayer typically does not qualify as a permanent establishment.

Consequently, if the non-Dutch resident entity attracts debt funding from related parties located in low tax or non-cooperative jurisdictions in order to finance the real estate situated in the Netherlands, the interest payments under the debt funding are not in the scope of the Dutch conditional withholding tax. It has now been announced that effective as from 1 January 2022 the definition of permanent establishment will be amended such that it also includes real estate situated in the Netherlands. As a result, in the aforementioned example the interest payments under the debt funding will become subject to 25% Dutch conditional withholding tax.

2. Reduction of the Dutch landlord levy

It has been proposed to reduce the Dutch landlord levy by 0.042% to 0.485%. This levy is levied from Dutch social housing corporations and landlords with a social housing portfolio consisting of more than 50 social private residences. In this respect, it is noted that it is currently being debated in Dutch parliament to further reduce the Dutch landlord levy rate or to even abolish the levy.

3. Dutch real estate transfer tax exemption for repurchases of certain private residences by Dutch social housing corporations and project developers

In the Netherlands, Dutch social housing corporations and project developers may sell private residences at a discount to private individual buyers under the condition that in case of a future disposal by such buyers they must offer the private residence to the Dutch housing corporation/project developer first. Currently, the reacquisition by a Dutch housing corporation/project developer from the private individual buyer is subject to Dutch real estate transfer tax at a rate of 8%. Under the proposal, provided certain conditions are met such acquisition will be exempt from Dutch real estate transfer tax.