Under current legislation, acquisitions of interests of less than one third in real estate entities are not subject to real estate transfer tax, while acquisitions of one third or more are taxed. An entity is regarded as a real estate entity within the meaning of the Legal Transactions Taxation Act if the purpose and assets tests have been met:

  • 50% or more of the assets must consist of real estate;
  • at least 30% of the assets must consist of real estate located in the Netherlands;
  • the real estate is held primarily for operational purposes (purchase, sale or rental).

On the basis of case law, this applies to real estate entities with legal personality (for example, a public limited company (NV) and a private limited liability company (BV)) and to entities without legal personality (for example, a partnership, limited partnership (CV) or a common fund (fonds voor gemene rekening)). The acquisition of participations, however small, in an entity without legal personality that cannot be regarded as a real estate entity, is subject to real estate transfer tax, as this is regarded as an acquisition of a financial interest in the real estate. In such cases, the special rules whereby acquisitions are only subject to taxation if an interest of one third or more is acquired do not apply.

This leads to the incongruous situation whereby acquisitions in real estate funds without legal personality that hold less than 30% Dutch real estate, are always subject to real estate transfer tax, while acquisitions of participations in similar funds and real estate funds with legal personality that are regarded real estate entities, are only subject to tax in respect of acquired interests of one third or more.

Correction of unequal treatment
The Tax Plan 2014 intends to correct the unequal treatment in the real estate transfer tax between funds without legal personality that do qualify as a real estate entity and those that do not. This will be achieved by amending the Legal Transactions Taxation Act so that each acquisition of a financial interest of less than one third in an investment fund or a fund for the collective investment in transferable securities will not be subject to real estate transfer tax. This means that, in contrast to legal entities, the composition of the assets of these funds is no longer relevant.

It will mainly be foreign (often German) real estate funds without legal personality that own some real estate in the Netherlands (less than 30%) that will benefit from this bill, as the acquisition of minimal participations in these investment funds will no longer be subject to Dutch real estate transfer tax.

However, this must involve an investment fund or fund for the collective investment in transferable securities as referred to in Section 1:1 of the Financial Supervision Act. This means that acquisitions of interests in funds without a legal personality that operate a business involving real estate will be subject to real estate transfer tax, regardless of the size of the interest acquired.

Therefore differences still exist between the direct acquisition of real estate (by way of funds without legal personality) and the indirect acquisition of real estate by way of acquiring shares in a legal entity.

Transfer of real estate by way of funds without legal personality
At present, it is not uncommon for real estate to be transferred by way of the transfer of participations in, for example, a limited partnership or a common fund. The limited partnership is often incorporated for this specific purpose and subsequently holds the economic ownership of the real estate acquired from the party that incorporated the limited partnership, without having to pay real estate transfer tax. By transferring the participations in the limited partnership, whereby no party receives an interest of one third or more, the transfer of the economic ownership of the real estate is not subject to real estate transfer tax.

It is unclear whether this structure will apply to every situation once the bill has been passed. Under the bill, the acquisition of participations in such an entity is only exempt in cases involving an investment fund. The Explanatory Notes to the bill note that the proposed rules for investment funds do not apply if the sole intention is the tax-free transfer of real estate, rather than investment. Investment will more likely be the case if multiple investors and multiple real estate are involved. In any case, it is advisable to review on a case-by-case basis whether an investment is involved and, if necessary, to reach agreement with the Dutch Tax and Customs Administration.