This article highlights some aspects of real estate investments via the Netherlands.
Structuring foreign real estate via a Dutch limited liability company ("besloten vennootschap") can offer attractive tax planning opportunities by using the extensive Dutch tax treaty network. Two common structure types are:
- Direct ownership of foreign real estate by a Dutch Company; and
- Dutch Company holding shares in foreign real estate entities.
A Dutch company that has direct ownership in foreign real estate must include, income derived from the real estate (e.g. rent) as part of the world wide income of the Dutch company. However, double tax treaty relief is available in cases where the real estate is located in countries that have a double tax treaty with the Netherlands. This is because the right to tax income from real estate is allocated to the source country under most, if not all, Dutch tax treaties whereby the Netherlands exempts the income.
When selling real estate, the shares of the Dutch Special Purpose Vehicle (holding the real estate) are generally sold. The main reason for this is because under various Dutch tax treaties, the sale of shares in a real estate company is not taxable in the country the real estate is located.
In other words, interposing a Dutch SPV may provide a tax advantage if the state in which the real estate is located does not consider indirect holdings of real estate to be "immovable property". If this is the case, the capital gain on the sale of shares in a qualifying subsidiary would be expected to be only taxable in the Netherlands. However, such a gain will usually be tax exempt in the Netherlands under the Dutch participation exemption.
Where a business is carried on in connection with the real estate, the business is often separated into a separate (local) company as some countries treat passive investments (mere holding of real estate) differently to actual exploitation of the real estate. For instance, in the hospitality industry, hotel real estate is often held via a Dutch SPV whereas the actual hotel business is carried on by a local entity (within the group or by third parties). Germany for one, has a federal corporate income tax and a local municipal tax. The latter (making up for about half of the tax burden) can sometimes be avoided by interposing a Dutch SPV.
The changes to the Dutch participation exemption, as of 1 January 2007, have also improved the attractiveness of the Netherlands as a jurisdiction for holding European property.
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.
