FGR & VBI

New legislation has been proposed to amend the current scheme with regard to exempt investment institutions (vrijgestelde beleggingsinstellingen, VBI) in the corporate income tax. Also, the draft bill contains an amendment for the definition of a fund for joint account (fonds voor gemene rekening, FGR) and provides for transitory law for certain situations affected by the proposed changes.

Discontinued tax liability of open-ended limited partnership

A Dutch limited partnership (commanditaire vennootschap, CV) can now be open-ended or closed. If all the partners have to give their consent to the accession or substitution of a limited partner, there is a closed limited partnership and the partners are liable for the tax on the results. In all other cases, there is an open-ended limited partnership and the results are subject to corporation tax. This distinction is not in line with legislation in other countries and will therefore be discontinued: as of 1 January 2025, open-ended limited partnerships, in principle, are no longer independently liable for taxation, but the result is subject to tax by the partners of that limited partnership.

• Take note! Transitory law has been announced to avoid undesirable tax consequences of this change. This transitory law does not apply to open-ended limited partnerships established after publication of this legislative proposal (19 September 2023, 3.15 PM).

New condition for fund for joint account

If a fund for joint account (fonds voor gemene rekening, FGR) wants to remain independently taxable for corporation tax purposes, it must fulfil a new condition as of 1 January 2025. It will then have to be a qualifying investment fund or a fund for collective investment in securities. The participation must be deemed to be negotiable certificates of participation.

• Take note! Family funds are no longer considered as FGR under the new condition.

Stricter conditions for exempt investment institutions

As of 1 January 2025, only investment funds and institutions for collective investment in securities may be exempt investment institutions (vrijgestelde beleggingsinstellingen, VBI) in accordance with the Financial Supervision Act (Wet op het financieel toezicht, Wft). The exempt investment institution may only offer participation to a wide public or to institutional investors. This discontinues the possibility to use the exempt investment institution regime when investing private assets.

• Take note! Entities that do not meet these new conditions will lose their exempt investment institution status on 1 January 2025, even if the financial year differs from the calendar year.

Transitory law on loss of FGR status

If a fund for joint account (FGR) were no longer independently liable to pay tax as a result of the new definition of the FGR, without further legislation the fund would then have to pay tax on the fictitious profits this would generate. To avoid immediate taxation, transitory law will be introduced. A transfer facility will be introduced to defer taxation. If the transfer facility cannot be applied, then use may possibly be made of a payment facility. The payment can then be spread over a period of ten years.

• Tip! The transitory law also includes a share merger facility for certain shareholders and a temporary exemption of transfer tax.

Advance tax ruling remains partially intact

The introduction of the new definition of the fund for joint account (FGR) on 1 January 2025 may be a reason for the Tax Administration to discontinue an advance tax ruling (ATR). Often, such an ATR also includes other aspects that are not affected by the new definition of the FGR. It is for those aspect that the ATR remains upheld. There is no need to request this in writing.

Regime of fiscal investment institution on investments in property

As of 1 January 2025, an entity that invests directly in property is no longer eligible for application of the regime for fiscal investment institutions (0% corporation tax). The profits of such an entity are therefore taxed at the normal corporation tax rate.

• Tip! If investors in fiscal investment institutions want to continue to invest in Dutch property in a tax neutral manner, there is the option to restructure. This can be done, among other things, by placing the property in an entity that is transparent for Dutch tax purposes.
• Take note! The introduction of the new definition of fiscal investment institutions on 1 January 2025 may be a reason for the Tax Administration to discontinue an advance tax ruling (ATR). The ATR will remain in place for aspects that are not affected by the new definition of the fiscal investment institutions.

Temporary transfer tax exemption

There will be a conditional transfer tax (overdrachtsbelasting, OVB) exemption that relates to the regime no longer being applicable for fiscal investment institutions on entities investing directly in property. The conditional exemption applies from 1 January 2024 until 1 January 2025 and only in the case of a prescribed restructuring for the acquisition of beneficial ownership of property.

• Take note! The exemption applies only if the fiscal investment institutions establishes a transparent entity, acquires the participation in it, transfers the beneficial ownership of the property and then transfers the certificates of participation to the shareholders.

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