Dutch Spring Budget Statement 2023: Real Estate Tax Measures
On 28 April 2023, the Dutch Ministry of Finance published the annual Spring Budget Statement. In this Statement, several announcements were included that are highly relevant for the real estate investment industry.
The most notable being:
- a contemplated tightening of the earnings stripping rule to exclude real estate companies from the EUR 1 million de minimis threshold, and
- an update on the planned abolishment of the real estate transfer tax exemption for the acquisition of shares in companies that own “newly built” real estate.
The details included in the Spring Budget Statement are limited. The summary below outlines the information that is currently available and also highlights other measures.
1. Earnings Stripping Rule
The Dutch Ministry of Finance announced that ‘real estate companies’ will be excluded from the de minimis threshold of EUR 1 million included in the earnings stripping rule. Under this rule and shortly put, interest expenses and fees related to the attracting of such financing (e.g., arrangement fees and notary costs) are limited to the higher of 20% of the taxpayer’s tax-based EBITDA or EUR 1 million.
The Dutch tax authorities observed that real estate investments are commonly separated in different companies to optimise interest deductibility through the de minimis threshold. For this reason, the Ministry of Finance announced its intention to exclude ‘real estate companies that lease (to third parties)’ from eligibility for the EUR 1 million threshold as of 1 January 2025. The legislative proposal will be presented on Budget Day 2025 (i.e., in September 2024).
2. RETT Exemption
Earlier this year, the Dutch Ministry of Finance launched a public consultation that ran until 27 March 2023 for a legislative proposal to abolish the real estate transfer tax (RETT) exemption for the acquisition of shares in companies that own “newly built” real estate for VAT purposes. Under this proposal, all acquisitions of shares in such companies would no longer be eligible for this RETT exemption. This abolishment would also impact the acquisition of shares in companies that own “building plots” for VAT purposes (e.g., in forward funding transactions). The current RETT rate is 10.4% for investment property. You can read more about this consultation here.
In the Spring Budget Statement, the Ministry of Finance confirms that following the public consultation an adjusted legislative proposal is being prepared with transitional law to limit overkill. The Ministry of Finance expects that this measure will become effective on 1 January 2024. The legislative proposal will be presented on Budget Day 2024 (i.e., in September 2023). The Ministry of Finance adds that a delayed effective date given the complexities identified in relation to the transitional law is still on the table.
3. Other Measures
The Spring Budget Statement also mentions that the RETT exemption for demergers may be tightened and that the introduction of a revision term for VAT deduction on the supply of ‘valuable services’ is being investigated. Such revision term would be similar to the revision term applicable to the transfer of newly built real estate and would be relevant for certain capital expenditures (e.g., for renovations and refurbishments). For these other measures no exact timelines are mentioned. The introduction of a VAT revision term for valuable services may possibly be subject to a public consultation.
How Can A&M Help?
If you would like to exchange views or discuss the potential impact of the announced changes for your real estate investments, please feel free to get in touch with your usual A&M adviser, Roel de Vries or Nick Crama.
