Commercial

Commercial in The Netherlands: Overview

by Michiel de Wit (Lexence N.V.) and Arjan Endhoven (BDO Accountants & Belastingadviseurs B.V.)

A Q&A guide to corporate real estate law in The Netherlands.

The Q&A gives a high level overview of the corporate real estate market; real estate investment structures, including REITs; title; tenure; sale of real estate; seller’s liability; due diligence; warranties; real estate tax and mitigation, including VAT and stamp duty/transfer tax; climate change targets; restrictions on foreign ownership; real estate finance; leases; planning law; and proposals for reform.

The Commercial Real Estate Market

  1. What have been the main trends in the real estate market in your jurisdiction over the last 12 months? What have been the most significant deals?

Demand for real estate investments from institutional investors has been strong over the last few years, in the context of low interest rates and bond yields. In the Netherlands, real estate generally offers an alternative source of stable long-term rental income-based returns that are frequently inflation-hedged through price indexation. Unless interest rates rise significantly, which is not expected in the near future, this attractive investment outlook looks set to remain intact.

Although the 2019 novel coronavirus disease (COVID-19) crisis has heavily affected the Dutch economy, capital flows into real estate are expected to remain in the near future. This also applies to international capital, which continues to target the Dutch market. For the past five years, foreign investors have accounted for more than half of total investment flows into the country.

The investment market has been underpinned by the slow release of new supply after developments were brought to a halt during the 2008 financial crisis. Finding quality assets has become the biggest challenge for many investors. Initial yields and yield spreads continue to tighten in core sectors and prime markets, especially in and around the four largest cities of the country (Randstad). In a market where core assets in big cities are scarce, more and more capital is being allocated to the regional cities, such as Eindhoven, Deventer, Leeuwarden, Groningen, and Zwolle. In 2019, about 70% of the total number of transactions took place outside the big cities.

It is generally assumed that physical risks, for example flood risks, in the Netherlands are limited compared to other countries. However, floods have affected the Netherlands recently, particularly in the south. Recent developments (such as the nitrogen and PFAS crises) show that physical sustainability risks have a major impact that can affect the Dutch real estate sector.

Some investors are becoming more cautious and adopting shorter-term strategies, by entering closed-end funds with more “core-plus” or “value-add” investment style propositions. A select number of investors are looking at higher-yielding alternative niche property segments such as health care, student housing, and senior living, where there is scarcity of product and attractive growth opportunities. These niches have become more professionalised.

Offices

Economic growth over the past couple of years, and the conversion of office space during and shortly after the financial crisis, have caused a steep decrease in vacancies in the office market. Due to good infrastructure, high education levels, and high standards of living, the Netherlands and especially Amsterdam are generally considered an attractive place for doing business. Brexit has already caused companies and agencies, such as the European Medicine Agency, to move to Amsterdam, and it is expected that more companies will follow.

The increasing demand for office space in the country’s two prime business locations (Amsterdam Zuidas business district and Amsterdam city centre) have caused rents to go up and incentives to be limited. For this reason, some tenants now prefer to move to alternative offices in and near Amsterdam. Other companies also appear to prefer to move out of Amsterdam for this reason. The upcoming Utrecht Central Station district appears to be a popular alternative to Amsterdam.

The impact of the COVID-19 government measures on the demand for office space remains to be seen. However, the outlook for the office market has become more positive due to a low unemployment rate, therefore increasing demand and decreasing supply.

Residential

Investment in the residential real estate sector overtook offices and retail in the Netherlands in terms of total volumes. 2021 has shown a temporary decline in investment volume: many transactions took place in Q4 2020 due to the increased transfer tax in January 2021 and investors are waiting to see the impact of this on price formation. Continued investment pressure will have a price stabilising effect.

The sector is growing in importance thanks to sustained demand for housing, which remains under pressure due to the rising number of households. Economic growth and the trend of urbanisation have caused an imbalance between supply and demand. The housing shortage in many markets, driven by the ongoing lag in construction in recent years, has so far continued to push up prices. For example, the Dutch residential market is expected to remain relatively resilient in an economic recession thanks to the structural shortfall in supply. To create more balance, the Dutch Government has announced various new regulations, both on a national and local level.

New foreign investors, representing both private and institutional capital, have entered the Dutch residential market in the last couple of years. To date, foreign investors have invested more than EUR9 billion in the Dutch residential market. For example:

  • Sweden’s Heimstaden acquired almost 10,000 residential units at once for a transaction price of about EUR1.4 billion.
  • Canada-based Eres/Capreit currently owns more than 5,600 residential units.
  • Germany’s Patrizia owns about 3,000 residential units.
  • US-based Blackstone has acquired more than 1,400 residential units over the last years for a total of EUR500 million.

Retail

Largely due to the mandatory closing of non-essential shops throughout the first quarter, retail market investment activity almost came to a complete standstill in the first quarter of 2021. Although market conditions somewhat recovered after non-essential shops reopened in the subsequent second quarter, appetite is still low.

In the retail market, stakeholders pre-COVID were already looking for new balance, knowing that the offline retail market was already undergoing major structural changes due to the advent of alternative information and sales channels.

Logistics

The rise of e-commerce and relatively stable economic conditions have contributed to strong demand in Dutch logistics real estate over the past years, especially in the country’s logistics hotspots near the ports and along the southern border. This year, the logistics market has turned out to have very strong foundations. Export recovered by +32.6% in the second quarter of 2021 compared to the second quarter of 2020, and sales of online retail increased rapidly in 2021.

However, the supply of logistics property is increasingly scarce and construction costs are high. Overall, there is a true “war on land”, as the demand for both residential and logistics space is sharply increasing near Dutch cities, while available plots grow increasingly scarce. It is therefore generally expected that pressure on the logistics market will continue to grow, with rising rents and low yields as a result. However, there is increased public concern about the “boxing” of the Dutch landscape and calls on the Dutch Government to restrict and control new logistics developments.

There is increasing interest from investors in rooftop solar projects for logistics properties, generating onsite renewable energy and making efficient use of large rooftop areas.

COVID-19

This article was drafted nearly 16 months after the outbreak of COVID-19 in the Netherlands. Developments in the Dutch real estate sector as a direct result of the pandemic include:

  • An increased demand for online shopping at the expense of visits to physical stores.
  • Mass remote working.
  • A focus on “de-densification” of office and leisure space.

As such, COVID-19 appears to have accelerated some of the trends described in this article. The lasting effects of the outbreak on the Dutch real estate market and on legal and tax developments remain unclear and difficult to predict. Analysts argue that the Dutch property market fundamentals remain relatively strong and that the impact of the outbreak will be minimal in the long term.

Real Estate Investment

Investment Structures

  1. What entity types and acquisition structures do investors typically use for real estate investment in your jurisdiction?

Common Entity Types

The most common corporate forms used to acquire real estate in the Netherlands are Dutch private companies, such as NVs and BVs.

In addition, co-operatives (coop), (fiscally) opaque and transparent limited partnerships (CVs), and to a lesser extent mutual funds (FGRs) can be used to invest in and own real estate.

The BV and the NV are both legal corporate entities. The shares of an NV are publicly traded and those of a BV must be transferred by means of a deed of a notary. The BV is a more flexible vehicle than the NV because it is subject to fewer mandatory requirements.

A coop is a collective corporate vehicle in which members pool, for example, their capital, manpower, and resources to obtain a greater group benefit. The articles of association of the coop can exclude the liability of its members. The coop is comparable to a BV but provides more flexibility. For example, the coop is subject to fewer mandatory requirements than the BV and voting and profit rights can be attributed to its members in different ways.

Fiscal Investment Institutions (FBIs)

The Netherlands does not have real estate investment trusts (REITs) but has fiscal investment institutions (FBI) that benefit from a regime similar to foreign regimes applicable to REITs.

Entities with FBI status are subject to corporate income tax at a rate of 0%. Dividends distributed by the FBI are in principle subject to dividend withholding tax at a rate of 15%.

FBIs are subject to certain strict requirements, such as debt levels, governance requirements, shareholder requirements, and mandatory distribution of proceeds. An FBI does not require listing on a stock exchange.

The Dutch tax regime is undergoing significant changes due to the OECD Base Erosion and Profit Shifting project and related EU directives. The Dutch Government is currently (re)examining the FBI regime. The findings and recommendations following this examination are expected early 2022. In this respect, the FBI regime may subsequently be amended in time (most likely in relation to foreign ownership of real estate).

Common Acquisition Methods

A real estate transaction can be structured in many different ways. Direct real estate transactions in the Netherlands are often structured as asset deals. Few statutory requirements apply to purchase agreements. For example, a purchase agreement does not necessarily need to be in the form of a notarial deed.

An acquisition of Dutch real estate can also be structured as a share deal, effected by way of a share purchase agreement. The choice of a share deal (instead of an asset deal) is almost always motivated by tax savings.

For example, in an asset deal, corporate income tax is due on the taxable profits realised on the transaction (the difference between the higher market value and the fiscal book value of the property). In a share deal, this tax liability can be deferred. As such, no corporate income tax is due at the moment of the share transfer. This effect will be included in the takeover balance sheet for the share transfer. As such, the benefit/tax advantage can be split between the seller (saving of taxes) and the buyer (lower purchase price).

In practice, a real estate-based share deal can generally be considered more complex than a “regular” asset deal due to the required multidisciplinary expertise, typically resulting in higher advisory costs.

Although auctions do exist, they are not commonly used to purchase commercial real estate in the Netherlands.

Sources of Finance and Investment

  1. What are the main sources of finance and types of investors for real estate investment in your jurisdiction? Does your government encourage overseas investment into real estate in your jurisdiction, for example through real estate investment legislation?

The main sources of finance are banks, institutional investors, and family businesses.

There are incentives for overseas investors. Foreign investors may benefit from the Netherlands’ network of double taxation agreements.

Restrictions on Foreign Ownership and Occupation

  1. Are there restrictions on foreign ownership or occupation of real estate (including foreign ownership of shares in companies holding real estate)? Are there restrictions on foreign lending, security and guarantees to buy or occupy real estate in your jurisdiction?

Foreign Ownership of Real Estate

Dutch and foreign nationals are in principle treated equally in real estate transactions. There is no distinction between Dutch and foreign investors in relation to immovable property, guarantees, security, or lenders.

The same restrictions apply to both Dutch parties and foreign nationals, in terms of direct ownership of real estate in the Netherlands (by companies and individuals), indirect ownership (of shares in companies holding real estate in the Netherlands), and disclosure of beneficial ownership to the tax authorities.

However, the contracting parties may include contractual restrictions, for example, that guarantees must be provided by a Dutch financial institution of good standing.

Foreign Lending, Security, and Guarantees

See above, Foreign Ownership of Real Estate.

Title to Real Estate

Title Registration

  1. How is title to real estate evidenced? What is the system for public registration/recordation of title? Is electronic access and electronic conveyancing available?

How Title is Evidenced

A notarial deed of transfer of title (transfer deed) contains evidence to title to real estate. The purchase agreement forms the basis of the transfer deed. The transfer deed must be signed by all parties and executed by a Dutch civil law notary, who then submits a certified copy electronically to the Dutch Land Registry (Kadaster). The transfer is complete on registration of the certified copy.

After completion, the new owner is provided with an official copy of the transfer deed and a copy of the proof of registration from the Land Registry.

Registration/recordation in the Land Registry is compulsory to effect the legal transfer of ownership.

Public Registration/Recordation System

Title is registered at the Land Registry (see above, How Title is Evidenced).

The Land Registry collects and registers administrative and spatial data on property and property rights.

Electronic Access and Conveyancing

Electronic access and conveyancing is available on payment of a fee. Electronic signatures are accepted by the Land Registry. Further information is available on the Land Registry website.

  1. What are the main information and documents registered/recorded in the public registration/recordation system? Can confidential information or documents be protected from disclosure?

Main Information and Documents

The creation and transfer of rights in rem over real estate, third party rights, and mortgages are registered with the Land Registry (see Question 5).

Confidential Information

Confidential information or documents cannot be protected from disclosure.

  1. Is there a state guarantee of title? Are authorities that manage public title registration/recordation systems liable for title registration errors? Is title insurance available and is it commonly used?

State Guarantee of Title and Compensation

There is no state guarantee of title in the Netherlands.

Under section 117 of the Land Registry Act, compensation can be claimed from the Land Registry in case of errors. The relevant civil notary is liable for any attributable mistake. A correction or rectification can be requested from the Land Registry.

Title Insurance

Title insurance is available but not commonly used in the Netherlands. The registration process generally gives the buyer an appropriate level of security.

Types of Tenure

  1. How can real estate be held (that is, what types of tenure and other main ownership rights exist over land)?

Freehold Title/Absolute Ownership

Absolute (full) ownership of land is available and includes ownership of all its constituent parts (everything above and beneath the surface) by way of accession (natrekking). This includes all buildings and underground structures, except underground cables and pipes (section 5:20, Dutch Civil Code (Burgerlijk Wetboek) (DCC)).

Co ownership is also possible under Dutch civil law (section 3.166, DCC).

Leasehold Title

Leasehold (also referred to as long lease) (usually 50, 100 years, or perpetual) is a very common way of holding property owned by the municipalities of Amsterdam, Rotterdam, and The Hague. Being a right in rem under Dutch civil law, leasehold rights can be transferred or mortgaged (section 5:85, DCC).

Condominium Ownership/Equivalent

Apartment rights (condominium) include:

  • An individual share in the common ownership of a property.
  • The right to the exclusive use of a part of the property.

(Section 5:109, DCC.)

An apartment right as such can be transferred or mortgaged.

Other Rights

Right of superficies is the right to hold and maintain buildings, constructions, or plants in, on, or above land owned by another party.

Most real estate law is incorporated in the DCC, which contains the rules on entitlement, use, sale and purchase, transfer, and encumbrances of real estate.

The DCC distinguishes between rights in rem and rights in personam (that is, rights over a specific property as opposed to rights in the performance of obligations).

A right in rem is absolute if it is explicitly recognised as such in the DCC. Rights in rem are enforceable against third parties. The most common absolute rights over real estate are ownership and leasehold rights, rights of superficies, easements, and mortgages.

Common personal rights in real estate are leases, agricultural leases, beneficial ownership, and rights derived from a sale and purchase agreement.

Sale of Real Estate

Preliminary Agreements

  1. What types of preliminary agreements are typically used in the sale of real estate and are they legally binding?

The preliminary agreements used depend on the size and complexity of the transaction. Typically, a real estate transaction starts with an investment memorandum (IM), which is a non-binding brochure used for marketing purposes. Preliminary agreements that can be used include a:

  • Non-disclosure agreement, which is a binding confidentiality agreement signed by a potential buyer before entering into the sale process.
  • Letter of intent (LOI), which often contains a first offer by the potential buyer(s), subject to certain reservations and generally due diligence. The LOI can contain both binding and non-binding provisions.

Sale Contract

  1. Briefly outline the typical main provisions of a commercial real estate sale contract and main real estate provisions of a typical share purchase agreement.

Commercial Real Estate Sale Contracts

The following provisions are typically included in a commercial real estate sale contract:

  • Parties.
  • Description of the property.
  • Purchase price and security.
  • Transfer date.
  • Tax provisions
  • Conditions of sale (special conditions, easements, warranties granted to the buyer, conditions imposed on the buyer, conditions subsequent and precedent, and so on).
  • Information on due diligence and disclosure obligation.
  • Caps and limitations on liability.
  • Environmental information (soil, asbestos, and so on).
  • Information on occupants (tenants, holders of rights in rem, and so on).
  • Information on pre-emption rights and other rights.
  • Information on benefits, property charges, and other charges.

Although they are used for smaller, straightforward real estate transactions, standard terms and conditions are not commonly used in a commercial real estate contract.

Share Purchase Agreements: Real Estate Provisions

A share purchase agreement generally includes the same key information, as well as:

  • The purchase price of the shares and payment methods.
  • Pre-closing obligations. If the signing of the share purchase agreement takes place at a different time than closing (transfer of ownership of the shares), the target company is often contractually bound not to take any action other than day-to-day management.
  • Closing obligations (dismissal of directors and the auditor, registration of the transfer in the shareholders’ register, and so on).
  • Post-closing obligations (discharging previous directors and auditor).
  • Seller’s and buyer’s representations and warranties.
  • Dispute resolution.

Due Diligence

  1. What real estate due diligence is typically carried out before an acquisition?

The buyer and seller agree on the scope of the investigations in a letter of intent, which will differ depending on the specific transaction. As a general rule, it is advised to conduct legal due diligence on:

  • Legal impediments to the sale/purchase transaction.
  • Sale/purchase contracts, conveyance deeds, and mortgage deeds.
  • Legal structures (ownership, ground leases, long-term leases, building rights, easements, and apartment rights) and their implementation.
  • Legal issues relating to asset management.
  • Leases. Lease agreements will automatically transfer to the buyer on transfer of the real estate.
  • Zoning. The potentially development and use of a plot depend on the zoning plan (see Question 42 and Question 43).

Legal due diligence is typically performed by a law firm. The law firm usually produces a red amber green (RAG) report, indicating the necessary and transaction-related information to verify the accuracy and completeness of the seller’s representations and warranties. The report should place the buyer in a better position to:

  • Negotiate or adjust the purchase price.
  • Tailor the appropriate representations, warranties, and indemnities to be obtained from the seller.
  • Identify, understand, and quantify the risks and liabilities associated with the real estate, and mitigations.

A technical due diligence is also typically performed. This provides insight into the costs and risks involved in owning the real estate. In addition to the technical condition of the real estate, environmental aspects (such as the presence of asbestos and soil pollution) are typically investigated. Technical due diligence is typically performed by specialised companies. Almost all major broker firms have their own specialised department.

Sellers’ Warranties

  1. What real estate warranties are typically given by a seller to a buyer in the sale of commercial real estate? What are the main limitations on warranties, for example, qualified by knowledge and disclosure?

The seller typically warrants that:

  • It holds title to the property.
  • The rental income is as stated in an enclosure to the sale and purchase agreement.

Generally, the warranties given differ between an asset sale (of the real estate alone) and a share sale, in that a share sale will include more warranties, for example to also cover topics other than the real estate itself.

Warranties are typically qualified by disclosure and investigations carried out during the due diligence.

Liability

  1. Does a seller have any statutory or other liability to the buyer in a disposal of commercial real estate?

The seller must:

  • Transfer legal title to the property.
  • Disclose information to the buyer that is substantially relevant to the buyer’s purchase decision.

Environmental Issues

  1. Briefly outline the environmental legislation and potential liability in a purchase of real estate. Is it common to carry out environmental due diligence and obtain environmental insurance? How is environmental liability typically dealt with in the sale contract?

Environmental Legislation and Liability

Both a former owner and the current owner may be subject to environmental liability, based on the Environmental Management Act. The current owner is responsible for the quality of its land. It must prevent soil pollution and remove (remediate) pollution that it has caused as quickly as possible.

A former owner may be subject to environmental liability if the pollution can be attributed to its actions. A limitation period applies of five years after the day on which the preventive and remedial measures have been fully completed by, or on behalf of, the competent authority (section 17.17, Environmental Management Act). If the causative agent is not identified until after the date on which the measures have been completed, the period of five years starts from the moment of its identification.

Environmental Due Diligence and Insurance

It is market practice for a buyer to carry out environmental surveys before acquiring commercial real estate. In practice, whether a buyer carries out environmental searches typically depends on the specific situation and asset class.

It is not common for a buyer to obtain environmental insurance before acquiring commercial real estate.

Environmental Issues in the Sale Contract

Typically, the parties agree on how to deal with environmental liability in the sale contract. There is no common way for parties to deal with such liability. Typically, a buyer wishes to place the liability for environmental issues onto the seller and vice versa. In any case, a special clause is typically inserted into the sale contract on environmental liability.

  1. What types of liability can a buyer inherit relating to the real estate? Can a seller retain liability relating to the real estate after the sale?

Buyer Inheriting Liability

From the date of transfer, the owner (buyer) is liable for any matters that occur in relation to the property. Under environmental law (soil pollution) (see Question 14), the public authorities can take action against the owner or the polluter, which may be the seller. Depending on the content of the sale contract, the buyer may have a right of recourse against the seller.

Seller Retaining Liability

See above, Buyer Inheriting Liability.

Exchange and Completion/Closing

  1. When does the sale become legally binding? What are the main documents and formalities for exchange and completion/closing of the sale? When does title transfer? Is notarisation required?

When Legally Binding

Primarily, an agreement is concluded by an offer and its acceptance (section 6:217, DCC).

Offer is not expressly defined in the law. It is generally accepted that, to legally qualify as an offer as referred to in section 6:217 DCC, it must at least meet the following three requirements:

  • The proposal (a unilateral juridical act) must have legal effect (for example, the conclusion of an agreement). A juridical act requires an intention to produce a juridical effect manifested by a declaration (section 3:33, DCC).
  • The proposal must be addressed to one or more specific parties (who can conclude the agreement by accepting the offer). This element refers to the focus of the offer. It can be addressed to a single party, to several parties, or even to the entire public (public offer). However, without one or more addressed parties, an independent offer cannot exist.
  • The offer must be sufficiently determinable. In other words, the offer must be formulated so that the mere acceptance of it results in an agreement. This assumes that the content of the agreement must be sufficiently apparent from the offer.

Further, under section 6:227 of the DCC, the obligations that parties assume must be determinable.

Generally, under Dutch law, entering into agreements does not require specific formalities.

However, if the buyer is a natural person (not acting in the exercise of a profession or business) of an immovable property (or part of it) intended for residential purposes, the agreement must be in writing. Any deed drawn up between the parties or a copy of it must be handed over to the buyer and (if required) against submission to the seller of a dated receipt. The buyer has the right to cancel the purchase during three days after this handover.

Further, there are situations where negotiations of an agreement have reached such a stage that breaking off the negotiations is regarded as an unlawful act in the circumstances. In this case, breaking off the negotiations can be considered unacceptable, based on the legitimate expectations of the other party regarding the conclusion of the agreement.

A deposit is typically agreed, as security for the fulfilment of obligations. In the residential market, a deposit of 10% of the purchase price is market practice. This is commonly deviated from in commercial real estate practice.

Completion/Closing Documents

The sale contract and transfer deed are the main documents required for completion of the sale and change of title.

The main documents required to complete a sale of real estate through a share sale are the share purchase agreement and transfer deed.

When Title Transfers

The transfer deed must be signed by/on behalf of all parties and executed by a Dutch civil law notary, who then submits a certified copy electronically to the Land Registry. The transfer of the real estate to the new owner is complete on registration of the certified copy.

Both the buyer and the seller can have the deed registered (section 3:89, DCC).

After completion, the new owner is provided with an official copy of the transfer deed and a copy of the proof of registration from the Land Registry.

Notarisation

The transfer deed must be signed by/on behalf of all parties and executed by a Dutch civil law notary, who then submits a certified copy electronically to the Land Registry.

Notarisation fees are charged by the civil law notary.

Real Estate Tax

Stamp Duty/Transfer Tax

  1. Is stamp duty/transfer tax (or equivalent) payable on a purchase of real estate? Who pays, what are the rates and are there any exemptions? Does it apply to the transfer of shares in a company holding real estate and at what rate?

Stamp Duty/Transfer Tax

Real estate transfer tax (RETT) is levied on the acquisition of legal and economic ownership or certain rights over immovable property in the Netherlands.

Who Pays and Typical Tax Rates

Transfer tax is payable by the buyer.

The taxable base is generally the fair market value of the acquired property. The minimum taxable base is the consideration paid.

The rate is 8% for all types of real estate (2021), subject to the following exceptions:

  • Buyers aged at least 18 years and younger than 35 are, on request, exempt from RETT on the acquisition of their home if the fair market value of the property does not exceed EUR400,000 and the buyer:
    • has not applied this exemption before and declares this by means of a written statement; and
    • by means of a written statement, declares that the property will serve as their home.
  • Individuals aged 35 years and older and other individuals not applying the above exemption can apply a 2% RETT rate if the acquired real estate serves as their home.

Exemptions

Various transfers are exempt, subject to conditions, including:

  • Transfers following various corporate reorganisations.
  • Transfers of newly constructed buildings if the transfer is subject to non-deductible VAT. If a building is transferred within six months following first use or rent, this exemption also applies if the VAT can be partially deducted.
  • Transfers on death of the owner.

Transfer of Shares

An acquisition of shares in a real estate company is also subject to RETT if both:

  • The acquisition gives the buyer a substantial interest in that company (at least one-third).
  • More than 50% of the assets of the real estate company consist of immovable property, of which at least 30% is located in the Netherlands.

There is no stamp duty and no capital duty.

Tax on Seller’s Profits/Gain

  1. Is tax imposed on a seller’s profit or gain on a sale of real estate? What are the rates and are there any exemptions? Does it apply to a transfer of shares in a company holding real estate and at what rate?

Tax on Seller’s Profits/Gain

Corporate income tax. Capital gains and losses are included in ordinary taxable income. Capital gains and losses are calculated as the difference between the sale proceeds and the book value of the asset.

The general rule of sound business practice is that capital gains are not taxed until they are realised. Capital losses can be deducted as soon as they can be reasonably expected.

Individual income tax. For regular, non-entrepreneurial, individual taxpayers, capital gains are generally not separately taxable, but may be included in the taxable base for Box 3 (see below, Typical Tax Rates).

Investment income, including capital gains, is taxed at a flat rate in Box 3, which is based on a weighted notional yield on net assets. There is no deduction for expenses associated with deriving Box 3 income.

Capital gains derived from the disposal of business assets (for example, real estate) qualify as business income as part of Box 1. Capital gains and losses in this respect are calculated as the difference between the sale proceeds and the book value of the asset.

Typical Tax Rates

Corporate income tax. The corporate income tax rates for 2022 are:

  • 15% on profits up to EUR395,000.
  • 25.8% on the excess.

The same rates apply to capital gains.

Individual income tax: Box 3. A weighted notional yield is assigned to a fictional “savings” portion of the assets and a fictional “investment” portion of the assets (a deemed asset mix is used). This notional yield is taxed at a flat rate of 31% (for 2021).

However, in December 2021 the Dutch Supreme Court ruled that the current Box 3 regime may be in conflict with supranational legislation, following which the Dutch government announced a revision of the law. Any further developments in this respect are expected during 2022.

Individual income tax: Box 1. From 1 January 2021, the rates applied to income falling under Box 1 are:

  • Up to and including 35,129: 37.1%. This includes social security contributions (at 27.65%).
  • EUR35,130 to 68,507: 37.1%.
  • Over EUR68,507: 49.5%.

Transfer of Shares

Corporate income tax. Capital gains or losses realised on the disposal of a qualifying shareholding are exempt under the participation exemption.

The participation exemption applies if both:

  • The company holds a participation of 5% or more in the nominal paid-up capital of this shareholding.
  • The shareholding is not a “non-qualifying investment participation”.

A non-qualifying investment participation exists if the following question A is answered affirmative, and either question B1 or B2 is also answered affirmative:

  • A. Is the participation held for purely investment purposes?
  • B1. Is the participation subject to tax on its profits of less than 10%?
  • B2. Do 50% or more of the participation’s assets, together with the assets of any subsidiary of the participation, consist of “low-tax free investments”? In this context, investments in real estate are not low-tax free investments.

Capital gains or losses realised on investments of the company that do not qualify for the participation exemption are subject to corporate income tax, at the company level.

Individual income taxation: Box 2. Capital gains in connection with a substantial shareholding are subject to tax at a flat rate of 26.9%.

A substantial shareholding exists if the taxpayer owns, alone or together with their spouse (or partner), directly or indirectly, at least 5% of the issued share capital, or at least 5% of a particular class of shares, in a company.

In family companies, a substantial shareholding may also exist if the taxpayer has a smaller holding, provided that their lineal ascendant or descendant owns a substantial shareholding in the same company.

Capital losses and costs, such as interest, relating to a substantial shareholding are deductible, in the first instance, from income of another source in the same box. Further, 26.9% of any excess is creditable against the tax due on the taxpayer’s Box 1 income.

Exemptions

See above, Transfer of Shares.

  1. Are any methods commonly used to mitigate transfer tax liability on acquisitions of real estate, or tax on gains from the sale of real property?

Individual Income Tax and Corporate Income Tax

An individual business owner qualifying for Box 1 (see Question 18) or a company alienating an asset can create a reinvestment reserve with the sale proceeds, if the business/company genuinely intends to reinvest this amount (subject to further conditions). As such, taxation of the gain can be deferred by allocating the gain to this reinvestment reserve.

The reinvestment must take place within three years, otherwise the reserve must be added to taxable profits.

The new asset need not have the same economic function, unless the alienated asset is not depreciated or is depreciated over a period of more than ten years.

A reserve formed after alienation of immovable property located in the Netherlands can also be used for reinvestments in immovable property outside the Netherlands. Additional conditions apply.

RETT and VAT

An acquisition of shares in a legal entity holding real estate is exempt from RETT if the buyer obtains less than a one-third interest in the entity. Therefore, co-operation between independent third parties that each acquires less than one-third of the entity may be considered.

A transfer of newly built real estate or building land is subject to VAT and exempt from RETT. In appropriate cases, it may be possible to do work on the property or the land so that it qualifies as “newly built” for VAT purposes. A property is considered newly built until two years after it is first occupied.

The Dutch tax authorities can prevent the implementation of a structure if there is an evident abuse of law.

Value Added Tax (VAT) or Equivalent

  1. Is VAT (or equivalent) payable on a sale of real estate? Who pays? What are the rates? Are there any exemptions?

VAT/Equivalent

Generally, an acquisition of real estate property is exempt from VAT. Some exceptions apply, in which case VAT is levied at a 21% rate, for example:

  • An acquisition of newly built real estate or a vacant building site is subject to VAT (see Question 19). Both RETT and VAT are payable if new property has been used as an operating asset and the buyer is a business under the Dutch VAT Act.
  • The parties can opt for a transfer to be subject to VAT if:
    • both the seller and buyer are entrepreneurs under the Dutch VAT Act; and
    • the buyer will use 90% or more of the property for business activities that are subject to VAT.

If the parties opt for VAT, both VAT and RETT at 8% (2021) will be payable. VAT can usually be offset against VAT received or reclaimed from the tax office insofar as the entrepreneur uses the property for VAT taxable activities.

In certain situations, it may be desirable to opt for VAT. For example, if the seller deducted VAT on the purchase of the property (within the previous ten years, which is the “review period” for VAT purposes). If a subsequent sale of the property within the review period of ten years is not subject to VAT, the previously deducted VAT on the purchase of the property must be refunded to the Dutch Tax Authorities. To prevent this, the seller would prefer to opt for a transaction to be subject to VAT.

Who Pays and Typical Tax Rate

VAT on real estate transactions is levied at a 21% rate. This VAT increases the purchase price of the real estate and must be paid to the Dutch Tax Authorities by the seller.

However, if the parties explicitly opt for a transaction to be subject to VAT, the buyer must pay the VAT to the Dutch Tax Authorities.

In both cases, VAT is in effect levied on the buyer.

Exemptions

A transfer of real estate is VAT-exempt if it takes place at least two years after the first actual use.

A transfer of the whole or part of a business (including any real estate property) is exempt if the buyer continues the respective business activities. If individual assets relating to the business are transferred, this exemption cannot be applied.

Municipal/Local Taxes

  1. Are municipal/local taxes paid on the occupation or ownership of business premises or business ownership? Are there any exemptions?

Real Estate Tax

A local real estate tax is levied annually by the municipalities. For commercial property, this is levied on both the owner and user of immovable property. For private property, real estate tax is only levied on the owner. The tax applies to both resident and non-resident owners and users.

The taxable base is the municipal property value (WOZ value). The tax rate differs in each municipality. Different rates may apply to commercial property and private property.

Real estate tax is deductible for corporate income tax purposes for entrepreneurs.

Landlord Charge

A landlord charge applies to resident and non-resident taxpayers who rent out more than 50 houses in the regulated housing sector.

The tax base is generally the total WOZ value of the properties minus 50 times the average WOZ value of the properties. For 2021, the applicable rate was 0.526%. The landlord charge is deductible for corporate income tax purposes.

As of 1 January 2022, the landlord charge rate is amended to 0.332%. Further, the presented coalition agreement indicates that the new Dutch Government intends to abolish the landlord charge from 2023 onwards.

Climate Change Issues

  1. Are there targets or incentives to reduce greenhouse gas emissions from buildings in your jurisdiction? Is there legislation requiring buildings to meet certain minimum energy efficiency criteria?

From 1 January 2023 onwards, office buildings larger than 100 square metres must have an energy index of 1.3 or lower. Currently, an energy index of 1.3 is equal to an energy label class C. The next label step will be in 2030, when all offices will be required to have an energy label class A. Although the label C requirement for offices will not be enforceable before 2023, alterations to achieve an energy index of 1.3 may in some cases already be necessary to comply with other regulations.

Companies must also comply with the energy saving regulations listed in the Activities Decree (Activiteitenbesluit). They can achieve compliance by:

  • Reducing their energy consumption.
  • Using sustainable technologies.
  • Using renewable energy sources.

If a company’s annual energy consumption exceeds 50,000 kWh (electricity) or 25,000 m3 (gas), it must take energy-saving measures if it can recover the cost in less than five years. Recognised energy saving measures have been laid down for each sector.

For new buildings additional regulations apply such as, but not limited to, rules on the environmental performance of new buildings (MilieuPrestatie Gebouwen, MPG) and requirements for the energy performance of new buildings (Bijna Energieneutrale Gebouwen, BENG).

The Income Tax Law includes the following incentives to encourage sustainable practices by real estate entrepreneurs:

  • Energy Investment Allowance (EIA). The EIA allows for additional deductions from taxable income. This applies to qualifying investments in energy-efficient technologies that are included in the Energy List, which is determined annually by ministerial regulation. The deductible amount is 45% of the qualifying energy investment.
  • Environmental Investment Deduction (MIA). The MIA also allows for additional deductions from taxable income for qualifying investments in environmentally friendly technologies included in the Environment List. The deductible amount depends on the category in which the qualifying investment is included (2022: Category I: 45%; Category II: 36%; Category III: 27%). The MIA cannot be applied simultaneously with the EIA.
  • Arbitrary Depreciation of Environmental Investments (Vamil). The Vamil allows for a depreciation of 75% of investments included in the Environment List at any time. The Vamil cannot be applied simultaneously with the EIA. Depending on the investment, the Vamil and MIA can be applied simultaneously.

The budget for EIA and MIA is limited so applications are handled on a first come first serve principle.

  1. Are provisions relating to the energy efficiency of buildings commonly included in contracts for the sale of real estate or in leases (for example, green leases)?

Provisions relating to the energy efficiency of buildings are not yet commonly included in sale and lease agreements. However, parties are increasingly showing (non-binding) interest in, and setting higher requirements for, the sustainability of premises (especially new buildings).

Real Estate Finance

Secured Lending Involving Real Estate

  1. Briefly outline the typical security package required by lenders in relation to commercial real estate lending. How are the most common forms of security interest relating to real estate created and perfected? Is there a mortgage tax/registration fee?

Typical Security Package

The most common form of security relating to real estate is a mortgage (hypotheekrecht). A mortgage is a security right in rem over land and buildings erected on the land.

Another common form of security is a (first ranking) pledge over receivables, such as lease receivables (rental income), bank accounts, and insurance receivables. A Dutch law pledge can be a disclosed or an undisclosed pledge.

Common Forms of Security

A mortgage is created by means of a notarial deed executed before a Dutch civil law notary and subsequently registered with the Land Registry.

A disclosed pledge requires notification to each individual debtor.

An agreement that contains an undisclosed pledge must be either:

  • Submitted to the Dutch tax authorities for registration.
  • Executed before a Dutch civil law notary.

Mortgage Tax/Registration Fees

The Land Registry charges a small administrative fee for processing the registration of a mortgage.

  1. What other real estate related measures do lenders typically take to protect themselves against default by the borrower?

Lenders typically require the following protective measures: