DIRECT HOLDING OF REAL ESTATE

This section discusses the most important tax implications of the direct holding of real estate. First, the impact for resident individuals and non-resident individuals is discussed. Thereafter is discussed the impact for resident companies and non-resident companies.

Resident individuals

Personal income tax
Income derived from the real estate such as rental income is subject to individual income tax. If the real estate can qualify as a company or as an asset of an individual company, the income will be taxed in box 1 against a tax rate up to 49.5%. In most cases, direct investment in real estate does not qualify as income taxed in box 1 and will be taxed in box 3.

If the real estate does not qualify as a company or as an asset of an individual company, the real estate is subjected to box 3. Income taxed in box 3 is income out of savings and investments whereby the actual income is not relevant. A fictitious return will be taxed at a flat rate of 36%. 

Deductibility of costs, interest and depreciation
If the real estate falls within box 1, the interest and depreciation costs are deductible from rental income. Buildings are normally depreciated at 2 – 4 % each year and are normally based on the acquisition and improvement costs. Note that deprecation cannot be deducted once a so-called bottom value is reached. If the real estate falls within box 3, the interest and depreciation costs are not deductible since a fictional return will be taxed.

Losses – carry back/forward
If the interest costs and depreciation costs are higher than the rental income, there may be losses. Only if the real estate falls within box 1, the losses may be offset against the Dutch taxable income in box 1 of the previous 3 years and next nine years. 

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals. However, losses can only be offset against other Dutch taxable income. 

Resident companies

Corporate income tax
Business income such as rental income and capital gains are subject to corporate income tax. Business profits up to EUR 200,000 is taxed against a tax rate of 19%. For profits of more than EUR 200,000 are taxed against a tax rate of 25,8%. All income gains and expenses of companies are taken into account on an accrual basis.

Deductibility of costs, interest and depreciation
Companies can deduct interest costs and depreciation costs from rental income. Depreciation of buildings can take place on an annual basis for 2 to 4 percent and is generally based on the acquisition costs and improvement costs if applicable. Note that deprecation cannot be deducted once a so-called bottom value is reached and land sec is not depreciable. 

Anti-tax avoidance directive 
The anti-tax avoidance directive (ATAD) is a directive published by the OECD and implemented by the European member states. ATAD contains interest deductibility restrictions that may affect investors in real estate. 

Losses – carry back/forward
Losses may arise if there is an excess on interest and depreciation allowance over the rental income. Such losses may be offset against Dutch taxable profits of the previous year and against future profits unlimited in time. To the extent that the taxable profit for a year is EUR 1,000,000 or less, that taxable profit can be used in its entirety to offset a loss form a previous year. To the extent that the taxable profit for a year is more than EUR 1,000,000, only 50% of that taxable profit above EUR 1,000,000 can be used to offset a loss from a previous year. This also applies to carry forward. However, carry forward may be denied in case of change in the ultimate ownership in the loss company for more than 30%.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies, since Dutch real estate held by a foreign company is considered to be an enterprise of the non-resident company in the Netherlands.

INDIRECT HOLDING OF REAL ESTATE

This section discusses the most important tax implications of the indirect (shares) holding of real estate. First, the impact for resident individuals and non-resident individuals is discussed. Thereafter is discussed the impact for resident companies and non-resident companies.

Resident individuals

Personal income tax
Individuals who hold 5% or more of the shares in a Dutch company are holders of the so-called substantial interest. Income derived from the substantial interest and income received with the sale of the shares are subjected to 24,50% tax rate up to €67.000 and 33% from €67.000 income tax (box 2).

The shares of individuals who hold less than 5% of the shares in a Dutch company falls within box 3. The actual revenue of the shares will not be taxed, but a fictional return will be taxed at a flat rate of 36%. 

Dividend withholding tax
Shareholders of a Dutch company are subject to a 15% dividend withholding tax in case of distribution of dividends. However, the tax paid is deductible from personal income tax. 

Deductibility of costs, interest payments and depreciation
Interest costs on loans to buy the shares and dividend withholding tax are deductible from the income taxed in box 2. 

Losses
The loss arising from a substantial interest will be offset against the income from a substantial interest of the previous year and the next six years .

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals. However, losses can only be offset against other Dutch taxable income. 

Resident companies

Corporate income tax
Income derived out of shareholding qualify as business income for companies. Business profits up to EUR 200,000 is taxed against a tax rate of 19%. Profits exceeding EUR 200,000 are taxed against a tax rate of 25,8%.

Dividends received from a shareholding of at least 5% in subsidiary are exempt from corporate income tax (participation exemption, in Dutch: deelnemingsvrijstelling). Losses resulting from participating in a subsidiary are not deductible. 

Deductibility of costs, interest payments and depreciation
Interest and depreciation cost may be deductible from the business income. 

Anti-tax avoidance directive 
The anti-tax avoidance directive (ATAD) is a directive published by the OECD and will be implemented by the European countries. ATAD contains certain interest restrictions that may affect investors in real estate. 

Fiscal unity
It is possible for a Dutch corporate entity to form a fiscal unity with its subsidiaries in case an interest of at least 95% is held in the subsidiary. In case of a fiscal unity, losses of the company can be offset against profits made by other companies within the fiscal unity.

Also, real estate can be transferred between entities belonging to the same fiscal unity without corporate income tax being due.

Distribution of income and gains
Dividend paid to another Dutch resident who owns at least 5% of the payers share capital are exempt from dividend withholding tax on the score of the participation exemption (in Dutch: deelnemingsvrijstelling). If a company stops his activities, the liquidation distributions paid to the shareholders are taxed in the same manner as a dividend. In some circumstances, interest and other financing costs paid to related parties can be treated as a dividend. In that case, interest and other costs cannot be deducted from the income. 

Non-resident companies

Corporate income tax
Foreign companies are solely taxed in the Netherlands for Dutch income (e.g. income earned by an enterprise in the Netherlands). 

If a non-resident company held less than 5% of the shares in a Dutch company, no taxes will be due regarding income out of shareholding.

If a non-resident company is a holder of the so-called substantial interest, the company is in principle not liable to tax in the Netherlands. There are, however, some anti-abuse rules. If these rules are applicable, the gains arising on the substantial interest are taxable in the Netherlands.

More information?

For more detailed information and questions please contact your trusted RSM advisor.