On 1 January 2025, the new Dutch tax entity classification rules entered into force, bringing significant changes to the Dutch tax classification framework. As part of these new classification rules, also an amended definition of the fund for joint account (fonds voor gemene rekening; FGR) was introduced. Additional guidance on the amended FGR definition was published in the form of a decree by the Dutch State Secretary for Finance dated 6 December 2024 (Fund Decree).
Even after the Fund Decree, the general view of the market was that there are still various issues/uncertainties in respect of the amended FGR definition. Therefore, in the beginning of 2025, a public consultation was launched to obtain input from the market on these new rules, in particular, relating to the (re)classification of tax transparent Dutch limited partnerships (commanditaire vennootschap; CV) and foreign limited partnerships into a non-transparent FGR (hence, switching from transparent to non-transparent from a Dutch tax perspective – often unintended).
On 12 June 2025, the Dutch State Secretary for Finance issued a letter (Fund Letter) on the outcome of the consultation (which was followed by a round table discussion with various stakeholders on 23 April 2025), and has announced that he will investigate the possibility of further amendments of the FGR definition to take away these issues/uncertainties as much as possible. In the Fund Letter, the Dutch State Secretary for Finance mentions that three main bottle necks (knelpunten) in respect of the current FGR definition can be derived from the consultation (see further below).
FGR definition (recap)
Before going into the details of the Fund Letter, please find below the cumulative criteria that must be met by an investment fund to be (re)classified as a non-transparent FGR.
- The investment fund should invest for joint account (i.e., it should be established for collective investments).
- The investment fund should have a strategy that is classified as ‘normal’ portfolio management (i.e., generally not a ‘value-add’ strategy).
- The investment fund should qualify as an ‘investment fund’ (i.e., an AIF) or ‘fund for collective investment in tradeable securities’ (i.e., a UCITS) within the meaning of the Dutch Financial Supervision Act (Wet op het financieel toezicht; Wft).
- The participations in the investment fund should be embodied by ‘tradeable participation certificates’, whereby participation certificates are not considered tradeable if they are only transferable to the investment fund by way of redemption.
Reference is also made to our website post of 10 December 2024 and our Quoted on this topic for further background (including the uncertainties/issues).
Fund Letter & bottle necks
In the Fund Letter, the Dutch State Secretary for Finance mentions that three bottle necks can be derived from the consultation:
The Dutch State Secretary for Finance acknowledges that the current legislation, and the potential (re)classification of transparent (Dutch and foreign) limited partnerships as non-transparent FGR, does not align with the purpose of changing the Dutch tax classification rules (notably, bringing the Dutch classification rules more in line with international standards). The Dutch State Secretary for Finance agrees that this outcome can be problematic in certain situations. However, in other situations, an investment fund becoming transparent may also create issues. In respect of the latter, an example is given where a large group of foreign investors invests in Dutch real estate via an entity that has become transparent as from 2025 and thereby creates Dutch tax filing obligations for the investors (while the entity previously functioned as a ‘blocker’).
The Dutch State Secretary for Finance has announced that he will further investigate an amendment of the FGR definition, such that not all limited partnerships are at risk of being (re)classified as an FGR. However, in scenarios where a tax transparent classification of a limited partnership could be an issue (see above), an option should remain to (re)classify such limited partnership as a non-transparent FGR. In this respect, the Dutch State Secretary for Finance intends to submit a new legislative proposal in the fall of 2025, which will again be open for public consultation.
The reference to the ‘investment fund’ concept requires knowledge of financial supervisory rules to determine whether an entity classifies as an FGR. The Dutch State Secretary for Finance has announced that he will investigate whether this test can be simplified (e.g., that only entities that are registered as investment fund in the register of a financial regulator can classify as an FGR).
Furthermore, as the current definition refers to the Dutch implementation of the EU AIFMD and UCITS Directive, uncertainty can arise for foreign limited partnerships (in other EU jurisdictions and non-EU jurisdictions). Notably, the Dutch implementation makes a distinction between an ‘investment fund’ (beleggingsfonds) and an ‘investment company with legal personality’ (beleggingsmaatschappij), which is not made in the AIFMD. Also here, the Dutch State Secretary for Finance will investigate whether these issues can be mitigated and intends to submit a new legislative proposal in the fall of 2025, which will again be open for public consultation.
The final bottle neck is that only investment funds with a strategy that qualifies as ‘normal’ portfolio management can classify as FGR. The criteria of what can be considered ‘normal’ portfolio management are subjective and can be derived from Dutch case law. Important factors include the level of involvement of the fund manager in the underlying investments and the risk profile of the fund.
As this is a subjective test that requires a factual assessment, uncertainty can arise as to whether an investment fund is to be considered an FGR (or not). The Dutch State Secretary for Finance acknowledges this issue, but mentions that he sees no possibility of amending this condition to resolve the uncertainty. He does mention that certainty about this condition can be obtained in the form of an advance tax ruling.
Finally, the Fund Letter stipulates that any changes in legislation in respect of bottle necks 1 and 2 are expected to enter into force as from 1 January 2027 (at the earliest), and it is intended to minimise short periods of liability to tax or transparency to the extent possible. Hence, the Dutch State Secretary for Finance acknowledges that any changes stemming from such new legislation should be limited to the extent possible.
Based on transitional rules, limited partnerships that classified as tax transparent prior to 2025 are, under conditions, allowed to implement a ‘redemption mechanism’ during the calendar year 2025 to retain a transparent classification going forward (see our website post of 10 December 2024). In absence of any reference in relation thereto in the Fund Letter, it currently remains unclear if these transitional rules will be extended to the moment that any changes in legislation will enter into force.
Takeaways
On the positive side, the Dutch State Secretary for Finance acknowledges certain bottle necks in the current FGR definition and intends to investigate and propose changes in respect of bottle necks 1 and 2. However, simultaneously, there is no certainty on the exact outcome of this investigation and it may take (at least) until 1 January 2027 until any changes in legislation will enter into force. Hence, the downside is thus that until that time, the issues and uncertainties remain.
As a next step, we should await the legislative proposals for bottle necks 1 and 2 which will be circulated and open for consultation in the fall of 2025. We will again provide input on the public consultation at that time.
Furthermore, we expect that the currently applicable transitional rules will be extended, and hope that the Dutch State Secretary for Finance will provide clarity on this point on short notice to facilitate the restructuring of limited partnerships to the moment that any changes in legislation will enter into force.
Loyens & Loeff has ample experience on this topic and has a role in the consultation process. We are well placed to advise on these matters as we can provide combined tax, legal and regulatory advice in relation hereto.
Should you have queries or need any assistance, please contact your trusted adviser at Loyens & Loeff or one of the specialists mentioned below.
