End-of-year points of attention Dutch real estate
The year is nearing its end. For real estate professionals, this is an important moment to consider what still needs to be done this year, but also what is coming up next year. In this communication we discuss several important tax and legal attention points for the Dutch real estate practice.
VAT AND REAL ESTATE TRANSFER TAX
1. Real estate transaction before 1 January 2021
As of 1 January 2021, the real estate transfer tax rate for the acquisition of non-residential real estate will increase from 6% to 8%. The 8% rate will apply to the acquisition of non-residential real estate as well as to the acquisition of shares (qualifying interest) in so-called ‘real estate companies’. Do you want to ensure that the 6% rate still applies to a real estate transaction? Then you should have the deed of transfer executed before the end of the year.
As of the new year, the application of the 2% real estate transfer tax rate will be limited to the acquisition of a residential real estate by natural persons that will be used by the acquirer as their main residence, other than temporary. For residential real estate investors, the amendment leads to an increase of the rate from 2% to 8%. A real estate investor contemplating an upcoming residential real estate transaction can still apply the 2% rate if the deed of transfer is executed before the end of this year. Housing cooperatives (wooncoöperaties) that acquire residential real estate from a social housing association (woningcorporatie) can still apply the 2% rate as from the 1 January 2021.
Residential investment properties which have been acquired this year at the 2% and are resold within six months should be resold and delivered before 1 January 2021. In that case, according to the current rules, the taxable amount for the transfer tax on the second acquisition can be reduced by the taxable amount for the transfer tax on the first acquisition. If the second acquisition takes place after 31 December 2020, only a tax reduction at the 2% rate applies. This means that with a previous acquisition in 2020 at the 2% rate and a subsequent acquisition in 2021 at the 8% rate, the benefit of the earlier acquisition is largely nullified.
In light of the foregoing, the so-called 'Groninger akte' may still offer a solution in situations where it appears possible to commercially agree on the real estate transaction in this year, but where it is not possible for the buyer to pay the purchase price before 1 January (for example if funding cannot be secured in time).
In short, in such cases, the transaction can be designed in such a way that the transfer of title of the property (by 'Groninger akte’) will take place this year, while the purchase price will be paid next year. The delivery then takes place under the condition subsequent that the payment agreed is not made in time. This resolutive condition covers possible risks of the seller and guarantees that - in the event of ‘calamities’ - the property automatically reverts to the seller. The taxable event for real estate transfer tax will then take place in 2020, so that the lower (2020) rate still applies. However, financial settlement of the transaction only takes place in 2021. In the unlikely event that the transaction is not settled in 2021 as planned (and the property therefore reverts to the seller), the buyer can in principle recover the real estate transfer tax it paid in 2020.
For more information on this subject and the possibilities for your transaction, please contact one of our advisers from our Real Estate team.
2. Expiration of VAT option for unused real estate
Have you opted for a VAT-taxed lease of real estate this year and has the leased property not yet been taken into use by the tenant? The leased property should be taken into use by the tenant before the end of 2020 (assuming that the tenant's financial year matches the calendar year). If the tenant does not take the leased property into use this year, then the VAT option will in principle lapse and the lease will be retro-actively exempted from VAT. The consequence of this could be that previously deducted VAT must be repaid by the landlord. The foregoing also applies to the creation or transfer of a right in rem, such as a right of ground lease (erfpachtrecht), right of superficies (opstalrecht) or easement (erfdienstbaarheid) that are regarded as leasing services for VAT purposes and for which parties have opted for VAT.
Did you make use of the option for a VAT-taxed supply of real estate in 2019 and has the transferred property not yet been taken into use by the buyer? The transferred property should be taken into use by the buyer before the end of 2020 (assuming that the buyer's fiscal year matches the calendar year). If the buyer does not take the property into use this year, the VAT option will in principle lapse and the delivery will be retro-actively exempted from VAT. The consequence of this could be that previously deducted VAT must be repaid by the seller. The foregoing also applies to the creation or transfer of a right in rem such as a right of ground lease (erfpachtrecht), right of superficies (opstalrecht) or easement (erfdienstbaarheid) that are regarded as a supply for VAT purposes and for which parties have opted for VAT.
We can imagine that a tenant or a buyer is not able to take the property into use in time for all kinds of reasons (for example due to the Corona measures). In many cases a solution is available. If you are faced with a situation that the property has not yet been taken into use by a tenant or a buyer or doubt whether this is the case, we advise you to contact your dedicated VAT advisor, your contact within Loyens & Loeff or one of our advisers from the Indirect Tax team.
3. Determine the deduction of VAT on costs for this year
Has the use of your property changed from being exempted from VAT to taxed with VAT or vice versa? For example, because the property that you leased out exempted from VAT, due to circumstances, is currently vacant or is leased out taxed with VAT. The VAT on costs that was not deducted earlier may still be partly reclaimed. At the end of each year, the definitive deduction right is calculated on the basis of the data for the entire year which could lead to a VAT correction when the pro rata is higher or lower than expected earlier. This correction is made in the VAT return for the final filing period of the year. When filing quarterly VAT returns, this is the fourth quarter of 2020 and when filing monthly VAT returns, this is December of this year.
CORPORATE INCOME TAX
4. No reduction headline corporate income tax rate
The headline corporate income tax rate will remain 25% in 2021. This is in contrast to previous announcements that this rate would be reduced to 21.7%. This obviously affects the corporate income tax to be paid in relation to real estate income. Furthermore, this can be a point of attention when entering into a purchase agreement for current and future real estate transactions (for example when negotiating a discount for a deferred tax liability). The lower corporate income tax rate will be reduced as from 1 January 2021, from 16.5% to 15%. The bracket in which the lower rate applies will be extended from EUR 200,000 to EUR 245,000 in 2021 (and to EUR 395,000 in 2022).
5. Conditional withholding tax on interest payments
As of 1 January 2021, interest and royalty payments to group companies in low-tax jurisdictions (and in situations of abuse) are subject to a new conditional withholding tax. Low-tax jurisdictions are countries with a profit tax with a statutory rate of less than 9% and countries that are included in the EU list of non-cooperative jurisdictions. The withholding tax applies to payments made to companies that have a qualifying interest. This is evidently the case if there is a controlling interest (majority of the voting rights), but this could also apply in other cases, for example in the case of a collaborating group. In addition, this regulation can apply in hybrid situations where an entity is, for example, opaque from a Dutch perspective, but is transparent from the perspective of the receiving country. Note that the withholding tax may also apply to non-interest-bearing loans. The withholding tax rate is 25% (equal to the headline corporate income tax rate).
Should you finance your property with a loan from a group company that originates directly or indirectly from a low-tax or non-cooperative jurisdiction, the interest paid could be subject to this new withholding tax. A point of attention is therefore to carefully review your financing structure before the end of the year.
6. Other legislative developments
Several other legislative amendments have been announced that will come into effect at a later date, such as an amendment to the loss compensation rules, stricter substance requirements for holding companies and possible changes to the fiscal unity regime. We recommend you to closely monitor these developments.
As from 1 January 2021, all newly constructed buildings (both residential and non-residential) require that permit applications meet the requirements for Almost Energy Neutral Building requirements (Bijna Energieneutrale Gebouwen) (AENB). The energy performance for almost energy neutral buildings is determined on the basis of the following three factors:
- the maximum energy requirement;
- the maximum primary fossil energy use; and
- the minimum share of renewable energy.
The design requirements that will be imposed on new building projects after entry into force of the AENB, are considerably stricter than the design requirements that are currently applicable. If you are involved in construction projects and have questions about the impact of these requirements or how to manage their entry into force, please contact one of our advisers from the Competition & Regulatory team.
Bartjan ZoetmulderPartner Tax adviser
Bartjan R. Zoetmulder, tax partner in Loyens & Loeff’s Investment Management practice group, is an active member of the Real Estate team, heads the Central and Eastern Europe team and co-head of the Japan Desk.T: +31 20 578 56 58 M: +31 622 22 06 93 E: firstname.lastname@example.org