Special Tax Alert
On 27 February 2023, the Dutch Ministry of Finance launched a public consultation on 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. If adopted, this will mainly impact (institutional) investors in residential real estate and investors that lease out to financial institutions and healthcare providers. However, ultimately all acquisitions of shares in companies that own newly built real estate will be impacted and would no longer be eligible for this RETT exemption. This abolishment would therefore also impact the acquisition of shares in companies that own “newly built” commercial real estate, including acquisitions of “building plots” through share deals (e.g., in forward funding transactions). The current RETT rate is 10.4% for investment property.
The reason for the public consultation is that the Dutch Ministry of Finance wants to improve the level playing field between direct and indirect acquisitions of newly built real estate. To put this into perspective:
The public consultation concludes that the Dutch tax authorities cannot combat this VAT-saving structure from a VAT perspective, which is why it has now been decided to combat it by excluding certain qualifying share acquisitions from the RETT exemption for transfers of newly built real estate. As a result, such share acquisitions would become subject to RETT at 10.4%.
This exclusion would apply to share acquisitions in so-called real estate companies for Dutch RETT purposes when an interest of at least one-third is acquired. In addition, the extension of the RETT exemption to similar acquisitions in partnerships through an approval in a policy note will be abolished.
The legislative proposal is intended to become effective per 1 January 2024 and no transitional rules are proposed. Feedback on the public consultation can be provided until 27 March 2023.
The VAT and RETT treatment of a real estate project can have a significant impact on its commercial feasibility. The cancellation of the RETT exemption will in principle impact all share deal transactions of real estate companies that own newly built real estate. The impact is therefore wider than the situations it intends to combat.