What are the real estate consequences of Budget Day?

Proposals, effective January 1, 2024

Adjustment of business succession scheme (BOR)
From 1 January 2024, real estate made available to third parties (rented) and the associated debts will not be counted as – low-taxed – business assets.

Depreciation limitation on buildings
In income tax (box 1), the introduction of a floor value is proposed for depreciation on buildings for own use. After the introduction of this scheme, a maximum depreciation of up to 100% of the WOZ value applies to all business assets – regardless of whether they are rented out or in personal use (for both income and corporate tax).

Reinvestment reserve
Already announced in the spring memorandum and now included in a bill; the reinvestment reserve may apply if part of a company is discontinued as a result of government intervention.

Lucrative interest repair
The lucrative interest scheme will be changed with retroactive effect to June 26, 2023. Until that date, loans that were not classified as informal capital for tax purposes remained outside the capital requirement to determine that the subordinated (class) shares constituted less than 10% of the issued share capital and then constitute so-called ‘lucrative interest shares’, whereby tax takes place in box 1 of the income tax.

Rates box 2 and box 3
It was announced before Budget Day that on January 1, 2024 the rate in box 2 will be increased from 26.9% to 31% (whereby the first € 67,000 will be taxed at a lower rate of 24.5%). This is important if the intention is to make an end-of-year bonus. In box 3 the rate increases from 32% to 34%.

Proposed changes from January 1, 2025

Concurrence exemption from VAT and transfer tax
The bill means that the acquisition of shares in a real estate company is subject to transfer tax (OVB) in order to create a level playing field between a supply of stones (only VAT due and no OVB) and shares (no VAT and no OVB due). Unfortunately, the text of the bill leaves room for multiple interpretations. In general terms, however, it seems to be the intention that an appeal to the concurrence exemption will remain possible if the immovable property in question or the rights to which it is subject will be used (almost) entirely (this is 90% or more) for almost two years after acquisition. VAT taxable activities. However, OVB is levied on real estate that is used for more than 10% for VAT-exempt activities (for example homes). A transfer tax rate of 4% then applies to new real estate (including building sites and new construction under construction) that is intended for VAT-exempt use. In this context, the allowance for successive acquisitions (six-month period) will also be slightly adjusted. The ministerial policy will be changed, so that transactions with share rights in partnerships (such as a CV or general partnership) with new real estate will receive equal treatment as shares for VAT and OVB.
A transitional law (which includes an anti-abuse provision) applies to projects for which a letter of intent has already been signed before September 19, 2023 at 3:15 PM and for which the acquisition of shares will take place before January 1, 2030. In addition, it is required that the letter of intent be submitted no later than March 31, 2024 is reported to the Tax Authorities.

Adjustment of the tax regime for open CV and FGR
Depending on the consent regime, a limited partnership (CV) is, as far as the limited partners are concerned, transparent (a closed CV, where taxation takes place at the level of the limited partners) or open (open CV, where the CV is independently liable for tax for the limited partners). Corporation tax). The consent requirement will expire on January 1, 2025, as a result of which (i) the independent tax liability of the open CV ends and (ii) a participation in an open CV is no longer regarded as a share. As a result, from a tax perspective, a transfer takes place to the partners, which can lead to levies on the (realized) value. These changes affect income, corporate, withholding, donation, dividend and transfer taxes. Transitional law has been announced to achieve tax-neutral transitions for the various taxes and silent transfer facilities (for example a share merger) to, for example, a company (BV/NV), so that independent tax liability is guaranteed, but in a different legal form. However, for the OVB, the transitional law only applies to existing open CVs that were already registered in the Trade Register on September 19, 2023 at 3:15 PM. The real estate may also not have been contributed after this moment by newly joining limited partners. In addition, a 10-year payment arrangement will be introduced in the event that the facilities cannot be used.
The permission requirement will be adjusted for a mutual fund (FGR). The new definition is in line with the terms used in the Financial Supervision Act (Wft) (‘investment fund’ and ‘collective investment in securities’). The result is that it does not matter whether investments are made through a legal entity or FGR. The FGR is also involved in corporate tax. From a tax perspective, the change in the law allows a transfer to the participants (creating ‘fiscal transparency’), which can lead to levies on the (realized) value. For FGRs that already existed at the time of the publication of the bill on Budget Day, transitional law has been announced for the levy of various taxes in the form of transfer facilities to fiscally facilitate the transition to a BV or NV.

Fiscal investment institution
From January 1, 2025, it will no longer be possible for a fiscal investment institution (FBI) – where the profit is taxed with a corporate tax of 0% – to invest directly in Dutch real estate. From this date, the regular corporate tax rate will apply. In other words, an FBI can invest indirectly in Dutch real estate through a regularly taxed company and invest in foreign real estate. For the calendar year 2024, there will be a temporary exemption for the OVB to convert existing real estate FBIs into a fiscally transparent structure (for example a CV or FGR). This may be interesting for investors (shareholders of the FBI) ​​who are not subject to corporate tax in the Netherlands (for example, foundations that do not run a business) or are subjectively exempt (for example, pension funds).

Earnings stripping measure for investment real estate
The earnings stripping measure (or generic interest deduction limitation) limits the deductibility of interest for corporate tax purposes if the balance of interest owed and received by a corporate taxpayer exceeds € 1 million or 20% of the fiscal Ebitda (if this is a higher amount). It was announced before Budget Day that as of January 1, 2025, the (fixed) threshold of € 1 million will expire for entities with real estate rented (to third parties) and the interest deduction will be limited to 20% of the fiscal Ebitda for determining corporate tax profit. The interest deduction limitation is also a consideration when choosing an open or closed CV/FGR and the possible use of transfer facilities.

Adjustment of business succession scheme (BOR)
To the extent that the BOR can still be applied as of January 1, 2024 despite the above measure, from 2025 the exemption from the BOR will be increased to 100% of the going concern value up to € 1.5 million (approximately € 1.2 million in 2023) of entrepreneurial capital. The exemption on additional business assets is 70% (83% in 2023). In the future, further legislation will be introduced that, among other things, limits the BOR to equity interests of at least 5% and limits improper use of the BOR. For donations, the employment requirement for income and gift tax no longer applies, which is replaced by an age requirement of 21 years or older.

Unfortunately, the bills are not completely clear on all points, but we expect that the most pressing questions will be answered and resolved during the legislative process. PropertyNL will keep a finger on the pulse and inform you if necessary.

Mr. Ton Austria MRE is a lawyer/tax expert and Mr. Dick van der Pal tax advisor at RechtStaete Real Estate Lawyers & Tax Advisors.
Published in PropertyNL Magazine no. 9, September 29, 2023