2024 Dutch Budget Plan – Real Estate newsflash
The King’s speech was delivered Tuesday 19 September, but as usual, most plans had already filtered through in advance. A number of changes will also impact the real estate market. These will pose additional challenges in an already tumultuous sector. What makes it extra difficult to anticipate changes is that several plans are still uncertain and controversial due to the current outgoing status of the government. This newsflash lists tax and other real estate related changes that must be taken into account in the period ahead. DLA Piper's real estate team, consisting of lawyers, notaries and tax specialists, can help you navigate the sometimes-complex laws and regulations.
Amendment to the Real Estate Transfer Tax concurrence exemption for certain share transactions
The Dutch government intends to abolish the RETT concurrence exemption for certain share transactions with the aim of preventing tax avoidance. The transfer of newly built Dutch real estate – not taken into first use for longer than 2 years - is subject to both Dutch VAT and RETT. To avoid concurrence of both taxes, a RETT exemption applies for the acquisition of newly built Dutch real estate. The acquisition of shares in a legal entity may be subject to Dutch RETT if the assets of such entity mainly consist of passively owned Dutch real estate. Conversely, the acquisition of shares does not trigger VAT. This implies that there is no concurrence of VAT and RETT in case of share transactions that concern Dutch real estate.
Pursuant to Dutch Supreme Court case law, a share transaction (share deal) concerning real estate should be treated similar as a direct acquisition of real estate (asset deal) and therefore allows application of the RETT concurrence exemption for share deals. This implies that it may be beneficial - for real estate investors who are not entitled to VAT recovery – to acquire Dutch real estate by means of a share deal instead of an asset deal. The application of the RETT concurrence exemption for purchasers of real estate with no VAT recovery right is no longer considered desirable by the Dutch government.
As of 1 January 2025, the concurrence exemption will only apply to share transactions involving real estate which is used for more than 90% VAT taxable activities. This is subject to a revision period of two years during which the real estate must be used for 90% VAT taxable activities. In order to avoid that a share transaction results in a higher tax burden compared to an asset deal, the acquisition of shares concerning newly built real estate that is used for less than 90% for VAT taxable activities will be subject to a RETT rate of 4% (instead of 10.4%).
Lowering the earnings stripping measure threshold for real estate entities with real estate rented (to third parties)
During parliamentary discussions, the Dutch government paid attention to the risk of 'splitting up' companies in order to make more frequent use of the threshold (EUR1 million) in the generic interest deduction limitation (earnings stripping rule). The earning stripping rule will be made stricter as of 1 January 2025, by (wholly or partially) excluding entities passively holding real estate from using the EUR1 million safe harbor.
This proposal is expected to be included in the Dutch Budget Plan for 2025.
Business succession arrangements
The government plans to designate real estate leased to third parties as deemed investment assets, rendering such real estate ineligible for various business succession beneficial schemes in the gift and inheritance tax and income tax. This may affect real estate operators who wish to transfer their business as part of business succession. This measure is planned to be effective as of 1 January 2024.
Quality Assurance for Construction Act
As of 1 January 2024, the legal framework for development and construction practice will change due to the entry into force of the Construction Quality Assurance Act (Wkb).
In addition to the introduction of the quality assurance, several changes will be implemented in the Civil Code.
The quality assurance will replace the municipal building and housing supervision. The quality assurance will test whether the structure complies with (the successor to) the Building Decree. The quality assurance system will be introduced in phases and from 1 January 2024 will only apply to new construction of works with (in summary) a limited risk to fire safety or structural safety.
The changes to the Civil Code concern:
- strengthening the contractor's duty to warn, which now also legally stipulates that the contractor must warn the client in a timely, written and unambiguous manner about inaccuracies in the assignment or items originating from the client;
- the contractor's legal obligation to provide a delivery file upon delivery; and
- an adjustment to the contractor's liability after delivery. After completion of a structure, the contractor is liable for defects in the structure that were not discovered upon completion, unless they cannot be attributed to the contractor. Based on current legislation, the contractor is released from liability for defects that the client should reasonably have discovered. Our expectation is that the delivery process will increase in importance, and we advise our clients to prepare and carry out this process with even more attention than they already do.
Affordable Rent Act (Wet Betaalbare huur) – Not controversial
In recent years, the rents for the non-regulated housing sector have risen excessively. For tenants to pay a fair price for their housing, the government intends to regulate the mid-market rented housing sector by implementing the Affordable Rent Act (Wet Betaalbare huur). The Affordable Rent Act is intended to come into effect on 1 January 2024.
In the legislative proposal of the Act the government extends the regulated sector to the mid-market rented housing sector, including monthly rent amounts up to a maximum of EUR1,021.02 (January 2023 price level), equaling circa 186 housing evaluation points (instead of the current maximum regulated rent per month of EUR808.06 (January 2023 price level), equaling circa 145 housing evaluation points).
Under the Affordable Rent Act landlords are obliged to adhere to the maximum monthly rent equivalent to the number of housing evaluation points allocated to the residential space. Consequently, the government expects that the rental prices of circa 300.000 residential spaces will be decreased on average with EUR190 per month.
With the falling of the cabinet Rutte IV on 7 July 2023 it was uncertain whether the consideration of the Affordable Rent Act would be continued. The House of Representative has not included the Affordable Rent Act in the list of controversial legislative proposals of 12 September 2023. Therefore, the consideration of the Affordable Rent Act will be continued by the outgoing cabinet.