The Real Estate Investment Structure Taxation Review: Netherlands

Overview

i Investment vehicles in real estate

A real estate investment in the Netherlands can be structured in many ways, depending on the specific facts and circumstances. Commonly used Dutch vehicles to acquire real estate include the private limited liability company (BV), public limited liability company (NV), cooperative (Coop), mutual fund (FGR) and limited partnership (CV).

BVs, NVs and non-transparent FGRs can obtain the status of a fiscal investment institution (FBI) and benefit from a regime similar to regimes abroad for real estate investment trusts. FBIs are subject to corporate income tax at a rate of zero per cent.

Dividends distributed by the FBI are, in principle, subject to dividend withholding tax at a rate of 15 per cent, unless the domestic dividend withholding exemption applies or the rate is reduced under an applicable double tax treaty. Dividend withholding tax due by a FBI may be reduced by Dutch and foreign withholding tax levied on dividends or interest payments received by the FBI, subject to certain limitations.

For Dutch tax purposes, CVs and FGRs can either be structured as tax transparent or non-transparent.2 If the vehicle is considered tax transparent, all profits are attributed to the investors directly, meaning that no taxation takes place at the level of the vehicle.

Foreign companies are also often used to invest in Dutch real estate, mainly because the Netherlands levies dividend withholding tax from distributions by companies residing in the Netherlands.

ii Property taxes

The ownership, transfer and investment in real estate may be subject to different forms of taxation in the Netherlands.

Property tax

The ownership or use of real estate located in the Netherlands is subject to the following property taxes: real estate tax, water board charges, sewerage charges and waste disposal charges. Certain property taxes are levied on the owner of the real estate, while others are levied on the user. An owner-occupier will be charged both.

The municipal authority appraises the property to determine the tax base for property tax purposes. The municipality reassesses the value of all properties each year. This value is the base of all taxation related to the property and is referred to as the WOZ value.

Real estate transfer tax

The transfer of real estate is, in principle, subject to real estate transfer tax. Recently this rate has been diversified for different types of buyers:

  1. zero per cent for residential real estate up to €400,000 (for 2021) by individuals younger than 35 years;
  2. 2 per cent for residential real estate to be used by the buyer as his or her primary residence;
  3. 8 per cent for investments in residential real estate;
  4. 8 per cent for investments in commercial real estate.

Exemptions of real estate transfer tax are available if the transfer is subject to value added tax (VAT) or for subsequent transfers within a certain time frame.

A company with a balance sheet comprising 50 per cent or more of real estate assets and a minimum of 30 per cent of real estate located in the Netherlands is considered to be a real estate company for Dutch tax purposes. By means of legal fiction, shares in a real estate company are deemed real estate. This implies that the transfer of shares may also trigger real estate transfer tax, provided that the relevant company is a qualifying real estate company.

VAT

The transfer of real estate is exempt from VAT unless the real estate qualifies as newly constructed (i.e., less than two years after first moment of use) or building land or the seller and buyer opt for a VAT taxable transfer. In that case, the transfer is subject to VAT at a rate of 21 per cent.

Corporate income tax

Capital gains derived from the disposal of Dutch real estate assets held as investment by resident corporate taxpayers are subject to corporate income tax. The same applies for net rental income enjoyed by resident corporate income taxpayers. The applicable corporate income tax rate is 25 per cent.3

Asset deals versus share deals

i Legal framework

Generally, real estate is acquired either as a direct purchase of the real estate or the purchase of the shares in the vehicle owning the real estate.

Asset deals

The acquisition of real estate requires the purchase and transfer of the right related to the property. The property can be acquired directly through an asset deal. Not many statutory requirements apply to the purchase agreement (e.g., the purchase agreement does not necessarily have to be in the form of a notarial deed).

It is advisable to perform a cadastral search of the property, prior to entering into the purchase agreement. In the cadastral search, the civil law notary will review whether there are any mortgages and liens on the property and whether the plot is encumbered with an easement. In addition, the civil law notary will review whether the seller of the property owns the legal title related to the property.

The actual legal transfer of the property is executed by signing a notarial deed on the transaction date. After signing, the civil law notary will register the deed with the land registry. Generally, the funds will be transferred through a secured third-party account of the civil law notary.

Upon execution of the transfer, the civil law notary will transfer the funds and terminate existing mortgages if not transferred to the buyer. The civil law notary will also remit any real estate transfer tax payable to the Dutch tax authorities.

Share deals

In addition to an asset deal, real estate may also be acquired through the purchase of shares or interest in the vehicle that owns the real estate. Similar to asset deals, it is advisable to perform proper due diligence prior to entering into the transaction. If specific issues come up during the due diligence, the seller may provide an indemnity to the buyer.

In addition to transferring the funds through a secured third-party account of the civil law notary, parties could also use an escrow agent. In the case of the transfer of shares of a real estate company, the buyer of the shares will remit any real estate transfer tax payable to the Dutch tax authorities.

If shares in a BV are transferred, Dutch civil law requires the share purchase agreement to be notarised. A transfer of shares in a publicly listed NV or the transfer of an interest in a Coop, FGR or CV does not require notarisation.

Mergers or acquisitions that meet a certain financial threshold require competition clearance from the competent authority. Any transaction that would require clearance cannot enter into effect prior to the approval of the competent authority. Generally, this will be included as a condition precedent in a share purchase agreement.

The Netherlands does not have restrictions on foreign ownership of Dutch real estate or on shares or interests in vehicles with Dutch real estate.

ii Corporate forms and corporate tax framework

The most common vehicles to acquire real estate in the Netherlands are BVs, NVs, Coops, FGRs and CVs.

BVs and NVs

BVs are private limited liability companies. This entails that, in principle, individuals are not personally liable for the debts of the BV. BVs have a capital dividend into shares. The minimum start-up capital amounts to 1 cent.

NVs (public limited liability companies) are quite similar to BVs, but there are a few significant differences. For example, NVs require start-up capital of at least €45,000 and are subject to more extensive mandatory law provisions. Accordingly, BVs are more flexible and, therefore, are often preferred by real estate investors.

Coop

The Coop is a collective corporate vehicle in which members pool, inter alia, their capital, manpower and resources to obtain a greater group benefit. Unlike BVs and NVs, a Coop does not have shareholders but members.

A Coop must be incorporated by at least two members (having fewer than two members may result in the dissolution of the Coop). The liability of its members can be excluded in the articles of association of the Coop.

The Coop is comparable to a BV and taxed similarly but has more flexibility. For example, the Coop is subject to less mandatory law provisions than the BV, and voting and profit rights can be attributed to its members in different ways.

FGR

The FGR is not a legal entity, but a sui generis contract. The FGR is created by way of an agreement between the manager, investors and the legal owner. The latter is generally a Dutch foundation solely set up to hold the legal title of the assets of the FGR.

In view of its sui generis contractual nature, no Dutch mandatory rules apply in respect of its provisions on, inter alia, governance, voting rights and other rights of investors, and the role of the manager. The liability of its investors depends on the terms in the contractual arrangements.

The FGR is a popular vehicle for setting up real estate funds in the Netherlands. The FGR can be structured as a tax transparent vehicle and, therefore, provides for flexibility. 4 A tax-transparent FGR will not be subject to corporate income tax and dividend withholding tax. Non-transparent FGRs are taxed similarly to BVs, NVs and Coops; however, non-transparent FGR may also obtain FBI status.

CV

The CV is not a legal entity, but a contractual agreement. Unlike for FGRs, Dutch law contains some specific provisions that are applicable to CVs. The CV comprises managing partners and limited partners. Managing partners are jointly and severally liable for their debts in the CV. Limited partners are as a rule solely liable for the amount of capital that they have contributed to the CV.

The CV can be structured as tax-transparent vehicle and, therefore, is a flexible vehicle, similar to FGRs.5 A tax-transparent CV will not be subject to corporate income tax and dividend withholding tax.

Non-transparent CVs are taxed similarly to BVs, NVs and Coops.

Dutch tax system and rate

Resident corporate taxpayers are subject to corporate income tax on their worldwide income, unless an exemption applies. Foreign taxpayers are only subject to corporate income tax on certain Dutch-source income, which includes income from real estate located in the Netherlands. The applicable corporate income tax rate is 25 per cent.6

Participation exemption

Under the participation exemption, dividends and capital gains derived from a qualifying subsidiary, either domestic or foreign, are exempt from corporate income tax. In short, the participation exemption is applicable if:

  1. the taxpayer holds at least 5 per cent in the nominal paid-up capital of the subsidiary (minimum ownership requirement); and
  2. the subsidiary is not held as a portfolio investment.

Whether a subsidiary is held as a portfolio investment should, in principle, be considered from the perspective of the taxpayer (i.e., the owner of the subsidiary). A subsidiary is considered to be held as a portfolio investment if the subsidiary is held to receive a return that can be expected with normal asset management.

Furthermore, the participation exemption should also apply if the taxpayer is a top holding company of the group, serves as an intermediate holding company or if the activities of the subsidiaries are in line with the activities of the group.

If the subsidiary qualifies as a portfolio investment, the participation exemption will nevertheless apply if the subsidiary is considered a 'qualifying portfolio investment'. This will be the case if one or both of the following criteria are satisfied:

  1. the subsidiary is subject to a profit tax resulting in reasonable taxation according to Dutch standards (subject-to-tax test); or
  2. less than 50 per cent of the subsidiary's directly and indirectly held assets comprise low-tax, free portfolio assets (asset test).

For the purpose of the asset test, real estate assets are deemed to be non-portfolio assets. Shareholdings of more than 5 per cent in the nominal paid-up capital of foreign real estate companies should, therefore, qualify for the participation exemption.

Depreciation

The depreciation of real estate is generally determined on a straight-line basis, taking into account estimated economic life and estimated residual value. The depreciable basis is the acquisition price of a building increased by capitalised acquisition costs (including real estate transfer tax) less the expected residual value of the property.

Depreciation on real estate is allowed only to the extent that the tax book value of the property is higher than the WOZ value and limited to the difference between those two values. The WOZ value is often relatively close to the fair market value. As a result, depreciation on real estate will likely be limited to the fair market value of the real estate.

As stated above, depreciation can only take place until the tax book value of the real estate has reached 100 per cent of the WOZ value. Until 2019, it was possible to depreciate to a tax book value of 50 per cent of the WOZ value for real estate used by the owner. A transition rule has been provided for Dutch real estate that has been taken into use by the taxpayer less than three years prior to 1 January 2019. Further to the transition rule, the taxpayer can still utilise 50 per cent of the WOZ value instead of 100 per cent, until it has used the real estate for three years.

Land may not be depreciated. However, land held in leasehold may be depreciated over the remaining term of the ground lease unless the ground lease is perpetual. If the ground lease is perpetual, no depreciation is possible.

Fiscal unity

The Netherlands has a fiscal unity concept for corporate income tax purposes.7 In short, the fiscal unity regime allows a corporate resident taxpayer and its resident subsidiaries to file one consolidated tax return.

If companies are included in a fiscal unity, inter-company transactions (such as the transfer of real estate assets) are in principle ignored for tax purposes; however, the termination of a fiscal unity within six years of an inter-company transaction may trigger taxation.

The Dutch legislator is currently investigating whether to replace the fiscal unity regime by a new group tax regime or to make significant changes to the existing regime.

Interest limitation rules

In general, interest payments on loans and other debts of the taxpayer are deductible as regular business expenses; however, Dutch case law and particular provisions of the Corporate Income Tax Act may prevent the interest deduction.

As of 1 January 2019, the Netherlands has implemented the Anti-Tax Avoidance Directive (ATAD) in its domestic law. As a result, the Netherlands introduced an earnings stripping rule, which may have a significant impact for real estate investors. The earnings stripping rule is a measure that limits the deductibility of excess interest expenses.

Further to the earnings stripping rule, net borrowing costs (i.e., the surplus of interest expenses over interest revenues) are not deductible to the extent that they exceed whichever is the higher of 30 per cent of the taxpayer's earnings before interest, tax, depreciation and amortisation (EBITDA) or €1 million.

Dividend withholding tax

The dividend withholding tax rate is 15 per cent, unless the domestic dividend withholding tax exemption applies or the rate is reduced under an applicable double tax treaty.

The domestic withholding tax exemption applies if the recipient is a corporate taxpayer with a minimum shareholding of 5 per cent in the nominal paid-up capital of the Dutch company (e.g., a BV or an NV) and the recipient is either:

  1. resident in the Netherlands or a member state of the European Economic Area (including the European Union); or
  2. resident in a jurisdiction with which the Netherlands has concluded a double tax treaty that contains a dividend clause.

The domestic withholding tax exemption is denied if the recipient holds the interest in the Dutch company with a purpose to avoid Dutch taxation and an artificial arrangement is in place.

Profit distributions made by a Coop to its members are, in principle, not subject to dividend withholding tax, unless the Coop qualifies as a holding cooperative. Holding cooperatives must, in principle, withhold dividend withholding tax at a rate of 15 per cent on profit distributions to qualifying members. A holding cooperative is defined as a Coop whose activities in the year preceding the profit distribution predominantly (i.e., 70 per cent or more) comprise holding participations that qualify for the participation exemption regime or of financing related parties.

A qualifying member is a member that is entitled to at least 5 per cent of the annual profits or 5 per cent of the liquidation profits of the holding cooperative. A cooperative that primarily serves as a real estate investment vehicle may, therefore, be an attractive option from a dividend withholding tax perspective.

Holding cooperatives and its qualifying members may be eligible for the domestic withholding tax exemption as described above. Furthermore, application of double tax treaties may reduce the 15 per cent rate to a lower rate.

iii Direct investment in real estate

If real estate is transferred through an asset deal, real estate transfer tax, VAT and corporate income tax may apply.

Real estate transfer tax

Real estate transfer tax is levied at a rate of 8 per cent for commercial real estate and residential investment real estate. A 2 per cent rate applies for residential real estate intended to be occupied by the buyers. An exemption exists for young buyers (under 35 years of age) of residential real estate up to a maximum value of €400,000 (2021) intended for their own use.

The real estate transfer tax is levied in relation to the acquisition of the legal title or beneficial ownership of real estate located in the Netherlands or certain rights relating to the property, such as rights of usufruct. For real estate transfer tax purposes, the acquisition of real estate has a broad scope and includes not only the acquisition of a legal title but, for example, also the acquisition of beneficial title or a real estate property right.

Real estate transfer tax is payable by the buyer of the real estate. The civil law notary executing the deed of transfer will generally remit the real estate transfer tax payable to the Dutch tax authorities.

Generally, the tax base is the higher of the fair market value of the real estate assets or the consideration paid for the acquisition. If real estate is transferred within six months of an earlier transfer of the same real estate asset, the tax base is reduced by the amount of the tax base applied to this earlier transfer, resulting in a tax base of merely the value accrued in the period between the two transfers.

The acquisition of real estate may be exempt from real estate transfer tax if certain conditions are met. For instance, a transfer may be exempt from real estate transfer tax if the transfer is subject to VAT (as further discussed below). In addition, an exemption could be available if a business succession facility is applicable.

Moreover, the acquisition may be exempt from real estate transfer tax if it qualifies as an internal reorganisation, namely if the real estate asset is transferred by a company that is part of a qualifying group to another company in which no other company holds an interest of 90 per cent or more, together with all other companies in which the company has a 90 per cent interest or more.

VAT

Asset deals should, in principle, be exempt from VAT. However, there are some exceptions in which VAT at a rate of 21 per cent applies.

The VAT treatment of the real estate depends on the specifics of each individual property and should be determined on a case-by-case basis. The transfer of real estate is exempt from VAT unless the real estate qualifies as newly constructed or building land or the seller and buyer opt for a VAT taxable transfer.

Opting for a VAT taxable transfer is only possible if the real estate will be used for purposes for which the buyer is entitled to deduct at least 90 per cent of the VAT. This criterion is only met if the buyer has actually started using the real estate for those purposes before the end of the financial year following the financial year of the acquisition.

Parties must jointly opt for a VAT taxable transfer by way of filing a request with the Dutch tax authorities before the property is actually supplied or transferred. It is also possible to include this option in the notarial deed.

If the option is granted erroneously, the buyer is liable for an adjustment of VAT arising from the exempt supply. However, if the buyer appears to be insolvent, the supplier is held liable unless he or she can prove that he or she acted in good faith.

When real estate is developed, it is subject to VAT. This input VAT may initially be reclaimed if the real estate is intended to be used for VAT taxable activities. However, if the property is (partially) used for VAT-exempt activities, the reclaimed VAT may have to be repaid. This must be assessed for a certain period (the VAT revision period). This period runs from the financial year in which the real estate was first taken into use plus nine subsequent financial years.

If the real estate is part of a transfer of a totality of assets, also referred to as a 'transfer of a going concern', Article 37d of the VAT Act provides that the transfer is not neglected for VAT purposes, and the buyer takes on the VAT position of the seller. If the transfer of the real estate is subject to VAT, either by operation of law or as a result of opting for a VAT taxable transfer, a new revision period will start for the buyer. However, if the transfer is considered to be a transfer of going concern, the current revision period will be continued by the buyer.

It is generally accepted that Article 37d of the VAT Act can be applied to transfers of leased real estate. As the buyer takes on the VAT position of the seller, the seller should inform the buyer of the amount of input VAT related to the previous acquisition of the real estate. This rule and its application are subject to case law and, in certain circumstances, it may be advisable to obtain certainty from the Dutch tax authorities before the actual transfer of the real estate.

Exemptions

It is possible that both VAT and real estate transfer tax are due on the same transfer of real estate. If VAT is due, the Legal Transaction (Taxation) Act provides for an exemption of real estate transfer tax to avoid double taxation, if:

  1. the transfer is taxed with VAT by operation of law (and not by way of opting for a VAT taxable transfer), and at the time of acquisition the real estate has not been used as a business asset (e.g., leasing of real estate) or it qualifies as building land; or
  2. the transfer is taxed with VAT by operation of law (and not by way of opting for a VAT taxable transfer), and at the time of the acquisition the real estate has been used as a business asset and the buyer is not entitled to a full or partial deduction of the input VAT incurred.

Generally, the above-mentioned exemption from real estate transfer tax does not apply if at the time of the acquisition the real estate has been used as a business asset and the buyer is entitled to a (partial) deduction of input VAT. This is because in that case, there is no double taxation to be avoided.

In addition to the above-mentioned exemption aimed at the avoidance of double taxation of the same transfer of real estate, another specific exemption from real estate transfer tax may also apply if all of the following requirements are met:

  1. the real estate is leased or used within the business of the seller, and the acquisition takes place within six months of the date of first use by the seller (or, if earlier, the commencement date of the lease);
  2. a notarial deed for the transfer is executed within six months of the date of first use; and
  3. the transfer is taxed with VAT by operation of law, unless no VAT is levied because the transfer takes place within a fiscal unity for VAT purposes or because the transfer qualifies as a transfer of a going concern.

The rationale for this exemption is to avoid real estate transfer tax being levied twice in a relatively short time frame.

In some cases, it can be beneficial to complete a transaction within a certain time frame following a previous transaction (e.g., the above-mentioned six month time frame or in the event of an upcoming increase of applicable taxes). Sometimes, the parties agree that the entire transfer is dependent on being able to take advantage of a tax benefit.

However, it may not always be possible for the transaction to be fully completed as envisaged within the required time frame (e.g., because the buyer cannot obtain or transfer the necessary funds in time). In those instances, it has become more or less customary to agree that the transfer will be completed but subject to a condition subsequent, which is included in the deed of transfer (e.g., the payment of the funds at a specified later date).

If the condition subsequent is not fulfilled, the transfer is annulled, and the property reverts back to the seller by operation of law. In that case, the buyer becomes the holder of a conditional interest in the property (with the seller retaining a conditional interest) and, therefore, the buyer can only dispose of this conditional interest. Non-fulfilment of the condition subsequent can be invoked by the seller against any third party having obtained its interest in the property from the buyer.

Corporate income tax

Capital gains realised by resident corporate taxpayers on the sale of real estate assets, in principle, lead to a taxable profit. However, capital gains on disposal of depreciable assets may be carried over to a special tax deferral reserve (the reinvestment reserve). As a result, no corporate income tax is due on the capital gain realised.

The reserve must be deducted from the acquisition costs of subsequent acquired assets, and the fiscal book value of those assets will accordingly be reduced. The capital gains may only be carried over to the reinvestment reserve if there is an intention to reinvest in new assets.

The reserve cannot be maintained for more than three consecutive years. If the reserve has not been fully utilised within three years or the intention to reinvest in new assets no longer exists, the remainder will be subject to corporate income tax.

Non-depreciable assets or assets depreciable in over 10 years must meet the replacement requirement. The capital gains on disposal of those durable assets may only be carried over to the reinvestment reserve if the new acquired asset has the same economical function.

Real estate qualifies as a durable asset and, consequently, must meet the replacement requirement. The reinvestment reserve is a reserve for tax purposes and will not be taken into account in the commercial annual accounts of the taxpayer.

Permanent establishment

Real estate located in the Netherlands is deemed a permanent establishment if it belongs to the business assets of a foreign corporate investor. Consequently, foreign corporate investors are subject to Dutch corporate income tax insofar as they directly own real estate in the Netherlands or related rights, such as options, usufruct or leaseholds.

As a result, income from real estate located in the Netherlands as well as income from rights relating to real estate, such as rental payments and capital gains, will be subject to corporate income tax at a rate of 25 per cent.8

iv Acquisition of shares in a real estate company

If real estate is transferred through a share deal, real estate transfer tax and corporate income tax may apply. No VAT and stamp duties are due in case of a share deal.

Real estate transfer tax

In principle, the acquisition of shares falls outside the scope of real estate transfer tax. However, a transfer of deemed real estate assets is subject to real estate transfer tax. Deemed real estate assets include shares in a company qualifying for both the asset test and the purpose test (defined below). If both tests are met, the company qualifies as a real estate company.

The asset test is met if at least 50 per cent of the company's assets comprise real estate and at least 30 per cent of the assets comprise Dutch real estate. The purpose test is met if at the moment of the transfer of the real estate asset or at any moment in the year preceding the transfer, at least 70 per cent of the real estate asset (taken as a whole) is or was instrumental in the acquisition, disposal or exploitation of this real estate asset.

Once a company no longer meets the asset and purpose tests, there is a one-year reference period before the company no longer qualifies as a real estate company.

If both the tests are met, real estate transfer tax is only due if the buyer, together with its related companies and individuals, holds or will hold, pursuant to the same or a related agreement, an interest of at least one-third in the real estate company upon acquisition (possession requirement).

In the case of a share transfer in a real estate company, the tax base is the fair market value of the underlying Dutch real estate assets, regardless of any related liabilities in the real estate entity's balance sheet. A facility is available for successive acquisitions (within six months) of the same real estate. If the same real estate is acquired by another person within six months, the tax base is reduced by the amount of the tax base of the previous acquisition.

VAT

The transfer of shares in a real estate company is not subject to VAT. Furthermore, it is not possible to opt for a VAT taxable transfer for a share transaction.

Corporate income tax

Any gain of the disposal of shares in a real estate company realised by a resident corporate taxpayer is, in principle, subject to corporate income tax, unless the participation exemption applies. Dutch real estate companies qualify by definition for the participation exemption. The same should apply for foreign real estate companies (refer to Section II.ii).

Accordingly, dividends and capital gains derived from the alienation of shareholding of at least 5 per cent in the nominal paid-up capital of Dutch or foreign real estate companies should be exempt from taxation at the level of the resident corporate taxpayer.

Stamp duty

The Netherlands does not levy stamp duty or similar taxes on shares.

Regulated real estate investment vehicles

i Regulatory framework

The Dutch regime implementing the Alternative Investment Fund Managers Directive9 (the AIFMD) is the legal regime that normally applies to real estate investment vehicles. The AIFMD regulates alternative investment fund managers (AIFMs) and alternative investment funds (AIFs). Certain exemptions apply, with the most important of those being purely corporate holding structures (i.e., the only investors are parent undertakings, subsidiaries and sister companies of the AIFM) and single-family offices (i.e., the investors are a group of people connected by a close familial relationship).

Pursuant to the AIFMD, management companies are subject to registration or licensing depending on the size of all funds managed.

Registration regime

If the size of all funds managed does not exceed the threshold of €100 million (including leverage) or is less than €500 million on an aggregate basis, and assuming that the funds are closed-end for at least five years and no leverage at the fund level applies, a Dutch management company is subject to registration with the Dutch Authority for the Financial Markets only. When registered, certain reporting requirements need to be met.

Licence regime

If one of the thresholds set out above is exceeded, a management company is subject to licensing and compliance with certain ongoing requirements, including the requirement to publish a prospectus and the requirements set by the AIFMD.

Finally, in the Netherlands, a distinction is made between an offer of participation in a fund to professional and retail investors. In addition to these licence requirements, there are additional requirements specifically aimed at protecting retail investors (the Dutch top-up retail regime).

ii Overview of the different regulated investment vehicles

Dutch regulated investment vehicles can be structured as a BV, NV, Coop, FGR or CV or a combination thereof. The legal framework applicable to BVs, NVs, Coops, FGRs and CVs is set out in detail above in Section II.ii.

iii Tax payable on acquisition of real estate assets

The real estate transfer tax, VAT, corporate income tax and stamp duty implications applicable to the direct acquisition of real estate and the acquisition of shares in real estate companies by regulated investment vehicles is set out in detail in Sections II.iii and II.iv. The corporate income tax implications for transparent FGRs and CVs are further discussed below.

iv Tax regime for investment vehicles

The Netherlands generally has the following special tax regimes available for regulated investment vehicles:

  1. tax transparent FGRs or CVs;
  2. FBIs; and
  3. tax-exempt investment institutions (VBIs).

FGR

An FGR can either be structured as tax transparent or non-transparent. If tax transparent, it is not subject to corporate income tax and its distributions are not subject to dividend withholding tax. The investors in a tax-transparent FGR will be subject to tax if they held the assets of the FGR directly.

For an FGR to qualify as transparent for tax purposes, it should have a closed character, meaning that the participations are not freely transferable other than to the FGR itself by way of redemption or with the unanimous consent of all the other participants.

'Open' FGRs are subject to corporate income tax and dividend withholding tax. However, they may be able to opt for the status of an FBI or VBI (as further discussed below).

CV

Similar to an FGR, a CV can also be structured as tax transparent or non-transparent. If tax transparent, it is not subject to corporate income tax and its distributions are not subject to dividend withholding tax. The partners in a tax transparent CV will be subject to tax if they held the assets of the CV directly.

A CV is treated as tax transparent if admission and substitution of a limited partner requires unanimous consent of all (general and limited) partners. In all other cases, a CV is treated as non-transparent for corporate income tax and dividend withholding tax purposes.

Changes proposed with respect to transparency rules

The Dutch legislator has started a consultation procedure in relation to a draft bill regarding the qualification of FGRs, CVs and certain foreign limited partnerships. It is considered to, among other things, abolish the unanimous consent requirement. This means that all CVs will be treated as tax transparent.

In addition, most FGRs will become transparent, with the exception of FGRs that issue participations to obtain funds for collective investments and the participations are either traded on a regulated market or the FGR is obliged to repurchase or repay the participations at regular intervals upon request of the participants.

The new rules are intended to enter into force as of 1 January 2022. The proposed changes may have severe consequences for existing real estate investment structures and may require corporate restructuring.

FBI status

BVs, NVs and non-transparent FGRs can be eligible for FBI status. The tax regime applicable to FBI is set out in further detail below in Section IV. An FBI is regulated if the shares are admitted to the market for financial instruments as defined under the Dutch Financial Markets Supervision Act (FMSA); the fiscal investment institution or its manager (as applicable) has a licence as referred to in the FMSA; or the fiscal investment institution or its manager is exempt from that licence requirement under the FMSA.

For regulated FBIs, there may not be a single corporate (taxable or tax transparent) shareholder who holds an interest of 45 per cent or more in the FBI (also taking into account interests held by affiliates), unless that entity is a qualifying portfolio investment entity.10 In addition, Dutch resident companies may not own, together or with affiliates, an interest of 25 per cent or more in the FBI through non-Dutch resident companies. Individuals are not allowed to hold an interest of 25 per cent or more in the regulated FBI.

VBI status

In addition to the FBI regime, the Netherlands has a specific regime for VBIs, tax-exempt fiscal institutions. The VBI regime is only open to NVs, non-transparent FGRs or similar foreign vehicles. The VBI is not subject to corporate income tax, and its distributions are not subject to dividend withholding tax.

The objective and actual activities of a VBI must comprise investing in financial instruments. This implies that VBIs are not allowed to invest directly in real estate and mortgage loans. Moreover, a VBI is not allowed to invest indirectly in Dutch real estate. Investments in foreign real estate are allowed insofar as it constitutes an investment in financial instruments.

To apply the VBI regime, a formal request must be filed with the Dutch tax authorities. In contrast to FBIs, VBIs are not eligible to enjoy treaty benefits, unless a double tax treaty were to explicitly grant treaty benefits to a VBI.

VAT

The VAT Act provides for an exemption of management services of special investment funds. This exemption is available to a fund if:

  1. the fund is financed by more than one participant;
  2. the funds contributed by the participants are invested according to the principle of risk spreading;
  3. the risk of the investment is borne by the participants; and
  4. the fund is subject to a specific state supervision.

The last of these conditions is relatively new and is a result of a decision of the Court of Justice of the European Union.11 The State Secretary for Finance has provided examples of funds that he considers subject to specific state supervision.

On 4 December 2020, the Dutch Supreme Court ruled that this VAT exemption may, under specific circumstances, also apply to asset managers that offer investment products under an individual asset management licence.12

v Tax regime for investors

The tax regime for investors depends on the tax treatment of the regulated investment vehicle.

If the vehicle is tax transparent, all income will be attributed to the investors. This implies that no taxation takes place at the level of the vehicle. Subsequently, distributions by the vehicle to its investors are not subject to dividend withholding tax.

Under the FBI regime, distributions from the FBI to its shareholders are, in principle, subject to dividend withholding tax at a rate of 15 per cent unless the domestic withholding tax exemption applies or the rate is reduced under a double tax treaty. The FBI has an obligation to distribute its (adjusted) profits to its investors by way of dividend within eight months of the end of the applicable financial year.

If the VBI regime is applicable, no dividend withholding tax is due on distributions from the VBI to the investors.

Resident corporate taxpayers are not able to apply the participation exemption on their interest in a vehicle with FBI or VBI status. As such, capital gains realised will, in principle, be subject to corporate income tax.

Real estate investment trusts and similar structures

i Legal framework

The Netherlands does not have real estate investment trusts but has introduced the FBI regime, which is similar. FBIs are subject to corporate income tax in the Netherlands at a rate of zero per cent. Profit distributions by an entity with FBI status are, in principle, subject to dividend withholding tax at a rate of 15 per cent.

The FBI regime is open to Dutch NVs, BVs and non-transparent FGRs. In addition, similar vehicles incorporated under the laws of the BES islands, Aruba, Curaçao, Sint Maarten or under the law of an EU Member State can also qualify for FBI status.13 This also applies to similar vehicles incorporated under the law of a third country with which the Netherlands has concluded a double tax treaty, provided that the double tax treaty includes a non-discrimination clause.

The FBI does not require listing on a stock exchange. However, whether an FBI is regulated affects the shareholder restrictions. More lenient conditions apply to regulated FBIs.

ii Requirements to access the regime

No formal request has to be filed to benefit from the FBI regime. The following conditions must be met to be eligible for the FBI regime:

  1. the FBI must have a specific legal form (as described above);
  2. the purpose and actual activities of the FBI must comprise holding passive investments;
  3. the FBI must distribute its adjusted profits to its shareholders within eight months following the end of the relevant financial year;
  4. the profits must be distributed to its shareholders on a pro rata basis;
  5. the maximum debt leverage allowed is 20 per cent of the fair market value of non-real estate assets and 60 per cent of the fair market value of real estate assets; and
  6. certain shareholder restrictions apply, which are different for regulated and non-regulated FBIs.

An NV, BV or non-transparent FGR that meets the above-mentioned conditions may qualify as an FBI at the beginning of the next financial year. The Dutch tax authorities will not issue a separate decision stating that the vehicle may benefit from the FBI regime. The application of the FBI regime must be requested when filing the corporate income tax return and will be confirmed by the Dutch tax authorities upon issuing the tax assessment of the relevant year.

If the Dutch tax authorities have not applied the FBI regime (i.e., zero per cent corporate income tax rate), FBI status can be enforced by way of filing a notice of objection. In practice, the taxpayer will enter into discussions with the Dutch tax authorities prior to applying the FBI regime.

iii Tax regime

At the end of the year preceding the year that the entity obtained FBI status, all assets are revaluated at fair market value. The capital gain resulting from revaluation is subject to the regular corporate income tax rate of 25 per cent.14

The purpose and actual activities of the FBI must comprise holding passive investments. Investment activities may, however, include real estate or investments of a financial nature (e.g., loan notes, shares or other securities).

The FBI regime generally does not allow activities such as trading in real estate or real estate development. However, a real estate fund with FBI status is allowed to engage in property development for its own investment portfolio, provided that the activities related to the development of the property are carried out in a separate taxable subsidiary. If existing properties are renovated, this does not qualify as development activity, provided that the capital expenditure is less than 30 per cent of the fair market value before the renovation.

The maximum debt leverage allowed for FBIs is equal to the sum of 20 per cent of non-real estate assets and 60 per cent of real estate investments (all determined on the basis of tax book values). Interests in companies that comprise at least 90 per cent of real estate are considered real estate.

A distinction must be made between regulated and non-regulated FBIs. The FBI qualifies as a regulated FBI if its shares are officially listed on a stock exchange and if it holds a permit to issue shares to the public. After the implementation of the AIFMD, a larger group of FBIs qualify as a regulated FBI.

In principle, at least 75 per cent of the investors in a non-regulated FBI should comprise:

  1. individuals;
  2. entities not subject to tax on their profits or exempt from tax, with the profits also not being subject to tax at the level of the shareholders or participants of those entities; or
  3. regulated FBIs.

No individual may hold a substantial interest in the FBI (i.e., an interest of 5 per cent or more). In addition, resident corporate taxpayers may not hold an interest of 25 per cent or more in the FBI through non-resident entities with a capital fully or partly divided into shares or mutual funds.

Resident corporate taxpayers are not able to apply the participation exemption on their interest in the FBI, despite holding 5 per cent or more of the nominal paid-up share capital of the FBI. As a result, capital gains and dividends derived from the FBI are taxable at the level of the resident corporate taxpayer.

As the FBI is subject to corporate income tax (although at a rate of zero per cent), it can enjoy treaty benefits under double taxation treaties.

Dividends distributed by an FBI are, in principle, subject to dividend withholding tax at a rate of 15 per cent unless the domestic dividend withholding tax exemption applies or the rate is reduced under an applicable tax treaty. In addition, dividend withholding tax due by the FBI may be reduced by Dutch and foreign withholding tax levied on dividends or interest payments received by the FBI subject to certain limitations. Qualifying distributions out of a reinvestment reserve are not subject to dividend withholding tax.

As stated above, the FBI is obliged to distribute equally its adjusted profits to the shareholders. Its adjusted profits include all profits other than the balance of realised capital gains and capital losses that can be added to a special reinvestment reserve. This implies that the FBI may not have separate classes of shares. It is, however, allowed to create different share classes for specific purposes, such as differences in currency, marketing costs and management fees. The Dutch State Secretary for Finance allows different share classes if the following conditions are met:15

  1. the FBI keeps track of the contributions to the reinvestment and rounding-off reserve per class of share;
  2. the exemption of dividend withholding tax from distributions from the reinvestment reserve will be applied in accordance with point (a) as described above;
  3. the shareholder requirements are met on an overall basis (i.e., not on a share class basis); and
  4. the creation of the different classes of shares is not aimed at avoiding dividend withholding tax.

An exemption from dividend withholding tax exists for distributions from the reinvestment reserve and for buy-backs of shares.

iv Tax regime for investors

Profits are taxed at the level of the shareholder. A strict dividend distribution requirement exists for FBIs. An FBI must distribute its adjusted profits on a pro rata basis within eight months of the end of the relevant financial year.

The requirement to distribute adjusted profits implies that the FBI only has to distribute its current income (i.e., dividends, interest and rental income). Realised gains and unrealised gains on securities do not have to be distributed. Those types of income can be added to a special reinvestment reserve.

As set out above, dividend distributions by the FBI to its shareholders are subject to dividend withholding tax at a rate of 15 per cent unless the domestic dividend withholding tax exemption applies or the rate is reduced under an applicable tax treaty.

Individuals may not own an interest of 5 per cent or more in the FBI. As such, they will not hold a substantial interest within the meaning of the Personal Income Tax Act. This implies that the interest in the FBI of resident individuals is taxed as portfolio investment for Dutch personal income tax purposes (i.e., a deemed return depending on the total amount of portfolio investments held against a rate of 31 per cent).

However, individual taxpayers should be able to credit the dividend withholding tax withheld on distributions against their Dutch personal income tax liability. Non-resident individuals are, in principle, not subject to tax in the Netherlands in respect of their shareholding in the FBI.

Shareholders are not able to apply the participation exemption on their interest in the FBI. Capital gains realised and dividends received by resident corporate taxpayers are, therefore, subject to corporate income tax at a rate of 25 per cent.16 Foreign corporate shareholders with an interest of 5 per cent or more should only be subject to Dutch corporate income tax if the foreign shareholder taxation rules apply. This is the case if the substantial interest of 5 per cent or more cannot be allocated to an active enterprise and the anti-abuse provisions apply, namely that:

  1. the interest is held with the main purpose or one of the main purposes being to avoid income tax of another person (the subjective test); and
  2. there is an artificial arrangement or transaction, or series of arrangements or transactions, which is generally the case if it is not based on sound business reasons (the objective test).

v Forfeiture of FBI status

An entity forfeits its qualification as an FBI from the moment the statutory requirements for the regime are no longer fulfilled. The forfeiture of FBI status during a financial year has retroactive effect to the beginning of the financial year. If the FBI does not meet the profit distribution condition, its FBI status will be forfeited as of the beginning of the financial year relating to the profit distribution. In theory, this means that the forfeiture of the FBI status can have a retroactive effect of 20 months.

In principle, no revaluation takes place at the end of the FBI regime. However, a rounding-off reserve (if applicable) will be released, resulting in a taxable gain against the regular corporate income tax rate of 25 per cent. The reinvestment reserve will not be released.

The forfeiture of the FBI status also affects the shareholders of the former FBI. For instance, the shareholder restrictions resulting from the FBI regime no longer apply. This means that after the forfeiture of the FBI status, individual shareholders may acquire a larger interest in the former FBI.

For resident corporate taxpayers, the forfeiture of the FBI status may lead to the application of the participation exemption in its interest in the former FBI. However, the resident corporate taxpayer will not be able to apply the participation exemption on dividends received within eight months of the forfeiture of the FBI status.

International and cross-border tax aspects

i Tax treaties

The Netherlands has an extensive double tax treaty network reducing withholding taxes on dividends, interest and royalties. It has concluded nearly 100 bilateral income tax treaties with other jurisdictions, and ultimately 81 of those treaties are brought within the scope of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) (provided that the respective treaty partner makes a similar election). The Netherlands is also renegotiating some of its existing bilateral income tax treaties and negotiating some new bilateral income tax treaties.

If the Netherlands has not concluded a double tax treaty with the country concerned, domestic law in the form of the Double Taxation (Avoidance) Decree (2001) applies. Application of the Decree will also result in the avoidance of double taxation.

Most treaties concluded by the Netherlands (but not all) are fully based on the OECD Model Tax Convention.17 According to Article 6 of the OECD Model Tax Convention, income derived from immovable property may be taxed in the state where the immovable property is located. The OECD extends the scope of the definition of immovable property by adding examples of cases that are deemed to constitute immovable property. These include:

  1. property accessory to the immovable property;
  2. livestock and equipment used in agriculture and forestry;
  3. rights to which the provisions of general law respecting landed property apply;
  4. usufruct of immovable property; and
  5. rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources;

'Income derived from immovable property' is neither defined in the OECD Model Tax Convention nor in the accompanying commentary. The method of determining the income is also not explained. It is stated, however, that the form of exploitation of the immovable property is irrelevant and that this, in any case, includes income derived from the direct usage, rental or leasing of the immovable property. Income derived from immovable property that is part of the income of a company or permanent establishment would also fall within the scope of the provision.

Article 13 of the OECD Model Convention provides that the right to tax capital gains derived from the alienation of immovable property is allocated to the state where the immovable property is located. Most treaties concluded by the Netherlands contain a similar provision.

The Netherlands signed the MLI on 7 June 2017 and has largely accepted its provisions, subject to limited reservations. On 20 December 2017, the Netherlands published a legislative proposal for the ratification of the MLI, which has been approved by the parliament. As the Netherlands deposited the ratification bill with the OECD on 29 March 2019, the MLI ratification and notification process has been finalised. As a result, the MLI entered into general effect for the Netherlands as of 1 January 2020.

Following the implementation of the MLI, the most important changes in respect of double tax treaties concluded by the Netherlands are:

  1. the amendment of the preamble;
  2. the inclusion of the principal purpose test;
  3. specific anti-avoidance provisions in relation to withholding tax on dividends and certain real estate transactions;
  4. the adoption of a tie-breaker test to determine the tax residence for dual-resident companies in a mutual agreement procedure;
  5. measures to ensure consistent tax treatment where companies are treated as being tax transparent or non-transparent by different jurisdictions;
  6. measures to deal with the avoidance of permanent establishment status, although the Netherlands has made a temporary reservation in respect of Article 12 of the MLI on commissionaire arrangements; and
  7. measures to resolve disputes more efficiently, including the minimum standard mutual agreement procedure and mandatory binding arbitration.

In relation to real estate, the Netherlands has adopted Article 9 of the MLI on the improper use of tax treaty provisions (similar to Article 13(4) of the OECD Model Tax Convention), with the result that gains derived by a resident of a tax treaty state from the alienation of shares or other rights that derive more than a certain part of their value from immovable property may be taxed in the other treaty state, where the immovable property is located.

Pursuant to Article 9 of the MLI, the criteria have been tightened up to make it more difficult to avoid treaty provisions regarding the alienation of shares in real estate companies. As a result of Article 9 of the MLI, a retrospective 365-day period with regard to the relevant value threshold in the definition of a real estate company is included.

The Netherlands has also decided that interests comparable to shares fall within the scope of Article 13(4) of the OECD Model Tax Convention. The provision will only be effective if the treaty partner makes the same choice.

ii Cross-border considerations

Dutch law makes no distinction between Dutch and foreign investors. In principle, they are treated equally. Consequently, there are no restrictions on cross-border investments, such as exchange controls, or limits on foreign direct and indirect investment in real estate located in the Netherlands.

iii Locally domiciled vehicles investing abroad

As a starting point, a company incorporated under Dutch law is deemed resident in the Netherlands for tax purposes regardless of its place of effective management. Consequently, the company is subject to Dutch corporate income tax on its worldwide income.

If the place of effective management is located outside the Netherlands, the relevant jurisdiction may also claim that the company is tax resident within its jurisdiction. In that event, the applicable double tax treaty generally determines that the entity is tax resident in the country where its place of effective management is located. This is done through the corporate tie breaker and – following the implementation of the MLI – often a mutual agreement procedure.

From a Dutch tax perspective, the place of effective management should be determined by taking into account all facts and circumstances. Based on case law, the place of effective management is located where the most important business decisions are made.

The Dutch legislature issued a decree that provides for minimum substance requirements.18 The current substance requirements are:

  1. at least half of the total number of board members with decision-making power should be a resident of the Netherlands;
  2. the Dutch resident board members should have the professional knowledge and skills to properly perform their duties, which must at least include the decisions regarding the company's transactions and follow-up decisions;
  3. the company should have adequate support to run its business;
  4. the most important board decisions of the company should be made in the Netherlands;
  5. the principal bank account of the company should be maintained in the Netherlands;
  6. the bookkeeping of the company should take place in the Netherlands;
  7. the company should have at least €100,000 in payroll expenses;
  8. the company should have an office space at its disposal for a period of at least 24 months;
  9. the company must comply with all its tax obligations in the Netherlands and not be treated as a tax resident of another jurisdiction; and
  10. the company must run a real risk in respect of its financing, licensing or leasing activities, with an equity at risk that corresponds to the functions performed.

It is advisable (and, in the case of service companies, required) to meet the substance requirements to ensure that the company is treated as a tax resident of the Netherlands and that its tax residency is less likely to be disputed by foreign tax authorities.

An advantage of using a Dutch resident company for investing in foreign real estate is the extensive double tax treaty network of the Netherlands. Given the fact that most double tax treaties allocate the right to levy tax on real estate to the jurisdiction in which the real estate is located, Dutch resident companies are generally exempt from tax in the Netherlands.

Year in review

Under the existing fiscal unity regime, a Dutch-resident parent company and its Dutch resident subsidiaries may form a consolidated group for Dutch tax purposes.19 The main feature of the fiscal unity regime is that losses of one company can be offset against profits of another company included in the fiscal unity.

In addition, inter-company transactions, such as the transfer of assets and group loans, are ignored for tax purposes.

On 23 April 2019, the Dutch Senate adopted a proposal introducing certain anti-abuse provisions to the fiscal unity regime for Dutch corporate income tax purposes. Based on the proposal, a number of provisions of the corporate income tax act and dividend withholding tax must be applied as if the fiscal unity does not exist.

As a consequence of the repair measures, a number of benefits of the current fiscal unity regime are no longer available. This can have a severe impact on the tax position of taxpayers that currently apply the Dutch fiscal unity regime.

This proposal is a result of a decision of the European Court of Justice finding the fiscal unity regime to be in breach of the freedom of establishment. As a result of the approval of the Dutch Senate, the repair measures will be implemented in Dutch law with retroactive effect.

As mentioned in Section II.ii, the Dutch government announced that it is exploring new group tax regime alternatives to replace the fiscal unity regime. This process is still ongoing.

Withholding Tax Act 2021

Making the effort to combat tax avoidance and profit shifting, the Netherlands has introduced a conditional withholding tax on interest and royalties as of 1 January 2021. This tax at the rate of 25 per cent (2021) is due on royalty and interest payments made to related companies in low-tax jurisdictions or in certain abusive situations.

Outlook

The Dutch tax regime is undergoing significant changes as a result of the OECD Base Erosion and Profit Shifting project and related EU directives.

In mid-2020, a member of Parliament submitted a law proposal that contains an exit taxation meant to safeguard the taxing rights of undistributed profits of entities that leave the Netherlands after a cross-border restructuring. The undistributed profits would become subject to dividend withholding tax (15 per cent) at the moment of exiting the Netherlands. The exit tax would apply to companies of all sizes. However, a threshold for the first €50 million of profit reserves would apply, leaving small companies outside the scope of the exit tax.

The proposal has been highly criticised, and it is unclear whether the bill will pass in its current form. The bill has a retroactive effect and would, therefore, be applicable as of 18 September 2020. It is important to keep this development in mind when planning a cross-border merger, demerger, migration or share-for-share merger.

Another recently published law proposal regards a conditional withholding tax on dividends. This proposal will amend the Withholding Tax Act 2021, which entered into force on 1 January 2021.

The proposal introduces a new withholding tax on dividends paid to related entities in low-tax jurisdictions or in certain abusive situations. IT should be enacted from 1 January 2024.

The rate will be equal to the corporate income tax rate, which is currently 25 per cent, and will be levied alongside the existing dividend withholding tax levied at the rate of 15 per cent.

Cumulation will be avoided following a specific provision in this respect. The tax will be limited to payments made to related entities in jurisdictions that do not levy any tax or levy tax at a statutory rate below 9 per cent or that are considered non-cooperative jurisdictions. Tax treaties may reduce the levy to the applicable treaty rate.

Footnotes

1 Rob Havenga and Wiet Crobach are both partners at HCSD Tax Advisors.

2 Changes to this concept have been proposed (see Section III.iv).

3 The 2021 rate is 15 per cent for taxable profits up to €245,000.

4 Changes to this concept have been proposed (see Section III.iv).

5 Changes to this concept have been proposed (see Section III.iv).

6 The 2021 rate is 15 per cent for taxable profits up to €245,000.

7 The Netherlands also has a fiscal unity concept for VAT purposes.

8 The 2021 rate is 15 per cent for taxable profits up to €245,000.

9 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No. 1060/2009 and (EU) No. 1095/2010.

10 Generally, this is an Undertaking for Collective Investment in Transferable Securities (known as UCITS) or an FBI.

11 C-595/13, Fiscale Eenheid X.

12 Dutch Supreme Court, 4 December 2020, 18/03680.

13 The question whether foreign entities are comparable to Dutch FBIs is an ongoing topic of debate in court cases.

14 The 2021 rate is 15 per cent for the first €245,000 of profits.

15 Decree of the State Secretary for Finance dated 18 February 2014, No. BLKB 2016/99M.

16 The 2021 rate is 15 per cent for taxable profits up to €245,000.

17 The Organisation for Economic Co-operation and Development Model Tax Convention on Income and on Capital.

18 Decree of the Dutch State Secretary for Finance of 3 June 2014 (as amended).

19 A number of conditions apply to forming a fiscal unity, such as a holding requirement of at least 95 per cent.

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