The Dutch Fund for Joint Account (FGR) – Current State of Play

With effect from 1 January 2025, Dutch and non-Dutch partnerships are, as a general rule, classified as fiscally transparent for Dutch tax purposes, save where a partnership qualifies as an FGR. Importantly, the FGR classification rules take precedence over the standard entity classification rules: where a partnership meets the FGR criteria, it will be classified as a non-transparent FGR regardless of how it would otherwise be classified under the general entity classification framework.

The amended FGR definition was introduced with two principal objectives: first, to prevent unintended utilisation of the FGR regime by high-net-worth individuals and family investment vehicles; and second, to eliminate international qualification mismatches by abolishing the internationally unusual "consent requirement" (toestemmingsvereiste).

Under the current definition, a domestic or foreign limited partnership will only be reclassified as a non-transparent FGR if the following cumulative criteria are satisfied:

1. The partnership invests for joint account (i.e., is established for collective investment purposes).
2. The partnership engages in "normal" portfolio management (i.e., passive investment activities rather than the conduct of a material business enterprise).
3. The partnership qualifies as an "alternative investment fund" (AIF) or "UCITS" within the meaning of the Dutch Financial Supervision Act (Wet op het financieel toezicht – Wft).
4. The participation rights are transferable, meaning they are not solely redeemable by the fund itself (the "redemption fund" exception). 

The revised FGR definition has given rise to a number of significant practical issues. Following a parliamentary motion, the Dutch Ministry of Finance conducted an internet consultation and convened a round table meeting in April 2025 with key stakeholders, including the Dutch Association of Tax Advisers (NOB), pension federation representatives and the Dutch Tax Administration. Three principal concerns were identified:

• Issue 1 - Foreign Partnerships as FGRs: The classification of foreign limited partnerships as FGRs has proved problematic. Whereas the internationally unusual consent requirement previously gave rise to qualification mismatches, similar issues may now arise under the FGR regime. For Dutch investment structures, it may be desirable to invest through a transparent vehicle, particularly where the underlying investor is tax-exempt and neutralisation through the fiscal investment institution regime is unavailable. In international structures, the use of foreign limited partnerships that are transparent for local tax purposes but qualify as FGRs in the Netherlands creates hybrid mismatches with potentially adverse tax consequences.
• Issue 2 - References to the Dutch Financial Supervision Act and Position of Non-EU Funds: The current definition's reference to "alternative investment fund" and "UCITS" under the Wft has created material uncertainty. Practitioners have observed that these terms require familiarity with financial regulatory law and that different EU Member States have implemented the relevant European directives in divergent ways, giving rise to disputes concerning the FGR qualification of foreign partnerships with legal personality.
  
  This uncertainty is compounded for funds established outside the European Union. The FGR definition's reliance on EU regulatory concepts-specifically the AIFMD and UCITS frameworks-creates particular difficulty for non-EU funds, which are not directly subject to EU financial supervisory rules and may not fall within the regulatory definitions of "alternative investment fund" or "UCITS" under the Wft. This raises the question whether non-EU funds are capable of qualifying as FGRs at all, or whether they fall outside the scope of the regime entirely. The consultation proposal's reference to "investment institution" (beleggingsinstelling) may exacerbate this uncertainty, as this concept is similarly rooted in EU regulatory frameworks. For non-EU fund structures with Dutch investors or Dutch-source income, this creates a material lacuna in the legislative framework: such funds may find themselves in an indeterminate position, neither clearly transparent nor clearly subject to the FGR regime. This issue has attracted limited attention in the consultation responses but represents a significant concern for international fund managers and investors, particularly those operating structures involving jurisdictions such as the Cayman Islands, Delaware or other non-EU fund domiciles commonly utilised in private equity and hedge fund structures.
• Issue 3 - The Investment Criterion: Uncertainty persists regarding the distinction between "investing" and conducting a business enterprise. Whilst the government has maintained that an FGR may only engage in activities that qualify as investing in the fiscal sense, the practical application of this criterion to large investment funds—particularly debt funds and private equity structures—remains challenging.

In response to the issues identified above, a draft legislative proposal was published for consultation on 15 December 2025. The consultation proposal seeks to modernise and clarify the FGR definition. One of the proposed amendments involves linking the FGR concept to "investment institution" (beleggingsinstelling) and "UCITS" (ICBE) as defined in Article 1:1 Wft, rather than the narrower "alternative investment fund" terminology. This amendment is intended to address the issue whereby foreign partnerships with legal personality—such as a French Société Civile de Placement Immobilier—could not previously qualify as FGRs.

The proposal also introduces a priority rule (rangorderegel): a fund cannot qualify as an FGR if it is already subject to Dutch corporate income tax by virtue of its legal form (e.g., as an NV or BV) or would be so subject if it derived Dutch-source income. This mechanism prevents overlap between the FGR regime and other bases of corporate tax liability.

Perhaps the most significant development is the introduction of an opt-out regime, permitting certain funds that would otherwise qualify as non-transparent FGRs to elect transparent treatment. The opt-out is subject to three cumulative conditions:

1. The fund's assets, liabilities, income, and expenses may not be attributed to more than 20 ultimate participants (whether natural persons or legal entities). This is a continuous test that looks through transparent entities to prevent circumvention through stacking structures.
2. The fund must provide the Dutch tax authorities with all information necessary for taxation at the participant level, including names, addresses, residences, and tax identification numbers. This information must be provided upon request and updated when participants change.
3. The opt-out may only be exercised once per fund. If the fund subsequently fails to satisfy the requirements, it will be treated as an FGR, and the opt-out cannot be utilised again.

For Dutch-resident funds, the opt-out request must be submitted in the year in which the fund would first qualify as an FGR. For non-resident funds with Dutch-source income, the request must be made in the year of first Dutch tax liability. Existing funds that qualify as FGRs must submit their opt-out request in the year in which the new legislation enters into force.

To prevent short periods of unintended corporate income tax liability pending the legislative amendments, grandfathering rules have been adopted. These rules permit funds to remain fiscally transparent until at least 2027 (or until the new rules enter into force), irrespective of the number of investors.

Following parliamentary clarification and the adoption of an amendment proposed by a member of the Lower House, the transitional rules now also apply to funds established on or after 1 January 2025. Funds may elect to apply these grandfathering rules by not registering as an FGR with the Dutch tax authorities and accordingly not filing Dutch corporate income tax returns commencing in 2025.

The consultation has now closed and, although the proposal was received positively in principle, the responses reveal a number of concerns regarding the practical workability of the proposed regime. The principal concerns are as follows:

• Multiple stakeholders (including the NOB) consider the 20-participant limit to be an unnecessary restriction that undermines the effectiveness of the opt-out regime. Funds that are unable to satisfy this threshold owing to their number of investors will continue to face the adverse consequences of non-transparency, including hybrid mismatches and potential double taxation. Many funds have more than 20 participants, particularly in fund-of-funds structures. Furthermore, this creates an unexplained inconsistency when compared with redemption funds, for which no participant limit applies. In stacked structures, a transaction in an upper-tier fund beyond the fund manager's control could cause the participant count to exceed 20, thereby triggering tax liability with adverse consequences for all investors. Additionally, foreign fund managers may be unwilling or legally unable to provide information concerning other (foreign) participants. This is particularly problematic where there are only a limited number of Dutch participants and no Dutch-source income, as foreign fund managers will be unfamiliar with Dutch tax rules and unlikely to apply the opt-out regime.
• The NOB recommends either eliminating the participant threshold entirely or, if a quantitative limit must be retained, substantially increasing it to 150 (aligning with Article 2:66a Wft) and applying it only to direct participants without a look-through requirement.
• Whilst the principle of an information requirement is generally accepted, there are concerns that failure to provide information timeously could automatically result in loss of transparent status, which may be considered disproportionate given the administrative nature of the requirement. It is recommended instead to incorporate the information obligation in formal tax law with administrative sanctions.
• The restriction to a single opt-out election is perceived by some stakeholders as unnecessarily limiting. Circumstances may change during a fund's lifetime, warranting reconsideration of the tax classification. Greater flexibility may be appropriate, perhaps permitting elections for fixed terms of at least five years.
• A recurring theme in the consultation responses is a preference for an opt-in regime rather than the proposed opt-out approach. Under an opt-in regime, all partnerships would be transparent by default, with the option to elect non-transparent FGR status if certain conditions are satisfied. The NOB has proposed that such an opt-in regime be combined with mandatory ("per se") FGR status for certain public funds satisfying specific criteria: (i) a substantial number of participants (suggested threshold: 150); (ii) regular secondary trading of participations; and (iii) Dutch taxable income. This approach would better align with the primary objective of preventing hybrid mismatches whilst reducing practical objections and risks for the fund industry.

One aspect that remains unchanged throughout these developments is the position of the redemption fund (inkoopfonds). Funds satisfying the redemption criteria—pursuant to which participation rights may only be transferred back to the fund itself—remain outside the scope of the FGR regime and are treated as fiscally transparent.

Notably, it remains possible to include a "Secondary Trade" clause in the fund documentation whilst still qualifying as a redemption fund. A Secondary Trade clause permits an investor to dispose of its participation to a purchaser "through" the redemption fund by way of a simultaneous redemption and reissuance. In such circumstances, the settlement of the redemption and reissuance price must be effected via the manager or general partner of the fund, although any premium or discount relative to the net asset value may be settled directly between the selling and acquiring investors. Furthermore, even where the financial settlement has not in fact been effected through the manager or general partner, a fund may nonetheless qualify as a redemption fund provided that its constitutional documentation or prospectus prescribes that: (i) transfers by participants to third parties are deemed to take place via the fund; and (ii) the manager or general partner charges a fee to the seller for the deemed redemption and/or to the purchaser for the deemed issuance of the participation certificates. This mechanism affords flexibility for investors seeking liquidity whilst preserving the fund's fiscally transparent status.

The consultation proposal expressly confirms that no substantive change to the redemption fund exception is intended. This provides certainty for funds structured with redemption mechanisms, although practical limitations mean this option is not invariably available, particularly for international investment structures.

Following the consultation, the Dutch Ministry of Finance will assess the feedback received and determine whether and in what form to submit the draft legislation to Parliament. Any legislative change is expected to enter into force no earlier than 1 January 2027.

In the interim, the transitional rules adopted as part of the Tax Plan 2026 package provide relief until the new rules enter into force. Funds should carefully analyse whether they are able to rely on these transitional provisions and take timely action accordingly.

Whilst the policy direction is becoming clearer, material uncertainties remain regarding practical application, particularly for international structures and non-EU funds. The interaction between financial regulatory law and tax law continues to give rise to inconsistencies that the proposed legislation does not fully address.

In light of the remaining uncertainties and the ongoing legislative process, affected funds should closely monitor developments and assess potential structuring implications. A careful fund-by-fund assessment remains essential, and early engagement with professional advisers is recommended to ensure that the tax classification aligns with the intended commercial outcome.

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