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Update for the real estate sector

01-10-2024 On 1 July 2024, the Affordable Rent Act (Wet betaalbare huur) came into force. The main consequences of the law are the extension of existing rent protection by introducing a middle segment, adjustment and mandatory implementation of the Housing Evaluation System (won­ing­waar­der­ingss­telsel) ("WWS") and strengthening and extension of municipal powers. This article discusses the key aspects and potential impact of the Affordable Rent Act. Key points of the Affordable Rent Act Introduction of a middle segment The most significant change brought about by the Affordable Rent Act is the reclassification of residential properties from two to three segments. Previously, there were only (i) non-liberalised rent (social housing sector) and (ii) liberalised rent (private rental sector). The Affordable Rent Act introduces the middle segment and changed the social housing sector and private rental sector:

On Tuesday 17 September 2024, the State Secretary of Finance presented the 2025 Dutch Tax Plan. We discuss the proposals we consider most relevant for the real estate sector.

A comparative guide of rooftop extensions in the Netherlands, Germany and France

De hotelmarkt is een van de weinige niches in het commercieel vastgoed waar nog deals gesloten worden. Om van een hoteldeal een succes te maken, moet de belegger wel een paar valkuilen vermijden.  Dena...

This is a practical guide from CMS on how to invest in commercial real estate in the Netherlands. The guide starts off with a brief explanation of the Dutch legal system. Key information about and an outline of the preferred ownership and transfer structure for commercial real estate assets is provided. We also outline the most common transaction process as well as costs and taxes to consider.

This is an overview provided by CMS setting out the enforcement of a mortgage granted over (commercial) real estate in the Netherlands. The current economic situation may lead to issues around (re)financing and access to affordable debt. Hiking interest rates have not only made borrowing more expensive but also required commercial mortgage lenders to increase their risk premiums and lending margins to reflect the higher uncertainty and default risk in the market. As a consequence, refinancing has become more difficult for commercial real estate investors, especially those with higher leverage, lower credit quality, or less diversified portfolios. Furthermore, decreasing valuation of properties may affect existing financing arrangements. Increased loan-to-value ratios and the risk of negative equity may result that lenders face losses if the sale proceeds are lower than the outstanding debt. Position of lenders in the commercial mortgage market Position of lenders in the commercial mortgage market varies depending on their type, size, strategy, and exposure. Some lenders, such as banks, insurance companies, and pension funds, have more diversified and long-term portfolios, lower leverage, and stronger capital buffers, and may be more willing and able to restructure, continue, or extend loans to distressed borrowers. Other lenders, such as non-bank financial institutions, private equity funds, and securitization vehicles, may have more concentrated and short-term portfolios, higher leverage, and weaker liquidity positions, and may be more inclined or forced to foreclose or sell loans to recover their funds. Foreclosure of mortgages over real es­tate Fore­clos­ure of mortgages over real estate in the Netherlands can occur when borrowers default on their loan obligations and lenders exercise their legal right to foreclose the property to recover their debt. When an event of default occurs, as defined in the financing documentation, the mortgagee may exercise its right to accelerate the right of mortgage and as such initiate a forced sale procedure of the property via a public auction. The public auction procedures vary considerably in EU member states. Not only the legislation varies, but also the effectiveness and efficiency of the procedure. For instance, the Dutch procedure is particularly favourable as regards to flexibility, duration (an auction can take place within 90 days) and costs (these are average). Most enforcement sales occur at the request of the mortgagee. However, while being less common, an attachor can also request an enforcement sale of an attached property. In this article, we will further discuss the procedure in case of a public auction at the request of the mortgagee in the Netherlands. Steps and formalities Below is a schematic representation of the steps to be taken in a public auction:

Heeft de gemeente voldaan aan de criteria van het Didam-arrest door een er­fpachtovereen­komst aan te willen gaan zonder een openbare se­lectiepro­ced­ure te doorlopen?Wenk in RN 2024/27, ECLI:NL:RBDHA:2023:14892In...

The impact of European ESG-regulation on the Real Estate & Construction sector.

On Tuesday 19 September 2023 the Dutch State Secretary for Finance published the 2024 Tax Plan and related legislative tax proposals. This newsflash primarily discusses the proposals that we consider most relevant for (international) companies. Dividend stripping Dividend stripping is the practice of splitting the economic interest in and legal title to dividends in order to obtain a dividend withholding tax advantage. The 2024 Tax Plan proses to improve the possibilities to combat dividend stripping through the following two separate measures:The introduction of a record date for recording the beneficiary of the dividends and the underlying credits, refunds or reductions of dividend withholding tax; andImproving the burden of proof for tax authorities in cases of suspected dividend stripping. The later measures only apply if the underlying tax amount exceeds EUR 1,000. Dutch tax classification rules for (foreign) entities A new regime for the classification of (foreign) entities for Dutch tax purposes is proposed as of 2025. The regime aims at reducing (hybrid) mismatches between the Netherlands and other jurisdictions and will include the following key elements:the codification of the current tax classification method for foreign entities;the current tax classification method for foreign entities will be supplemented by the 'fixed'-method and the 'sym­met­ric­al'-meth­od for foreign entities that do not have a comparable Dutch legal form, whereby:the 'fixed'-method entails that if an entity established under foreign law is resides in the Netherlands, the entity will always be regarded as tax opaque; andthe ''sym­met­ric­al'-meth­od means that if an entity established under foreign law (with a shareholder relationship with a Dutch resident taxpayer) and that entity does not reside in the Netherlands, the Dutch qualification of the entity will follow the qualification of its country of residence; andthe so-called unanimous consent requirement (toes­tem­mingsvereiste) will be abolished and all Dutch limited partnerships (CV), including the open limited partnerships (open CV) that currently is regarded as tax opaque, will qualify as tax transparent (except for reverse hybrid structures). The change in the tax classification of the open CV from tax opaque to tax transparent will trigger a final settlement which may result in a tax liability. Facilities are proposed to allow for a tax neutral restructuring. The impact of this proposal needs to be assessed as soon as possible with a viewing to benefitting from the special restructuring facilities in 2024. Changes to the tax classification of Dutch mutual funds (fonds voor gemene rekening or FGR) Under the current rules, the FGR can be structured as tax transparent or tax opaque for Dutch tax purposes. An FGR qualifies as tax transparent it the rules relating to the transfer of units are structured according to:the unanimous consent variant –units are only transferable with the prior unanimous consent of all other unitholders. The redemption variant – units can only be redeemed and issued by the FGR, i.e. only be transferred to the fund itself. All other FGRs are currently treated as tax opaque for Dutch tax purposes. Under the proposed new rules, an FGR will only qualify as tax opaque for Dutch tax purposes if the FGR is regulated under the Dutch Financial Supervision Act and the participation units are freely transferable. In this respect, the units will not be considered freely transferable if the units can only be redeemed and issued by the FGR itself. All other FGR's will be treated as tax transparent as of 2025. The change in tax classification from tax opaque to tax transparent will trigger a deemed disposal of the assets and liabilities of the FGR which may result in a Dutch corporate income tax liability. In order to give taxpayers the opportunity to restructure in a tax neutral manner in preparation for the change in the tax classification of FGRs, several facilities are offered. We would advise FGRs that currently qualify as tax opaque and are affected by this proposal to take advantage of the restructuring opportunities in 2024 before the proposed changes take effect from 2025. VBI regime It is proposed that the Dutch exempt investment institution regime (VBI regime) will be limited to entities that are regulated under the Dutch Financial Supervision Act as of 2025. This will eliminate the current possibility of using this exempt regime for Dutch corporate income tax purposes for the investment in private assets. FBI regime It is proposed that Dutch fiscal investment institutions (FBI) will be prohibited from directly owning Dutch real estate. Any FBI directly owning Dutch real estate as of 2025 will be subject to corporate income tax. Any FBI affected by the change in legislation and wishing to avoid such tax obligations will have to complete a necessary restructuring in 2024. During this period, a real estate transfer tax exemption will be introduced for restructurings by FBI to divest any prohibited assets or subsidiaries. Real estate transfer tax on share deals / concurrence exemption From 2025 the so-called concurrence exemption for the acquisition of shares in a real estate company will be abolished (concurrence between VAT and real estate transfer tax). As a result, the indirect acquisition of newly developed real estate will be subject to real estate transfer tax at the new rate of 4%, calculated on the fair market value of the new building or buildings. However, the concurrence exemption remains available if during the first 2 years after the share acquisition the underlying real estate is used for activities that entitle the owner (entity) to recover at least 90% of the VAT. With respect to asset deals, no changes are proposed concerning the concurrence exemption from real estate transfer tax. Environmental measures A number of environmental measures are proposed, the most important of which are an increase in the carbon emissions tax from 2024 and the extension of existing tax incentives (albeit at reduced percentages). In addition, it has been stated that all relevant tax breaks for the 'fossil industry' and their effectiveness have been identified during the last government period. However, due to the caretaker status of the current cabinet, any decisions regarding potential adjustments to these tax incentives will be deferred to the next cabinet. Other tax changes as per 2024 Box 2 tax rates for income from substantial interest As per 2024, the flat rate of 26.9% will be replaced by a general rate of 31%, with a step-up rate of 24.5% applying to the first EUR 67,000 of income from substantial interest. In short, a substantial interest is held if a private shareholder owns 5% of a company (or 5% of a special class of shares). Box 3 – income from savings and investments From 2024, the box 3 tax rate (which applies to income from passive investments) will increase from 32% to 34%. In addition, further guidance has been published on a number of points to determine the relevant tax base for box 3. The introduction of a new box 3 regime based on actual income will be delayed from 2026 to 2027. 30% ruling limited to maximum public sector salary Employees recruited from abroad who have specific expertise that is rare in the Netherlands are offered a favourable tax regime under which 30% of their gross salary can be paid as a net remuneration. From 2024, the application of the 30% ruling will be limited to the maximum salary for the public sector (EUR 223,000 in 2023). For existing 30% rulings with an expiry date after 1 January 2024, a transitional regime will be introduced under which the limit will apply from 1 January 2026. The way forward In the coming months, the 2024 Tax Plan will be discussed in both chambers of Dutch parliament. This means that the proposed measures are subject to change. We will keep you informed of any relevant changes. Please do not hesitate to contact us if case you have any questions.

Data-driven insights into class action risk across Europe, a key concern for major corporates

ESG: Environmental, Social & Governance