Amendments RETT exemption share/participation transactions

27/06/23

The Dutch Ministry of Finance announced new legislation regarding the RETT concurrence exemption when acquiring real estate rich entities.

What does this mean for your organization?

In case of a prospective share transaction in a real estate rich entity, it is important to closely monitor the developments regarding the proposed legislation and to coordinate with your tax adviser. Both the timing of the prospective sharetransaction and the determination of the VAT recovery right can be crucial for the application of the RETT concurrence exemption.

Background

Currently, a share transaction might be interesting for buyers who have no or a very limited right to recover input VAT. As a result of a share/transaction, no VAT is due on the purchase price of the shares. The advantage of a share transaction compared to an asset transaction is that on balance no VAT is due on the development profit (and other costs on which no VAT is due, such as financing costs), which are a cost item in case of an asset transaction. According to the legislator this is undesirable. Therefore it was proposed to amend the RETT concurrence exemption. Following the draft legislative proposal, the acquisition of shares in a real estate rich entity are abolished from the RETT concurrence exemption in its entirety. According to the legislator, this would result in a tax level playing field between sharetransactions and asset transactions related to new real estate.

Overkill

The initial proposed legislation contained an overkill in situations where no VAT advantage was realized by a share transaction. For example, VAT is not a cost item if new immovable property is exploited VAT taxed. As a result of the VAT taxed exploitation of the new immovable property, the buyer is entitled to recover input VAT on acquisition costs. Therefore, in such situations, there is no difference between the VAT burden in an asset transaction and a share transaction. Under the initially proposed legislation, the RETT concurrence exemption would not apply to such share transactions, while the acquisitions currently are exempt from RETT.

Legislative proposal

The Dutch Ministry of Finance acknowledged this overkill as a result of the input to the internet consultation and a meeting between the industry and the Dutch Ministry of Finance. A letter from the Ministry dated June 23, 2023 shows that the legislative proposal will be amended to prevent overkill, that transitional law will be provided and that the commencement date of the legislative proposal will be postponed to January 1, 2025 (instead of January 1 2024).

According to the new legislative proposal, the overkill is avoided as follows:

The acquisition of shares remains exempt from RETT if it concerns new immovable property for VAT purposes that is operated VAT taxed for 90% or more for 2 years after acquisition (i.e., hotels, logistic real estate and supermarkets).
The acquisition of shares is subject to 4% RETT when it concerns new immovable property for VAT purposes that is operated VAT taxed for less than 90% (i.e, residential property, healthcare property). This 4% rate should on balance create an equal tax burden between asset transactions and share transactions (assuming fully VAT exempt use), because a share transaction also involves non-deductible VAT at the level of the real estate rich entity.
Transitional law will be included for projects for which a letter of intent has been signed before Budget day (19 September 2023) and where the transfer of the shares takes place before 1 January 2030.