The Netherlands for corporate structuring

comment - 18 May 2017

The Netherlands for corporate structuring

In the first of this two part series, Andreas Demmel, corporate services specialist and head of our Netherlands office, introduces the main types of corporate vehicles used in the Netherlands (the what), talks us through the structuring process (the how) and gives a flavour of the planning scenarios in which they are typically used (the when).

The lure of the Netherlands

First and foremost, it’s important to understand why the Netherlands is considered one of the leading jurisdictions for corporate structuring. Generally speaking, the appeal of the Netherlands can be split into two key categories:

The first being the so-called “generic” benefits it offers – i.e. those that make for a business-friendly environment (e.g. the location (proximity to the rest of Europe), highly educated workforce and robust infrastructure).

The second is the legal and fiscal environment. Although not mutually exclusive from the first category, as the legal and tax regime is generally spoken about as one of the features of a “business-friendly” jurisdiction, it’s worth considering it as a distinct component because it’s so often the deciding factor for many corporations. The following aspects have proved particularly appealing to corporations:

- A range of bilateral investment treaties offering valuable legal protection for cross-border investment;
- An extensive and well-negotiated double tax treaty network, mitigating many withholding taxes;
- Generally no withholding taxes on interest;
- A participation exemption (used immediately after acquiring an interest above 5%);
- Little double taxation as a result of the participation exemption and reliefs;
- A clear approach to substance requirements.

Indeed, many of the innovative vehicles that are used in the Netherlands effectively act as channels through which these benefits can be realised. We’ll now investigate what those vehicles are and how they are put to use, with particular focus on alternative investment managers and corporations.

The planning vehicles

Foundations (“Stichtings”)

What are they?

A Dutch foundation is commonly used as an orphan vehicle. It has a legal personality (like a company), but without members or shares.

How are they established and structured?

It is established by way of a notarial deed. A foundation’s articles of association sets out its objectives and management structure. The management of a foundation may be formed of one or more individuals or entities, and only the names of the management people/entities are publicly disclosed.

When are they used (the situations and scenarios)?

Foundations are established for various purposes, including investment holding, estate planning, asset protection and (more commonly) charitable giving. A foundation is only subject to tax where it conducts entrepreneurial activities, and registrable for VAT if it undertakes an economic activity.

Cooperatives (“Co-ops”)

What are they?

The Dutch cooperative (“Co-op”) is a vehicle which has legal personality under Dutch company law and is an association incorporated by a notarial deed which contains the articles of association.

How are they established and structured?

When establishing a Co-op the objects clause in the articles of association must state that the aim of the cooperative is to provide for certain material needs of its members upon agreement. Therefore, instead of shareholders it has members with (membership) interests. Being a specific form of an association, the Co-op must have at least two members on incorporation, and transfer of membership is limited by the articles of association. They do not have a minimum capital requirement.

When are they used (the situations and scenarios)?

Co-ops are fully taxable entities. However, one of the most advantageous tax aspects of a Co-op is that, like ordinary companies, it qualifies for the participation exemption and treaty reliefs. The Co-op is commonly used in an investment context instead of an ordinary company (see below) because distributions to members in principle are not subject to withholding tax. However, there is a proposed change under discussion at the Dutch Parliament that would limit the use of this withholding tax exemption starting from 1 January 2018 and, therefore, result in the Co-op being subject to the same tax treatment as private companies.

Private companies (besloten vennootschap met beperkte aansprakelijkheid or “BV”.)

What are they?

The legal framework for a BV, or private limited liability company is very simple and straightforward. A BV is incorporated through a notarial deed before a Dutch civil-law notary and registered with the Dutch trade register (Chamber of Commerce). Shareholder liability is limited to contribution and shares can be transferred by way of a notarial deed. Transfers may be subject to the articles of association.

How are they established and structured?

Once established by notarial deed, a private company is fully taxable from the date of incorporation and will have access to the extensive treaty network the Netherlands has to offer. The BV can denominate its share capital in a currency other than euro and issue shares without voting rights or profit entitlement. No auditor’s reports for contributions in kind or minimum capital are required.

When are they used (the situations and scenarios)?

BV's are the legal vehicle most frequently used by foreign investors as holding vehicles for real estate and private equity investments, particularly by German real estate managers, which is, in large part, due to the double taxation treaty that exists between the Netherlands and Germany. As it represents a simple and flexible instrument the BV has been exceptionally popular with corporate investors and the alternative investment industry for holding, financing, structuring or co-investment purposes.

Limited partnerships (commanditaire vennootschap or “CV”)

What are they?

The Dutch limited partnership is a contractual agreement between one or more general partners (beherende vennoten) and one or more limited partners (commanditaire vennoten). The CV itself does not form a legal entity.

CVs, therefore, generally have two sorts of partners: (i) active partners that undertake entrepreneurial activities and assume unlimited liability, and (ii) limited or silent partners that only provide funding and are not actively involved in the enterprise (the names of these partners, unlike the names of the general partners with unlimited liability, are not disclosed to the public through the Dutch trade registry (hence they are called ‘silent’ partners) and they are only liable for the amounts they have contributed).

How are they established and structured?

CVs are well established and similar to an English limited partnership. There are closed CVs and open CVs. A CV is ‘open’ if a partner can be added without the consent of all other partners and is deemed ‘closed’ where partnership interests are not freely transferable. Open CVs are subject to corporate income tax whereas closed CVs are considered tax transparent with liability directly in the hands of individual partners.

When are they used (the situations and scenarios)?

CVs are used as the typical Dutch alternative fund vehicle. When making investments, there is generally a fully taxable Co-op interposed for holding the investments. Hence, a usual fund investment structure would incorporate a CV in combination with a Co-op.

Looking ahead

In the post AIFMD-world, the Netherlands is increasingly being cited alongside the UK, Luxembourg and Ireland as an attractive place to do business. This is because doing business onshore now has practical advantages and the Dutch regulator is seen to have implemented the AIFMD in a timely, straightforward and pragmatic manner without unnecessary costs and restrictions.

The second article in this series will explore some of key planning considerations, including substance requirements, anti-base erosion rules and other important legal and regulatory developments.

previous comment / Andreas Demmel

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