Dutch real estate investment fund projects demand a proper structuring. From a legal point of view it might appear to be a complex matter but it does not have to be. Let us show you what we mean.
Dutch real estate investment funds – Setting the scene
The present piece is intended to give you an idea as to how to structure your real investment project in the Netherlands. We will shed light on the advantages of the Dutch limited partnership (Commanditaire Vennootschap – cv or Limited Partnership). This is a vehicle commonly used in for Dutch real estate investment funds. Other investment vehicles such as a fund for joint account (fonds voor gemene rekening) or a Dutch limited liability company (besloten vennootschap met beperkte aansprakelijkheid, bv) will be discussed in other parts of the present blog series.
The cv as a vehicle for Dutch real estate investment funds
The cv – legal aspects
The cv is a partnership which does not have legal personality. Nonetheless, the cv does have assets which are separate from the assets of its participating partners. It is created by means of a contract between at least one or more general partner(s) (beherend vennoot) and at least one or more limited partner(s) (commanditaire vennoot).
Partners in a Dutch cv
A general partner is a natural or legal person, which manages the Limited Partnerhip. The general partner does not have the role of an investor. The general partner is also personally liable for debts of the cv. Limited partners on the contrary are only liable for the amount of the their investment, unless they assume management tasks or act for the cv in a way which is visible for third parties (extern kenbaar handelen). Also, they must have assumed management tasks or have acted for the cv in an imputable manner before their liability can be established.[1]
The cv-fund structure
In case a cv is used for a Dutch real estate investment fund structure, the general partner (mostly a Dutch limited liability company – besloten vennootschap) manages the funds which are pooled in the cv. As the cv does not have legal personality the real estate assets are usually held by a Dutch foundation (the Foundation – Stichting). The Foundation serves as a fiduciary and has the legal ownership (juridisch eigendom). The limited partners have the economical ownership (economisch eigendom) with regard to the investment. Legally speaking, each of the limited partners has a share in a claim on the Foundation as fiduciary.
The Foundation holds the assets for the benefit of the limited partners as investors. The general partner manages the investment for the benefit of the investment project as such. The general partner receives a management fee for its services. Profits from the investment project are upstreamed to the limited partners. The necessary asset management agreement and limited partnership agreement provide the contractual basis for the upstreaming of the fees and the funds.
Further, the limited partnership agreement outlines the goal, duration, governance and internal regulation of the investment fund, together with ancillary documents.
Just a few perks
The Limited Partnership is oftentimes used for real investment structures as they have legal and tax perks.
For example, the Limited Partnership is not obliged to publish annual accounts (unless all partners are foreign legal entities). Thus, the limited partner’s financial gain is not visible.
From a tax point of view a Limited Partnership is transparent if it is closed-end. Closed-end means that a limited partner may only transfer participations in the cv-fund in case all partners do agree to the respective transfer.
The transparent cv for Dutch real estate investment funds
Transparency in tax terms entails that the profits gained by the investment projects are directly attributed to the limited partners respectively. An optimized tax planning. No withholding tax (bronbelasting) – unless the receiving limited partner is a tax resident of a foreign country – and no corporate income tax (vennootschapsbelasting) in the Netherlands.
Last but not last
Do you have any questions on the best legal structuring for your investment? The lawyers and advisors of LexQuire Tax & Law would be happy to assist you with their extensive knowledge with regard to Dutch real estate fund structures. You may directly reach us via e-mail (info@LexQuire.nl) or phone (0031 43 711 22 07).
By Cornelius Litt and Gabriel Spera
[1] HR 04-11-2016, ECLI:NL:HR:2016:2516.
