Why is the FII-regime being changed?
An investment institution that meets the legal requirements for the Fiscal Investment Institution (FII) regime, is subject to corporate income tax. The profits of this FII are taxed at a corporate income tax rate of 0%. In other words, the FII itself pays no tax on the income obtained. This is a result of the FII’s obligation to annually distribute the acquired income to its participants, resulting in taxation at the level of the participant.
Within the FII-Regime, a distinction is made between two types of FII’s:
- The securities FII; and
- The real estate FII.
In the case of the real estate FII, it may occur that the Netherlands is not allowed to tax the income from real estate of a real estate FII. For this reason, the government has proposed modifications on the FII-regime. We elaborate on this modifications below.
Proposal modification FII-regime
Under the proposed measures, the FII-regime will be adjusted. As a result, FII’s will no longer be permitted to invest directly in Dutch real estate as of 1 January 2025. A real estate that does, will become regularly subject to corporate income tax. To provide for transitional law, a temporary exemption from transfer tax will be introduced as of 1 January 2024 to facilitate tax-neutral restructuring of Dutch real estate FII’s.
What is the best thing to do now?
The 2024 Tax Plan includes several changes regarding the real estate FII. Therefore, we advise you to analyse your group structure to identify real estate FII’s. If you identify a real estate FII in your structure, we advise you to analyse the temporary exemption from transfer tax.