With the Netherlands continuing to see stellar growth in its property market, our Corporate Services specialist and Head of the Group’s Netherlands office, Andreas Demmel, gives his take on everything from emerging trends to key tax considerations for those looking to invest.
How would you describe the current state of the Netherlands property market?
It’s booming – a leading property investment group painted a particularly rosy picture, with their research indicating the Netherlands property market to be one of the top performing real estate markets in Europe, having recently seen over €19.5bn of total investment.
What do you think is driving the current performance?
A combination of factors. The local economy is thriving at the moment, growing at its highest rate in over a decade. The low interest rate environment has obviously helped drive down the cost of finance, and then you have the wider political uncertainty in Europe, which has led to a surge in the number of businesses identifying the Netherlands as a potential HQ for their EU operations.
Where is the investment coming from?
Recent figures indicate that international investors account for over 70% of all property purchases made in the Netherlands, with the US, China, Western Europe and, increasingly, the Middle East among the most buoyant markets. Such investment tends to come in the form of collective investment schemes, such as private investment and pension funds, as well as sovereign wealth.
Is there a particular sector that appears to be leading the way?
Both the commercial and residential sectors are popular at the moment, but the commercial sector in particular is one worthy of mention. Office property has seen a noticeable increase, especially within the urbanised areas of the western provinces. While Brexit has only had a limited impact on the Dutch real estate market so far, proposed plans to move the European Medicines Agency from London to the Zuidas area of Amsterdam have fast become a major talking point in discussions surrounding Dutch office properties.
Meanwhile, the continual growth of eCommerce has led to a surge in demand for industrial properties such as distribution centres. There has been a clear spike in interest in both large-scale logistics properties and the development and expansion of increasingly large warehouse capacities – the likes of which are mainly found in locations such as North Brabant and Limburg.
What about retail properties?
Despite a positive rental market, there are actually less investment transactions in retail properties. It seems that owners of sought-after locations are taking a longer-term view, while less popular locations are being left unconsidered by potential buyers. Nevertheless, opportunistic investments in retail properties might still be able to produce desired yields, as numerous successful shopping centre revitalisations have recently demonstrated.
What are the main forms of tax that potential investors need to be aware of?
When acquiring legal or economic ownership of a Dutch property in principal, Real Estate Transfer Tax – or RETT – applies. For commercial property, the current rate is 6%, based on the fair value of the property. There are exemptions, but these are generally new properties that have not been taken into use.
While property acquisitions are principally exempt from VAT, the acquisition or transfer of a new property may be subject to it at the current rate of 21%. Therefore, for simplicity, if no RETT is applicable to a new property, VAT might be due instead, and vice versa.
Dutch Corporate Income Tax or CIT would typically be incurred on property acquired through a limited liability company – known in Dutch as a Besloten Vennootschap or BV – and applies to worldwide income. This would result in the rental income forming the bulk of the remuneration, and the investment property being classed as a business asset that is, in principle, depreciable.
Depending on the nature of the property, the residual value and the expected economic lifetime are set based on market experience, thereby determining the amount of depreciation from the original cost price of the building. In addition, expenses paid to third parties at arm’s length – such as financing costs and any local property taxes – are generally deductible for CIT purposes.
The Netherlands is renowned for the competitiveness of its tax regime, and this has undoubtedly been one of the primary drivers for the surge of investment it has received over the years.
That said, the Dutch government is making efforts to simultaneously tackle tax evasion by implementing new anti-abuse legislation – such as the EU’s Anti-Tax Avoidance Directive – while maintaining an attractive investment climate by gradually decreasing the corporate income tax rate to 22%.
Together with the longer-term nature of property investments, these factors mean that for those of you thinking about investing, it is vital that you also continually monitor the region’s respective tax and legal developments.