An investment fund may apply for the VBI regime if:
- it is either an open-ended investment company (beleggingsmaatschappij) or an open-ended investment fund (beleggingsfonds), soliciting or acquiring monies or other assets for collective investment in order to allow the participants to share the proceeds of such investments (which should have a licence under the Act on Financial Supervision (Wet op het financieel toezicht, AFS) or should be exempt from the obligation to obtain such licence);
- both the (statutory) objectives and actual activities are investing of assets in “financial instruments” only (see below for the definition of financial instruments);
- it operates on the basis of risk spreading; and
- it is either a Dutch public company limited by shares (naamloze vennootschap, NV), a fund for joint account (fonds voor gemene rekening, FGR), or a comparable entity established or entered into under the laws of the Netherlands Antilles, a member state of the EU, or a state with which the Netherlands has entered into a tax treaty that provides for an article on non-discrimination (eg, for example a Luxembourg SICAV resident in the Netherlands).
A VBI may only invest in financial instruments that qualify as marketable securities (and therefore investments in, eg, real estate or property development do not qualify for the VBI regime).
The definition of “financial instruments” refers to article 1:1 of the AFS and includes, amongst others:
- shares and other securities equivalent to shares that are tradable on the equity capital markets;
- bonds and other debt instruments that are tradable on the debt capital markets;
- all other generally tradable securities which carry the right to acquire the aforementioned shares or bonds by way of subscription or exchange or which can be cash-settled;
- money market instruments that are normally dealt in on the money market, which are liquid and have a value that can be accurately determined at any time;
- participations in investment funds that are repayable on demand or have the right to be withdrawn at the expense of the assets of the investment fund;
- financial futures, including equivalent cash-settled instruments;
- interest futures, including equivalent cash-settled instruments;
- interest swaps and currency swaps relating to shares or cash flows that are linked to a share index, including equivalent cash-settled instruments; or
- options aimed at the acquisition or disposal of the aforementioned financial instruments, including equivalent cash-settled instruments.
In the second amendment to the bill the State Secretary has explicitly mentioned that the following two categories do not qualify as financial instruments:
- Dutch real property, including all rights that (in)directly relate to Dutch real property or natural resources (for example investments in a tax transparent Dutch real estate investment fund); and
- any profit rights relating to an enterprise which is effectively managed in the Netherlands, which are not held as security right (effectenbezit) (for example a limited partnership interest in a transparent Dutch CV tax resident in the Netherlands).
Applicable tax regime VBI
A VBI is not subject to corporate income tax and dividend withholding tax. As capital tax has been abolished in the Netherlands as of 1 January 2006, no capital tax leakage will occur either. As opposed to the FBI regime, in order to qualify for the VBI regime, no specific requirements have to be met by investors and no financing limits or distribution obligations are imposed.
An investment fund applying the VBI regime will not be considered resident of the Netherlands for tax treaty purposes. As a result a VBI will not be eligible for a reduction or credit of any Dutch or foreign withholding tax imposed on distributions made to it. Consequently, no certificate of residency can be obtained form the Dutch tax authorities.
Applicable tax regime VBI Participants
As a general rule, the Netherlands will seek to directly tax VBI investors with respect to the income derived from their investments in the VBI. To accomplish this, several provisions are included in the bill effectively achieving annual taxation of certain groups of Dutch resident investors on the increase in market value of a VBI interest.
Dutch resident corporates, as well as Dutch resident individuals considered as entrepreneur (ondernemer) for income tax purposes, have to mark to market their VBI interest on a yearly basis. This means that any increase in the market value of the VBI will be taxable (and any decrease will be tax deductible) for such investors. Dutch corporate taxpayers can not apply for the application of the participation exemption in respect of a shareholding in a VBI. Any (deemed) capital gains and dividends will be thus taxed directly in the hands of such investors.
Dutch resident individuals holding a substantial interest (aanmerkelijk belang) in a VBI (ie, an interest of five per cent or more) are deemed to derive a taxable benefit of 4 per cent of the average market value of such interest taken at the beginning and end of a given year. This deemed benefit will be reduced by any dividend received during this year. The deemed benefit and any dividends or gains received will be taxable at a rate of 25 per cent.
Dutch resident individuals holding an interest not forming part of an enterprise, nor qualifying as a substantial interest, will be taxed under the regime for savings and investments (Box III). Irrespective of the actual income or capital gains, such individual is deemed to derive a taxable benefit of 4 per cent of the average fair market value of such interest taken at the beginning and end of a given year (less a tax-free amount). The tax rate applicable under the regime for savings and investments is 30 per cent, effectively taxing the VBI interest at 1.2 per cent.
Non-resident taxpayers will generally not be subject to Dutch taxation on their investment in a VIB, provided that non-resident individuals holding a substantial interest in a VIB that does not form part of an enterprise (onderneming) will be taxed similar to Dutch individual taxpayers holding a substantial interest.
Application and procedural aspects
An investment fund can only apply for the VBI regime upon request. The request must be filed before the end of the fiscal year in which the investment fund intends to apply the VBI regime. The VBI regime can only apply as of the beginning of a fiscal year. A VBI will not be obliged to file a tax return in the Netherlands.
The investment fund applying for the VBI regime has to mark to market all its assets and liabilities in the year prior to which the VBI regime becomes applicable. The difference between the market value and the tax book value is taxable for corporate income tax purposes.
In case an investment fund no longer satisfies all VBI requirements, it loses its exempt VBI status with retro-active effect as of the beginning of the fiscal year. An investment fund may file a request to cancel its VBI status, which should be done prior to the beginning of the fiscal year of cancellation.
If the VBI status is discontinued, the investment fund must mark to market all assets and liabilities for corporate income tax purposes. This means that any increase in value during the period in which the regime applied will not be taxable.
An investment fund may switch from the existing FBI regime to the VBI regime. Any profits relating to the period in which the FBI regime applied will remain subject to a dividend withholding tax claim. As a result, upon distribution to the investors, these profits will be subject to dividend withholding tax in the Netherlands, even if this distribution takes while the VBI regime is applicable to the investment fund.
Upon approval in the Dutch senate (and publication in the State Gazette), the proposed VBI regime is expected to enter into force with retro-active effect on 1 January 2007.