As mentioned above, Islamic finance has not picked up in the Netherlands (yet). Consequently, there are no commonly used structures. There have been only a handful of real estate shariah-compliant transactions. The funding for these transactions was often provided by (the Islamic windows of) foreign financial institutions. The structures that were used were based either on murabahah or ijarah contracts.
One of the structures used is based on murabahah. The murabahah contract used in Islamic finance transactions in the Netherlands is the commodity murabahah (also known as tawarruq). Shariah-compliant investors interested in real estate located in the Netherlands will incorporate a BV to acquire the real estate (the PropCo). The PropCo will purchase and acquire the real estate from a potential seller. The purchase price will be funded partially through an equity investment from the shariah-compliant investors and partially through external funding (often, this is the largest part of the funding). The PropCo will approach a financier and enter into a murabahah facility with it. Under the murabahah facility, the financier purchases commodities for X price from a commodities broker and the financier sells those commodities to the PropCo for X + profit margin. The sale from the financier to the PropCo is an instalment sale: the purchase price of X + profit margin is deferred and will be paid in instalments. If the financier is providing secured funding, the PropCo will also create a right of mortgage on the real estate. Next, the PropCo sells (under the documentation it is, in fact, the financier acting as agent for the PropCo to sell) the commodities for X price to another commodities broker (which can then onsell it to the initial commodities broker). As a result, the PropCo obtains immediate funding equal to X and has an obligation to pay X + profit margin to the financier in instalments.
The financier can be a bank, but it can also be an SPV (incorporated as a separate BV). In the latter case, the SPV will enter into a back-to-back facility agreement with a bank to obtain funding equal to X and the interest paid under the facility agreement will be equal to the profit margin under the murabahah facility between the SPV and the PropCo. If the funding is secured, the SPV will create a right of pledge over its secured rights under the murabahah facility (including a right of mortgage) in favour of the bank.
The other structure used for shariah-compliant real estate transactions in the Netherlands is based on the contract of ijarah. In this structure, there will be one BV that will acquire the real estate (PropCo) and another BV through which shariah-compliant investors will invest (InvestCo). The PropCo will purchase and acquire the real estate from a third-party seller. The PropCo will be the legal owner of the real estate. The acquisition of the real estate will be partially funded by the shariah-compliant investors and partially through external funding. The PropCo will enter into a (conventional) facility agreement with a bank to attract external funding and, if it is a secured funding, create a right of mortgage in favour of the bank. Further, the PropCo will enter into an ijarah contract with the InvestCo pursuant to which the real estate will be leased to the InvestCo. This can be structured either in the form of a rental agreement under Dutch law, or by creating a right of long lease in favour of the InvestCo. The ijarah is a back-to-back lease to the conventional facility agreement, so that the lease payments are equal to the interest paid by the PropCo to the bank under the facility agreement. The InvestCo then, in turn, subleases the real estate to lessees and makes a return on it. The difference between what is received by the InvestCo from subleases and its obligations under the ijarah lease is distributed to the shariah-compliant investors.
There is no separate taxation regime for Islamic finance products in the Netherlands and such products are not afforded special treatment under Dutch tax law. Dutch tax law has an economic approach towards financial transactions (whereby the economic substance of a transaction prevails over its formal legal structure). Since most Islamic finance products mirror the economic effects of conventional finance products, Dutch tax law does not seem to raise major issues while structuring Islamic finance transactions. This especially holds true for wholesale and investment banking. In the case of retail banking, however, tax law has been flagged as an obstacle for the introduction of Islamic retail banking products in the Netherlands. Despite much debate on the matter, the Dutch tax authorities are of the opinion that the profit paid in Islamic mortgage transactions (e.g., the profit margin in the murabahah) does not qualify as interest. Therefore, it is not eligible for mortgage interest relief. This puts Islamic retail banking products at a disadvantage compared to their conventional counterparts, resulting in the lack of a level playing field for Islamic finance from a tax perspective. Despite this, the Dutch legislature has not introduced any legislative amendments in relation to Dutch tax law, in contrast to other European countries, such as the United Kingdom, Ireland, France and Luxembourg.