Maximize Real Estate ROI in Netherland and Ireland

This article will teach you about the different legal entities available to real estate investors in the Netherlands and Ireland.

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Real estate investment is a profitable endeavor, but it is definitely not without its hazards and difficulties. As a real estate investor, one of the most crucial decisions that you’ll need to make will concern the selection of the appropriate legal structure for your investments. It’s vital that you make a wise decision in this regard, and in a previous article, we discussed this very issue, considering the planning involved and the beneficial assistance that legal technology can offer in making a determinative decision.

Indeed, it’s precisely this decision that will most significantly impact your tax liability, liability protection, and ease of doing business. In this article, we’ll explore how choosing the right legal entity can help maximize your real estate investment in the Netherlands and Ireland.

In this article, we will cover the following:

How You Can Choose the Best Legal Entity for Real Estate Investment in the Netherlands

The Netherlands real estate market is a popular destination for investment, thanks to its stable economy, strong legal system, and favorable tax laws. It’s also always been a popular choice for foreign companies looking to invest for a number of attractive features; these include a stable political structure, a solid infrastructure, highly educated employees, and sound government finances. The country also offers a gateway to Europe, with Schiphol airport and the Rotterdam port offering sophisticated logistics and distribution services. The Netherlands is also renowned for its open and tolerant society and high quality of life, adding to its appeal for investors and businesses seeking to establish a presence. The favorable tax climate for investors is another benefit. In fact, the Dutch tax climate is considered so beneficial for foreign entrepreneurs that international corporate structures often use intermediate holdings in the Netherlands. However, steering through the legal and financial requirements of setting up a company can be daunting.

There are various ways that companies can structure their investment in the Netherlands real estate market, although as laws and regulations change, new structures or variations of existing ones may arise. Of course, each investor’s unique legal, financial, organizational, and tax planning needs must be considered when planning an investment. The BV is a private limited liability company. The relevant legislation permits incorporation with a par value of a mere €1, and denomination in a foreign currency is also possible. Shares can be created without profit rights. There is also no requirement for an auditor’s statement for contributions in kind, nor for asset acquisitions from the shareholder within a period of two years from incorporation. This all means that Dutch BVs are attractive corporate vehicles for both foreign companies and private investors in the Netherlands real estate market.

Cooperatives are also a potential vehicle for investment in the Netherlands real estate market. International companies often choose a cooperative due to the fact that no dividend withholding is levied on the distribution of profits. However, it may not be the best choice; if a foreign member has a significant stake in a cooperative, they may also be liable to pay Dutch income tax as a foreign taxpayer under the Dutch Corporate Income Tax Act 1969 (CITA). The same goes for foreign shareholders who have a substantial interest in a BV. However, the good news is that the rules regarding this have been rendered more flexible, and foreign members or shareholders will only have to pay Dutch income tax in situations where there is evidence of artificial abuse, such where a company has been incorporated for the intention of evading taxes, as in the case of Cadbury Schweppes (ECJ, C-196/04).

The Advantages of Incorporating a Holding Company in the Netherlands

Instead, perhaps the best option if you’re investing in the Netherlands real estate market is the Dutch holding company. The reason for the holding company’s widespread use is due primarily to its adaptable nature and the use it offers for the participation exemption from Dutch corporate income tax.  Under the participation exemption, sizeable investments in both local and foreign companies are exempt from taxation. This exemption is a crucial aspect of the country’s tax laws.

There are other tax advantages to setting up a Netherlands holding company, as when it comes to owning property in the Netherlands, both Dutch and foreign investors are treated equally under the law. This means that there are no extra restrictions imposed on foreigners that Dutch investors don’t also have to follow.  Dutch and international investors are treated equally in real estate deals with regards to their compliance with investment regulations and tax implications.

The Ireland Real Estate Market: Unlocking the Benefits

The Ireland real estate market offers another option for international investors and has become a sought-after location. The country boasts a stable economy, well-trained workforce, and favorable tax laws. It’s also notable that since Brexit, Ireland has seen a huge upswing in investment from foreign companies. Ireland is a great point of entry to the European market and offers huge opportunities. As it belongs to the European Union, Ireland also offers the added advantage of free movement of goods, services, people, and capital within the EU. Being a member means that Ireland continues to have access to the benefits and opportunities that the EU offers. With all the uncertainty surrounding Brexit and international tax reform, Ireland provides a sense of stability and certainty for those looking to do business there.

Finding the Perfect Fit: Navigating Corporate Structures for Real Estate Investment in Ireland

Various corporate structures are commonly used for Irish real estate investment. The Irish fund ICAV/QIAIF is unlikely to be an attractive option for foreign investors, however, as it requires tax residence in Ireland and will be subject to regulation by the Irish Central Bank. So also does a company specifically established for property trading that is incorporated in Ireland. Rather, the option of investing in the Ireland real estate market through an Irish real estate investment fund (REIT) is a viable option. This is a tax-efficient investment vehicle that enables investors to pool their money in order to invest in a diversified portfolio of real estate assets.

REITs also enjoy favorable tax treatment, which includes exemption from liability on both income and capital gains tax arising from a property business. In addition, non-residents are able to dispose of shares in an Irish REIT without being subject to Irish capital gains tax. There are advantages for foreign investors in establishing an REIT in Ireland; however, it’s also advisable that you fully acquaint yourself with the rules relating to capital and listing requirements, as well as any restrictions placed on investors.

Navigating Insurance Issues in the Netherlands and Ireland

Title insurance (indemnity that protects lenders and homebuyers from financial loss) isn’t a requirement in the Netherlands. Although it is available, it isn’t commonly used, as the general registration process is presumed to provide a buyer with the appropriate security. The sales contract will also tend to include a clause relating to the property transfer and any accompanying assignment of insurance claims. Owners may consider purchasing property insurance to protect against environmental liability. When it comes to share or asset transactions in the Netherlands real estate market, there is a growing trend among parties to utilize warranty and indemnity insurance as well. This practice helps ensure that all parties involved are protected and can avoid potential risks.

In contrast to the Netherlands, title insurance in Ireland is always advisable. In fact, it’s especially important in circumstances in which the title deeds have been reported missing, or the title has identified defects. The identification of defects on a title is definitely an instance which calls for title insurance as this protects against unknown covenants in missing documents, or restrictive covenants that have the potential to impact on the potential of a property for development. It’s also always advisable to conduct environmental surveys, and this is in fact a common practice where any concerns exist regarding the impact that a property may have on the environment. Buyers are strongly advised to check their liability regarding the remediation of any environmental issues that may arise; the failure to do so may prove to be an expensive mistake. To safeguard your interests from environmental liability, you can procure property insurance that will provide you will full coverage for any such liability.

Strategies for Real Estate Investors: What are examples of asset protection?

The use of a holding company for business ventures is a popular form of asset protection for investors in the Netherlands real estate market as well as in Ireland. In the Ireland real estate market, the REIT is a form of holding company. Under the ideal structure, you could create an operating entity that doesn’t hold any vulnerable assets, with a holding company that actually does own the business’ assets.

The entity that handles business operations assumes all responsibilities and liabilities, including any potential losses. While limited liability for business debts may appear advantageous for the owner, it doesn’t actually hold much relevance since the operating entity has limited assets that can be claimed, and the holding entity won’t be accountable for the debts of the other entity. This business structure can offer some security and reduce any potential accountability for individual debts. In this way, you can reduce the risk of liability for business debts, as well as benefitting from the statutory exemptions available.

Unlocking Success: Steering Through the Complexities of Real estate Investment in the Netherlands and Ireland

When it comes to a successful return on investment in real estate in the Netherlands and Ireland, a choice of the right legal entity may prove to be the difference in protecting you and your company from liability, be more tax-efficient, and make it easier to do business. You have several options to choose from, such as a Dutch BV or cooperative, or an Irish REIT or limited company. However, it’s really only by discussing your precise requirements with legal and taxation experts that you will be properly informed to make the right choice for your specific investment needs. By selecting the right legal entity, you can ensure long-term success and maximize your returns.

Harnessing the Power of Technology Solutions for Optimal Legal Entity Management

Our technology aids companies to manage clients’ real estate investments more effectively and precisely. It assists in automated document assembly, permitting users to promptly generate, assess, and amend records. It also helps in the monitoring of clients’ investments, reducing the risk of pricey errors and ensuring compliance with regulations, especially where multiple jurisdictions are concerned.

Our legal technology also facilitates in the strengthening of communication between you and your clients, through the provision of secure, cloud-based record sharing. By enabling users to gain access to data quickly, you can make any alterations expeditiously. All in all, legal technology is a crucial tool, facilitating the delivery of a smooth and comprehensive service to your clients, wherever they may be located.

About this article

Sources

Bernstein, J. (2019) “Tax profile: What is Happening in Holding Company Jurisdictions” Eversheds Sutherland
Corten, K.; van der Marel, L. and van Drunen, M. (2020) “In review: real estate investment in Netherlands” Lexology
de Wit, M. and Endhoven, A. (2022) “Commercial Real Estate in The Netherlands: Overview” Thomson Reuters Practical Law
Gerritsen, R. and Kuipers, I. (2012) “Netherlands: The Advantages of a Dutch Holding Company”
Grant Thornton (2022) “Investing in Irish Real Estate: Irish Tax Considerations”
Laenen, M. and Mercier, A. (2019) “DLA Piper. Real Estate Investment in the Netherlands: The Legal Perspective” DLA Piper
Mawe, D.; Kenny, C. and Toomey, K. (2022) “Using holding companies and operating companies to protect business assets” Wolters Kluwer
Singer, A (2022) “Maximise Real Estate with the Right Legal Entity” (Newton)
Taxgate (2023) “Dutch Holding Company”
McElroy, I.; Carey, R.; Fitzgerald, R. (2019) “Ireland” in Worldwide Real Estate Investment Trust (REIT) Regimes Price Waterhouse Coopers
Van Hovell and Stax, S. (2022) “Real Estate in the Netherlands” Allen & Overy LLP

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