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April 19, 2023

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:

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.

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.

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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.

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) “Commercial Real Estate in Ireland: Overview” Maples Group.
Nelson, N. (2019) “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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Published by Alexandra Singer in Corporate Governance
Tags: Investments, Ireland, Netherlands, Real Estate
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February 3, 2023

Maximize Real Estate ROI with the Right Legal Entity

Discover how technology solutions can help lawyers navigate real estate investments and optimize legal entity management. Learn the importance of choosing the right legal entity and how to manage it efficiently in this informative article.

Dear Legal Ops!
Welcome to this week’s Let’s talk about Legal Ops, offered by Newton. We tackle corporate legal departments, speed up processes, and career growth. Please send us your questions; in return, we come back with real insights and actionable tips.
If you find this post valuable, don't miss the chance to check out our latest posts.

Subscribe to get access to more posts like these!

Real estate investment can be an incredibly lucrative venture, but is also complex and challenging. Yet helping your clients to understand the complexities of the real estate investment landscape doesn’t have to be daunting. With the right legal technology company to help, as an expert in your field, you can navigate and guide your clients through the complicated legal landscape surrounding investment property with ease. Through the provision of comprehensive support and suite of services, the correct technology is crucial to ensuring the correct choice of legal entity and managing your clients’ investments.

Investing in real estate involves a great deal of intricate planning. As such, you’ll know how critical it is to select the right legal real estate structure to safeguard your clients’ investments and ensure they fully benefit from them. In this article, we’ll look at the various types of legal and business entities used for real estate investment in Luxembourg, Germany and the United Kingdom (UK). We’ll also explore other factors, such as the need for asset protection as well as how the use of certain company structures, for example the secretive company Cascade LLC used for the avoidance of holding transparency by the Microsoft founder and billionaire Bill Gates, can be best utilised for the benefit of your clients.

In this article, we will cover the following:

When it comes to real estate investment, selecting the correct legal entity is a key component in safeguarding your clients’ possessions. The ideal legal entity to use is dependent on your clients’ individual requirements and objectives. In Germany, it is common for larger property holdings to be owned by corporate entities instead of individuals. This allows for greater flexibility in managing the real estate and optimizing taxation.

Although the intricacies of registration vary between Germany, Luxembourg, and the UK, in all three jurisdictions, the options that exist for the structuring of a real investment transaction remain essentially the same. As in Luxembourg and the UK, in Germany, the acquisition of property can be organized as an asset transaction, which requires the procurement of the asset from either an individual or a holding vehicle, or as a share deal, which involves obtaining the shares in the holding vehicle from the shareholders.

Real estate can be invested in either directly through an asset transaction, or indirectly through the acquisition of shares in a legal entity possessing real estate – a share deal. In Germany, legal entities such as this are usually structured in Germany as a limited partnership (e.g. GmbH & Co KG) or a limited liability company (e.g. GmbH). The name of the GmbH highlights the fact that its proprietors (Gesellschafter, also recognised as shareholders) do not have any personal liability for the corporation’s obligations. In this way, the GmbH & Co. KG amalgamates the benefits of a partnership and those of a limited liability organization. More often than not, the general partner will be an external limited company such as a UK Limited Company or a Luxembourg S.à r.l. instead of a pure GmbH, as the combination of those legal entities provide excellent tax benefits. As with all property transactions, the conduct of full and comprehensive due diligence is vital.

However, in Germany, in contrast to many other legal systems, there is no reliable shareholder register. This means that if the ownership of the shares has changed hands multiple times, it is essential to check that there is an uninterrupted sequence of notarial transfer documents stretching back to the initial shareholder, to guarantee that the seller actually fully owns the shares. If the seller does not have a valid claim to the shares, the buyer, who may be purchasing in good faith, will lack any protection. This is quite different to the case of the direct asset purchase of real estate, where the seller is normally assumed to be the legitimate owner if it is officially registered, and so an acquisition in good faith is possible.

Another option by which to structure a real investment purchase in Germany is through the real estate investment trust (REIT). In 2007, Germany introduced the concept of real estate corporations with shares traded on the stock market as REITs. This legal entity needs to take the form of a "stock corporation" (Aktiengesellschaft), with a €15m minimum capital requirement. The REIT’s headquarters must be in Germany, and at least 15% of the shares need to be held by different investors with no single one holding more than 3% (the small investor rule). The ownership and transfer of REIT shares are supervised by the German Federal Financial Supervisory Authority (BaFin). Additionally, REITs are exempt from corporate income tax, including the solidarity surcharge, which is a potential client benefit.

Exploring the Advantages of Real Estate Investment in Luxembourg

Luxembourg is a popular destination for a real estate investment group, as its property sector has advanced to offer investors various flexible and imaginative investment possibilities. At present, there is no specific vehicle dedicated to real estate investments. However, Luxembourg furnishes an array of vehicles that can be utilised for this purpose. The selection of the vehicle will be, as you know, mainly contingent on your client’s investor profile, the form of investments to be made, the form of capital to be obtained, and any tax considerations that may need to be taken into account.

Luxembourg supplies a platform of services and structuring opportunities, and available products include standard business companies, i.e. structures that are not monitored at all or indirectly supervised by an appointed alternative investment fund manager (“AIFM”), or investment structures that are (perhaps in addition to the appointed AIFM) supervised by the Luxembourg regulator, the Commission de Surveillance du Secteur Financier (“CSSF”), and thus regulated structures. Investment vehicles from Luxembourg can be employed for real estate investments situated in Luxembourg or abroad. As there is no particular vehicle for domestic investments, one of the benefits of using the same fund vehicle is that it can combine both local and foreign investments.

Navigating the UK Real Estate Market: Considerations for Investors

In the UK, as with Luxembourg and Germany, property investment is transacted through a direct asset purchase or a share deal, and by utilising a third-party entity like a company, partnership, or trust. A popular option for real estate investment groups for the holding of property in the UK is to use a non-UK company established in a low taxation jurisdiction, such as the Channel Islands, Cayman or the British Virgin Islands. There are various tax rules and benefits for this structure, especially as, unless the property is a residential home worth more than half a million pounds and available to the proprietor or some related person, non-UK resident companies are not obligated to pay UK capital gains tax on any profits acquired from a property sale. Using a limited partnership is also popular, due to its transparency for tax purposes. However, as the rules are complicated, advice must be provided with regard to the intricacies of each specific situation. The UK also provides other various options for the holding of real estate through non-UK Property Unit Trust (PUTs), which are popular as they are also look-through for tax purposes, as well as Property Authorised Investment Funds (PAIFs). Real Estate Investment Trusts (REITs) are also common as any income and gains from this vehicle are not subject to UK tax, but must instead distribute a minimum of 90% of its annual profits – property income dividends–within one year of the end of its accounting period.

Factors that will influence the choice of a real estate investment structure will include the level of income and capital gains taxes, as well as withholding taxes, value added tax, property transfer taxes and stamp duty, among others. Yet for investors in all three jurisdictions, where they wish to shroud the ownership of their assets, it is ultimately the use of a holding company that might be their most favorable option. This is precisely what the controversy involving Bill Gates and his use of the company Cascade LLC to conceal its investments concerned.

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The Importance of Asset Protection

The consideration of asset protection is, as always, a vitally important factor in any investment in a real estate structure, and the right legal entity can help guard your clients’ assets from possible creditors and lawsuits. The holding company offers further benefits in addition to privacy with regard to liability protection, as owners won’t be held personally responsible for its debts and liabilities. This can be especially useful for properties that involve a high risk of liability, such as rental properties. In Germany, from a liability perspective, a GmbH & Co. KG or GmbH can be appropriate for asset protection, although the choice for a particular corporate structure must take into account intensive and targeted tax advice.

Luxembourg is a desirable spot for asset safeguarding in light of its status as a major European financial centre, as well as its favorable taxation regulations and stable economic and political status. Asset protection in Luxembourg can be achieved through a variety of methods, such as the SPF (Société de gestion de patrimoine familial), special tax arrangements for intellectual property rights, expatriates, businesses, and the Luxembourg life insurance contract which is considered an investment tool.

In the UK, although the use of a trust fund to hold property can provide some form of asset protection, this might not be as foolproof as clients would hope. Investors should be advised on the development of a strategy that considers the number of their properties, the amount of equity in each one and any attendant hazards. As Gates’ concern Cascade is a private company, attempting to determine its precise assets is difficult, which is of course its objective. Luxembourg is a popular destination for the operation of a holding company, with its Société de Participations Financières (SOPARFI).Clients who invest in real estate may opt for holding companies that conceal the ultimate proprietor for reasons such as preserving confidentiality and to keep the investor’s personal information, e.g. name and location, out of public documents. Furthermore, this strategy can shield private assets from potential creditors or lawsuits, and it can even provide advantageous tax benefits.

We know exactly how intricate and laborious real estate investments can be to manage, due to the need to track so many financial and legal particulars. Now legal technology has become progressively essential for lawyers to negotiate their processes and streamline their performance.

Our technology aids lawyers in managing clients’ real estate investments more effectively and precisely. It assists in automated document assembly, permitting lawyers 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 the strengthening of communication between you and your clients, through the provision of secure, cloud-based record sharing. By enabling lawyers 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

Baker & McKenzie (2023). Global Corporate Real Estate Guide (Luxembourg)
DLA Piper (2023). Real Estate Investment in Germany: The Legal Perspective
Eicher, P. and Hoffman, S. (2021). In review: real estate investment in Luxembourg
The Law Reviews (2022). The Real Estate Investment Structure Taxation Review: Luxembourg
Norton Rose Fulbright (2016). Investing in UK Property. Quick Tax Guide
Rose & Partner (2023) Real estate in a company under German law
Dentons (2022). The Real Estate Investment Structure Taxation Review: United Kingdom

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Featured Image: Photo by Sean Pollock on Unsplash
Featured CTA blog post: Photo by Jurica Koletić on Unsplash / Photo by Christina @ wocintechchat.com on Unsplash

Published by Alexandra Singer in How to
Tags: Germany, Investments, Luxembourg, Real Estate, UK
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