New Decree published on Dutch tax classification of foreign legal entities from January 1, 2025 (Stb, 2024, 339)
The Dutch government published the Decree on Dutch tax classification rules for foreign legal entities (Stb. 2024, 339) (the “Decree”), introducing a streamlined framework for classifying foreign entities for Dutch tax purposes under the new rules effective January 1, 2025. After public consultation earlier this year, the final Decree incorporates valuable clarifications and adopts recommendations from industry practitioners. It includes an annex listing ‘presumed equivalents’ for commonly encountered foreign entities.
How this may impact you
The Decree introduces new clarity and predictability for cross-border structures, affecting businesses with foreign entities that may be classified differently under Dutch law. These changes are particularly relevant if your organization operates through
partnerships;
funds; or
other (foreign) legal entities that may be reclassified as transparent or non-transparent for Dutch tax purposes
as this may impact tax reporting, withholding obligations, and potential tax liabilities.
With the non-binding nature of the annex, as well as the potential for reclassification upon changes in foreign law, it is important to review your current structure and assess if these rules affect the Dutch tax classification of any group entities. Especially for entities with uncertain comparability to Dutch forms or those recently affected by foreign legislative updates.
Recap: what is changing on January 1, 2025?
Limited Partnerships: All Dutch limited partnerships (CVs) and their foreign equivalents will be treated as tax-transparent, even those that previously did not require unanimous partner consent for admissions or substitutions of new limited partner – a rule that often led to complex structures and international mismatches. The new legislation eliminates this consent requirement and transitions previously non-transparent Dutch and foreign limited partnerships to transparent status, effective January 1, 2025.
FGRs: FGR classification has also been revised. An FGR will be tax-transparent, unless it (i) qualifies as an investment fund or UCITS established for collective investment and (ii) the participations in the fund are tradable (they are not considered tradable if they can only be redeemed by the fund itself).
Foreign entities: Foreign entities will primarily be classified using a ‘comparability approach’, aligning them with the most comparable Dutch legal form. When no Dutch comparable equivalent exists, two new methods apply:
Fixed approach: Foreign entities with their place of effective management in the Netherlands will be classified as non-transparent.
Symmetrical approach: For foreign entities that are not tax resident in the Netherlands, the Dutch tax classification will mirror the foreign jurisdiction’s treatment, reducing cross-border discrepancies.
Substance of the Decree
The Decree refines the 'comparability approach' by introducing a structured assessment framework to align foreign entities with comparable Dutch legal forms. An annex provides an extensive list of pre-classified foreign entities, showing whether each is presumed comparable to a specific Dutch form or has no Dutch equivalent.
Key elements of the Decree:
Assessment framework for foreign entities: The Decree systematically evaluates foreign entities based on key legal characteristics to determine if they are comparable to specific Dutch entities. The framework identifies key characteristics of Dutch entities, distinguishing between non-transparent forms like BVs and transparent forms like partnerships. If a foreign entity closely resembles a Dutch form in both legal nature and structure, it will be treated accordingly for Dutch tax purposes. This approach aims to reduce hybrid mismatches, thereby simplifying tax treatment and providing greater predictability for cross-border arrangements.
Presumed equivalents annex: The Decree includes an extensive annex, known as the legal forms list (rechtsvormenlijst), which catalogues 246 foreign legal entities in 84 countries and provides pre-determined classifications. Each foreign entity type is assessed according to its legal characteristics and is categorized as either comparable or non-comparable to a Dutch legal form. This list is organized by country and includes a "qualification year" to indicate the year for which these classifications were determined. Entities listed in the annex are generally presumed comparable to their indicated Dutch equivalents, unless significant changes occur in the foreign law governing these entities after the qualification year, necessitating a re-evaluation under the Decree’s criteria. Listed entities are presumed comparable to Dutch forms unless relevant foreign laws have substantially changed since the “qualification year” specified in the list. The presumption, however, is not binding. If evidence demonstrates that a foreign form does not align with its presumed Dutch equivalent under the criteria, the classification may be challenged. As such, the principle of "substance over form" remains applicable, allowing for reclassification based on individual case specifics, independently of the annex’s general presumptions.
Where a foreign entity has no clear Dutch equivalent, the fixed approach or symmetrical approach will apply, dependent on the jurisdiction of tax residence of the foreign entity.
Key updates and noteworthy clarifications in the final Decree compared to the consultation draft
Non-binding nature of the legal forms list: The consultation version proposed a binding list of foreign legal entities with presumed Dutch equivalents. Based on feedback, the final Decree makes this list presumptive rather than binding. This change allows for judicial review and balances legal certainty with flexibility.
Merging of NV and BV categories: Initially, NVs and BVs were treated as separate categories with distinct characteristics. Responding to feedback, the final Decree combines NV and BV under one category to prevent a foreign entity similar to both from being misclassified as ‘non-comparable.’ This change also mirrors how certain partnerships (maatschap and vof) are combined.
Potential classification of limited partnerships as FGR under the new rules: The explanatory notes clarify that limited partnerships meeting the new FGR criteria will be classified as FGR.
Clarification on essential characteristics: Feedback highlighted a need for greater clarity on the assessment framework and the role of essential characteristics (‘wezenlijke kenmerken’) in evaluating foreign entities. In response, the explanatory notes have been revised, with no specific hierarchy assigned to different essential characteristics. This approach leaves room for interpretation, especially in complex or unique cases.
Treatment of foreign entities comparable to multiple Dutch legal forms: If a foreign entity aligns with characteristics of more than one Dutch legal form, it will be deemed ‘non-comparable.’ The final Decree expects this to affect only a limited number of entities.
Revised role of the FGR and transparent fund classifications: The Decree stipulates that if a foreign entity aligns with both a Dutch limited partnership and an FGR, the FGR classification will prevail.
Updates of the presumed equivalents annex: The annex to the Decree serves as an indicative guide, listing foreign legal forms presumed either comparable or non-comparable to Dutch equivalents. While this presumption generally enhances predictability, it is non-binding, and deviations are allowed if evidence demonstrates that a foreign legal form does not meet the expected comparability under Dutch criteria. This can be supported by specific evidence, such as a court ruling.
If significant changes occur in the foreign law governing a legal form after the specified "qualification year," the Decree mandates re-evaluation, with any necessary adjustments to the annex typically included in a next end of year decision (Eindejaarsbesluit), effective from January 1 of the following year for future cases only.
The Decree further confirms that, while the inspector will adhere to the annex’s classifications in principle (upholding the principle of legitimate expectations), they may depart from it if overriding principles indicate the presumption should no longer be relied upon.
Reach out to us
Although the clarification are very welcome compared to the consultation draft, there are still some uncertainties that require careful monitoring on the classification of group entities.
If your organization is potentially impacted by these changes, our team is here to guide you through the implications, ensuring compliance with the new classification rules.
Reach out to us to discuss how the Decree affects your current structure and explore whether changes may be necessary to mitigate adverse consequences or optimize your position.