Netherlands: Financial structuring of investments in real estate, implications of Dutch law

Influence of the Dutch Financial Supervision Act and related regulations on the structuring process

Influence of the Dutch Financial Supervision Act and related regulations

Tax is often leading in the financial structuring of investments in real estate, and the influence of the Dutch Financial Supervision Act (Wet op het financieel toezicht—FSA) and the related regulations on the structuring process are often underexposed or even forgotten.

Limited partnership, an investment fund

The effect of the FSA on an investment structure can be significant, particularly in instances when the applicability of the FSA leads to a license obligation. A limited partnership (commanditaire vennootschap—CV) is a vehicle often used in real estate investment structures. A group of investors brings together an amount of money, which will be used for making investments in real estate, and the partners of the CV share in the profits realized with such investments. The CV is managed by the general partner (the manager). In this example, the CV qualifies as an investment fund within the meaning of article 1:1 FSA.

Pursuant to article 2:65 FSA, a license obligation applies to the manager of an investment fund.

  • Article 2:65 FSA stipulates that it is not permitted to manage investment funds without being granted a license by the Netherlands Authority for the Financial Markets (Autoriteit Financiele Market—AFM), or another competent regulator in another EU Member State.
  • Article 2:66a FSA provides for the possibility for fund managers to benefit from a so-called “light regime” on the basis of which a manager may operate without having obtained a license. The manager then operates on the basis of a registration with the AFM.

In order to benefit from the light regime, certain conditions must be met:

  • The total value of the assets under management may not exceed €100 million in case leveraged or €500 million unleveraged and without redemption or repayment rights (rechten tot inkoop of terugbetaling) which can be exercised in relation to the interest in the funds during a period of five years following the date of the acquisition of these interests.
  • Interests may only be offered:
    • To fewer than 150 persons
    • For a counter value of at least 100,000 per investor
    • For a nominal value of €100,000
    • To professional investors

Upon acceptance of the registration request by and assessment of the documentation submitted to the AFM, the fund manager will be registered in the public register maintained by the AFM. In addition, the manager needs to comply with, amongst others, certain obligations imposed by the Dutch Act on Prevention of Money Laundering and Terrorist Finance (Wet ter voorkoming van witwassen en financieren van terrorisme) and reporting obligations towards the Dutch Central Bank (De Nederlandsche Bank).

KPMG observation

Currently, numerous investment structures are being used in the Netherlands that do not comply with the FSA. Professionals believe it is a matter of time before the AFM starts enforcement actions.

Bonds—prospectus required

Another common investment structure is a bond structure (obligatiestructuur), whereby bonds are issued to (retail) investors. The proceeds of such a bond program are used for investing in the acquisition or development of real estate projects. A bond qualifies as security within the meaning of article 1:1 FSA.

In order to be allowed to offer bonds to the public in the Netherlands, the issuer must publicly provide a prospectus approved by the AFM (or another competent regulator in another EU Member State). Preparing a prospectus and having it approved by the AFM can be a time- and cost-consuming exercise.

However, the FSA also provides for an exemption that allows offerors of bonds to offer bonds without having an approved prospectus being made available. This is possible in situations of offerings with a value of less than €5 million, calculated over a 12-month period. In order to benefit from this exemption, the offeror must notify the AFM about the offer and has to prepare an information memorandum in a format prescribed by the AFM. In most cases the FSA seems to be applicable to investment structures resulting in license or prospectus obligations.

The FSA provides for a number of solutions that makes it easier to invest in real estate in a complied manner.

Read a September 2021 report prepared by the KPMG member firm in the Netherlands


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