Investment

institutions

January 2017

The Netherlands as choice of your jurisdiction The Dutch tax system has many features that make the Netherlands a favourable jurisdiction for establishing an onshore investment institution. Examples include the absence of withholding tax on outbound interest and royalty payments, the absence of stamp duty and contribution capital tax and an extensive double tax treaty network. In addition, the Netherlands offers a number of alternative tax efficient fund regimes, such as the fiscal investment institution (fiscale beleggingsinstelling) (the “FBI”) and the fully tax exempt investment institution (vrijgestelde beleggingsinstelling) (the “VBI”) This VBI fund regime may be an attractive structure for all kinds of investments. The FBI is used by investment institutions which, among certain other areas, focus on investments in securities and real estate, (typically but not only) for tax exempt and retail investors. The VBI fund regime may be an attractive structure for all kinds of (passive) investments. We believe that the Netherlands is a very attractive ‘on-shore gateway jurisdiction’ for international investment institutions.

1. Civil law aspects A Dutch limited partnership (commanditaire vennootschap or “CV”) or a mutual fund (fonds voor gemene rekening or “FGR”) are commonly used vehicles to structure an investment fund, mainly for creating optimal tax treatment for investors (as detailed under Tax Considerations below). As such investors are familiar with this concept and structuring wise it is a flexible option (as detailed below). Main characteristics

CV FGR What CV is a partnership for the purpose of a durable FGR is a contractual agreement between the manager cooperation between one or more general partners (beheerder), the depositary / title holder (bewaarder)* (beherend vennoten), each with unlimited liability, and and the participants (i.e. the investors), often referred to one or more limited partners (commanditaire or stille as the terms and conditions of management and custody vennoten). It is established by an agreement either for a (“T&C”). limited or an unlimited period of time (limited partnership * not the AIFMD depositary, but the entity holding the agreement or “LPA”). legal title to the assets (please refer to Title to assets Managing partner is usually a limited liability company below). (besloten vennootschap or “BV”) set up with the sole Managing partner is usually a BV. Such entity can be used purpose of acting as the general partner (for liability as manager for multiple funds. purposes). Establishment The LPA can be executed as a notarial deed, but in general The T&C can be executed as a notarial deed, but in this is done by way of a private deed. There are in general this is done by way of a private deed. There are in principle no formal requirements (such as governmental principle no formal requirements (such as governmental approval) with respect to the formation of a CV. The approval) with respect to the formation of a FGR. The parties involved are at minimum two partners (which may parties involved are the manager, the depositary and at be individuals or corporations). least one participant. CV FGR The LPA typically includes and arranges for: The T&C typically include and arrange for:  name, purpose and seat of the CV; the purpose of a  name, purpose and seat of the FGR; CV is to obtain common benefits for the partners by  obligations of the manager (management of the carrying on a business (uitoefenen van een bedrijf) FGR); under a common name;  power of attorney from depositary to manager;  obligations of the manager (management of the CV, representation of CV externally);  issuance, transfer and redemption;  allocation of the investment profits of the FGR;  issuance, transfer and redemption;  costs and fees;  allocation of the investment profits of the CV;  responsibility for books and records;  costs and fees;  meeting of participants;  responsibility for books and records;  reporting;  partner meetings,  substitution of the manager and depositary; and  reporting;  dissolution and liquidation.  substitution of the manager and depositary; and  dissolution and liquidation. Since a CV is based on an agreement between the Since a FGR is based on an agreement between the partners, such an agreement is not only governed by partners, such an agreement is governed by general specific provisions under Dutch law applicable to CVs, but principles of Dutch contract law. also by general principles of Dutch contract law. Legal status A CV is not a separate legal entity distinct from its An FGR is not a separate legal entity. It does not have legal partners. personality or legal existence. The CV has its own legal framework in the Dutch Code of The FGR is not dealt with as a separate entity or type of Commerce which is substantially less extensive than for contract in Dutch civil law. Parties are free in determining example the legal framework for the BV in the Dutch Civil the financial and governance structure of an FGR. Code. Parties are relatively free in determining the financial and governance structure of an FGR. For some time now, new partnership legislation (largely codifying existing case law) is anticipated. Title to assets Legal title to assets contributed by the partners to the CV The legal ownership of the FGR assets is held by a or otherwise acquired for the CV is, in principle, held in separate legal entity: the depositary, which is usually set (joint) ownership by the general partner(s) of the CV, for up as a Dutch foundation (stichting) with so-called and on behalf of the CV. ‘orphan’ characteristics. The purpose of the depositary is restricted to holding the legal title to the assets of the fund. As such the depositary is set up to be bankruptcy remote. The CV is deemed to legally have a separate estate As a result: (afgescheiden vermogen), as a result of which:  it will hold the assets for the participants' account and  “private” creditors of a general partner have no risk, so that the participants will be joint beneficial recourse on the joint estate (gemeenschap) of the owners (under Dutch law the "economic owners") of CV; the assets;  in case of liquidation or bankruptcy of the CV,  participations in an FGR entitle each participant to a creditors of the CV have priority over the “private” share in the community of beneficial ownership to creditors of each general partner; the assets that are held by the depositary;  only the CV, not the individual (general) partners, can  participations do not, however, represent an interest take legal action against debtors; in specific assets held by the legal title holder;  compensation or set off (verrekening) between a  all economic advantages and disadvantages related liability of the CV to a third party and a liability of that to the ownership of the pool of assets are for the third party to a partner of the CV is not permitted; account of the participants in proportion to the  as long as a party is a partner of the CV, it cannot number of participations held by them. dispose of its part in the separate estate; The T&C contain a power of attorney from the depositary  the CV may enter into agreements with one or more granted to the manager to represent the depositary in of its partners; contracts to be entered into, e.g. the acquisition of the assets.  a judgment against the CV cannot be enforced jointly and severally on the partners. Liability Limited to the amount of their capital contribution. Limited to the amount of their capital contribution. investors

2 CV FGR Trade register A CV must be registered with the Trade Register at the An FGR cannot be registered with the Trade Register. place where it has its registered office and at its principal However, the manager and the depositary do require to place of business within one week after the date of be registered with the Trade Register. execution of the LPA. In addition, the general partner / manager has to be registered with the Trade Register. The limited partners are not apparent from any registration with the Trade Register, except that the actual number of limited partners will be shown.

2. Regulatory considerations From a regulatory perspective, regulated investment funds in the Netherlands are either UCITS (icbe) or AIF (alternatieve beleggingsinstelling). The relevant European directives (AIFMD and UCITS V) have been implemented in the Dutch Financial Supervision Act (FSA). Licensing requirement An AIF manager (AIFM) is required to obtain a license in the Netherlands if:  it manages a Dutch AIF;  it offers participation rights in an AIF in the Netherlands; and/or  it is a Dutch manager and it manages an AIF or offers participation rights in an AIF. A number of exemptions to the licensing requirement and/or alternative regimes are available for an AIFM in the Netherlands:  AuM below de-minimis thresholds: if (a) its overall assets do not exceed a certain threshold (ie AuM not more than (i) € 100 mio.; or (ii) € 500 mio if the funds do not use leverage and which have no redemption rights exercisable during a period of 5 years following the date of initial investment in each AIF) and (b) other conditions with regard to the investors or the marketed units are met. In that case the Dutch AIFM is only subject to registration with the AFM and reporting obligations to the Dutch Central Bank, which leads to lower costs.  Voluntary supervision: as, from a commercial perspective, it might be interesting for AIFMs to be subject to supervision. Therefore, the Dutch law provides an ‘opt-in’ possibility, which means that an AIFM may voluntarily apply for a license.  Non Dutch AIFMs: AIFMs which passport AIFs to the Netherlands (see below Passport) and AIFMs from equivalent third countries. A UCITS manager is required to obtain a license in the Netherlands if it offers participation rights in a UCITS fund in the Netherlands. Other than passported (see below Passport) UCITS and UCITS from equivalent third countries there are no exemptions to this licensing obligation. Application procedure The procedure for application involves submission of a template application form including the required supporting documents to the AFM for review. Part of the application process is a test of suitability and reliability of the board members and supervisory board members of the AIFM (and potentially any other persons which qualify as a co-policymaker need to be tested for reliability). Additional forms must be provided along with the template application form, including: notification form for AIFs managed, a notification form for the AIFMD depositary and application forms for the suitability and reliability testing for each (supervisory) board member. The AFM may decide on a license application within as little as 13 weeks, however it may take a maximum period of 26 weeks. If the AFM foresees that it will take longer than 13 weeks to decide, it will inform the applicant thereof. Passport If a Dutch AIF or UCITS manager has a license from the Authority for the Financial Markets (AFM), it may use that license as well to market an AIF or UCITS in other EU member states and to manage an AIF or UCITS domiciled in other EU member states (“the European passport regime”). Legal owner of fund assets Pursuant to the FSA, if an AIFM or a UCITS manager sets up a fund without legal personality (such as a FGR) a ‘legal owner’ must be appointed to hold the assets of the relevant fund (this is in addition to the depositary required pursuant to the implementation of AIFMD and UCITS V).

3 We set out below some key considerations regarding the Netherlands as choice of jurisdiction for investment institutions. Also, we have included two matrices (for non-transparent and transparent structures). The matrices prove that the Netherlands is a major contender jurisdiction for investment institutions. Benefits of choosing the Netherlands as jurisdiction for investment institutions include the following:  the Netherlands has a mature, suitable regulatory (also see below) regime adopting the relevant EU Directives;  the Netherlands has a short set up period as no waiting periods apply;  the professionals that investment funds usually deal with are very efficient and service minded. This does not only apply to advisors, such as lawyers, tax consultants and auditors, but also to the Dutch regulator and the Dutch tax authorities;  the Netherlands has a strong network of double taxation treaties (around 90 jurisdictions);  there is no relevant capital tax, stamp duty or similar documentary taxes.

3. Tax Considerations Non-transparent Main advantages of the FBI:  limited requirements with regard to the legal structure (company, contractual)  wide range of eligible investments  also foreign funds may qualify as FBI  various helpful exceptions to avoid licensing requirement for fund/its manager  no mandatory (local) custodian (only for Dutch, regulated contractual funds)  reduction of, or exemption from, withholding tax on investments made by the fund under double taxation treaties  subject to a 0% corporate income tax rate Main advantages of the VBI:  limited requirements with regard to the legal structure (company, contractual)  eligible investments which comprise securities and participations in funds  also foreign funds may qualify as VBI  no leverage restrictions  various helpful exceptions to avoid licensing requirement for fund/its manager  no mandatory (local) custodian (only for Dutch, regulated contractual funds)  exempt from corporate income tax and withholding tax on distributions to participants in the fund Transparent Main advantages of the CV and the FGR:  limited liability for limited partners  not subject to corporate income tax, withholding tax, capital tax, net wealth tax and subscription tax

4. Conclusion The FBI is widely used as an investment fund for investments in securities and real estate, as the FBI may claim tax treaty benefits, for example on dividend received by the FBI. The VBI does not impose an additional tax burden at the level of the fund nor on the level of the investor. As a result, the VBI will continue within the track record set by the FBI further aiming to deliver a tailor made on-shore investment fund regime in a way that compares favorably with other international off shore funds. Both the CV and the FGR do not impose an additional tax burden at the level of the fund.

4 Non tax transparent funds

FBI VBI 1. Introduction Type FBI (fiscale beleggingsinstelling) in the form of: VBI (vrijgestelde beleggingsinstelling) in the form of:  Limited liability company (naamloze  NV vennootschap) ("NV")  Mutual fund  Private company with limited liability (besloten  Comparable entity within the EEA or tax treaty vennootschap) ("BV") country  Mutual fund  Comparable entity within the EEA or tax treaty country Legal entity Yes, if NV or BV. Yes, if NV or BV. No, if mutual fund. No, if mutual fund. Liability Limited to contribution/capital commitment for Limited to contribution/capital commitment for investors if NV or BV. investors if NV or BV. 2. Tax Investor requirements Various shareholder restrictions for tax purposes At least two investors. Transferability No restrictions. No restrictions. Taxes No: No:  corporate income tax  corporate income tax  capital tax  dividend withholding tax  net wealth tax  capital tax  subscription tax  net wealth tax Dividend withholding tax of 15%. However, certain  subscription tax exemptions may apply. Dutch investors and certain non-Dutch investors may offset dividend withholding tax against other taxes or are eligible for a refund. Other The FBI may generally apply tax treaties with approx. The VBI may generally not apply tax treaties. 90 jurisdictions. Investments restricted to financial instruments. Profits must be distributed within eight months after (Semi) open-ended character is obligatory. the fiscal year-end. Gearing limitations, an activity tests and certain other restrictions apply. 3. Regulatory Supervision If set up as an exempted investment fund not Although the VBI has to qualify as an investment fund, subject to prior authorisation or ongoing supervision. it can be set up as an exempted investment fund not subject to prior authorisation or ongoing supervision. Diversification No requirements. Risk diversification is required (to a certain extent). Other No. No.

5

Tax transparent funds

CV FGR 1. Legal Type Limited partnership (commanditaire vennootschap) Mutual fund (fonds voor gemene rekening) ("FGR") ("CV") Legal entity? No. No. Liability Unlimited for general partner. Unlimited. Limited to contribution/capital commitment for limited partners.

2. Tax Investor requirements No. No. Transferability Unanimous consent of all partners required for the Unanimous consent of all partners required for the transfer of interests and admission of new limited transfer of interests and admission of new limited partners. partners. No consent required if the interest can only be transferred to the FGR itself. Taxes No: No:  corporate income tax  corporate income tax  withholding tax,  withholding tax,  capital tax,  capital tax,  net wealth tax  net wealth tax  subscription tax  subscription tax Other No. No.

3. Regulatory Supervision If set up as an exempted investment fund not subject If set up as an exempted investment fund not subject to prior authorisation or on-going supervision. to prior authorisation or on-going supervision. Diversification No requirements. No requirements. Other No. No.

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