Most of these will be similar to obligations in other countries, such as:
• The company will have to appoint a notary in order to transfer the real estate.
• The company will be registered as owner of the property at the Dutch Land Registry.
• Because the exploitation of the property is treated as an economic activity in the Netherlands, the company must be registered at the Dutch Chamber of Commerce and also with the Dutch tax authorities (Belastingdienst).

Here, I focus on Dutch corporate income tax legislation – specifically, the rules governing depreciation of real estate in the Netherlands.

Yearly valuation
In the Netherlands, all real estate is valuated each year by the Dutch local government in a process called the WOZ (Waardering Onroerende Zaken;  literally, ‘valuation of real estate’). This WOZ value is very important because it is the basis for several taxes, including:
• Real estate tax, sewerage charges and commuter tax (charged by the local government)
• Taxes charged by water boards for the maintenance of sea and river dykes.

In most cases, these taxes aren’t really a burden. However, the WOZ value also affects the corporate income tax that is charged, and that is where it hurts.

Limited depreciation of real estate
As of 2007, the WOZ value also determined the minimum value of the real estate on the company’s fiscal balance sheet. Until 2019, the depreciation of buildings used in a company’s own business was limited to 50% of the WOZ value. The depreciation of investment property was limited to 100% of the WOZ value. As from 2019, due to a change in Dutch corporate income tax, for all taxpayers who are liable for corporate income tax, the minimum value has been fixed at 100% of the WOZ value.

The consequences
Companies that invest in Dutch real estate and exploit this property were already faced with a limited depreciation in their fiscal profit-and-loss account.
Many companies that own buildings which they use in their own business are suddenly no longer allowed to deduct a depreciation in their fiscal profit-and-loss account, because the WOZ value has been reached.

Alternatives 
It is possible to mitigate the effects of the limited depreciation rules. For instance, maintenance costs still qualify for corporate income tax relief. Therefore, setting up a maintenance provision/maintenance scheme could be a useful instrument, if it is set up properly.

 

International Tax Newsletter June 2020
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