Yesterday, 26 April 2006, the Dutch Ministry of Finance published a Bill with proposals for the introduction of a new tax exempt regime for investment funds.

Currently, investment institutions (in Dutch: fiscale beleggingsinstellingen, often abbreviated to FBI) that meet certain requirements, can benefit from a zero rate of corporate income tax. The requirements under this regime are quite strict and burdensome. This regime is hereinafter referred to as the "current FBI-regime".

Dutch government wants to make the Netherlands more attractive for non-Dutch investment funds. Consequently, they sent a Bill to Parliament in which they propose to introduce a new regime for investment funds, which will exist next to the current FBI-regime. It is noted that in the same Bill, some changes are proposed to the current FBI-regime, in particular to make it more compatible with EU rules.

Under the new regime, hereinafter referred to as "exempt BI-regime", an investment fund can opt for a tax exempt status for corporate income tax purposes. Furthermore, such investment fund does not need to withhold dividend tax on distributions to shareholders.

• The requirements to benefit from the exempt BI-regime, in short, are the following:
  The fund must be an open ended fund in the form of a Dutch NV (company comparable to a UK Plc. or French S.A.) or fund for joint account, or a similar foreign entity incorporated in an EU Member State or a state with which the Netherlands has concluded a tax treaty which contains a non-discrimination clause.
• The fund may invest in financial instruments only, applying a risk diversity principle. The law defines financial instruments in nine subparagraphs. They include shares, bonds and other debt instruments, futures, interest and currency swaps, etc.. Directly held real estate is not regarded as a financial instrument.
• The fund must have a permit as meant in the Act on the Supervision of Investment Institutions, or it must be exempted from the requirement to get such permit.

Contrary to the requirements under the current FBI-regime, the exempt BI-regime has:

• no shareholder requirements;
• no finance requirements; i.e. there is no limit on debt financing;
• no requirement to distribute profits to the shareholders.

An investment fund benefiting from the exempt BI-regime will not be able to credit withholding taxes. It generally will not be able to invoke tax treaties. In any case, the Dutch tax authorities will not issue residency certificates.

The government wants to implement the new regime as soon as possible. After approval by Parliament, the new rules should take effect right after publication in the State Gazette.