The fiscal investment institution (“FII”) is effectively corporate income tax exempt, and entails a facility for individual shareholders to invest jointly in securities (including equities and bonds derivatives), real estate et cetera without resulting into higher taxation as compared to the individual shareholder investing directly, i.e. without the interference of an FII. The most important conditions for the FII are the following:
The FII should be an NV, BV or open fund for mutual account, or a comparable entity.
The FII’s objective and actual operation involve investing in portfolio investments exclusively.
Maintaining specific debt-to-equity ratios.
Within eight months after financial year ultimo, the proceeds have to be distributed to the shareholders, whereas at least 75% of these shareholders have to be qualifying shareholders. As of book years starting on or after 1 August 2007, these requirements differ depending on the FII’s regulatory status, in which respect two types exist:
Regulated FIIs, which are funds listed on a stock exchange, holding a license under the Dutch Financial Supervision Act or foreign UCITS with a European passport. The shareholder restrictions that apply to regulated FIIs are that no single (taxable / tax-transparent) shareholder (except another regulated FII) holds at least 45% of the shares of the FII and that no single individual may own an interest of 25% or more in the FII;
Non-regulated FIIs, for which the shareholder restrictions are that the shares in the FII should be owned for 75% or more by private individuals, regulated FIIs and/or tax-exempt entities, and that no private individual owns an interest of 5% or more.
Investment income is, when distributed, in principle subject to 15% withholding tax (domestic rate since 1 January 2007), yet may be reduced by the Netherlands unilaterally or under a bilateral double tax treaty. The distributable income is determined by transferring capital gains to a tax-free reinvestment reserve (and therefore do not need to be included in the investment income that has to be distributed). Certain limitations and claw back provisions however apply.