A large private investor with an extensive Dutch real estate portfolio was presented with the opportunity to demolish a leased property and develop a mixed-use project at this location, comprising residential units (apartments), offices, commercial spaces, and a hotel/restaurant.
Given the required expertise and capacity, the investor sought collaboration with a renowned developer. It was agreed that both parties would execute the project jointly and would hold the end result in 50/50 ownership: 50% with the investor and 50% with a shareholder of the developer. To this end, a joint real estate fund would be established. The central question was how to structure this collaboration as tax-efficiently as possible. The investor would contribute the land and existing structures and needed to be compensated for this. The developer would contribute their development and market knowledge. The construction would be carried out by a third-party contractor.
An important consideration was that the investor had a reinvestment reserve (HIR - herinvesteringsreserve) that needed to be utilized within the foreseeable future. The investor wanted to allocate the investment in the new project against this HIR to prevent release/clawback. Additionally, it had to be carefully determined how the land could be contributed to the partnership in the most tax-efficient manner, and which legal entity form would be most suitable.
The optimal solution proved to be that the developer would acquire half of the land after it qualified as a construction site for VAT purposes. This yielded a transfer tax advantage of 6.4% (10.4%-4%) and potentially 0% transfer tax for a portion. However, the condition was that transfer could only take place after demolition of the existing structures. This entailed risks for the investor, as the HIR had to be utilized within three years: delayed transfer could lead to the release of the HIR.
The challenge was finding the right balance: between transferring as a construction site (VAT advantage), but in such a way that the land still qualified as a business asset for utilization of the reinvestment reserve. Finally, a structure had to be established for VAT on development and construction costs that prevented parties from having to pre-finance substantial VAT amounts.
Utilizing the reinvestment reserve (HIR) within the statutory period.
Tax-optimally contributing and transferring the land (balance between VAT advantage and transfer tax exemption).
Limiting VAT pre-financing on development and construction costs.
The Process
Investor Analysis & Structure Comparison Mapping the investor's position and obligations, including utilization of the HIR, and conducting research into possible forms of collaboration and legal vehicles for the joint venture.
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Land Contribution & VAT Structure Design and establishment of a tax structure whereby the transfer of land after demolition qualifies as a construction site for VAT purposes, but without HIR loss, and a model to minimize VAT on development and construction costs as much as possible and optimize cash flow.
Stakeholder Alignment & Implementation Intensive coordination with developer, notary, and legal advisors, and guidance with contracts, contribution structure, and tax documentation.
Result A tax-optimal structure whereby the investor could fully utilize the reinvestment reserve (HIR), reduction on transfer tax and VAT pre-financing remained limited.
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