Investing in real estate through a company? This comes with it!

Why investing through a company means more than just structure for tax purposes

However, choosing a company is not just a corporate or commercial decision. This structure also has tax consequences. An important point of attention is transfer tax. Many entrepreneurs and investors assume that only the direct transfer of real estate leads to taxation. But transfer tax can also come into play when transferring shares.

This applies when the company qualifies as a real estate legal person. In that case, shares in that company may be treated as fictitious real estate for transfer tax purposes. Those who invest in real estate through a private company are therefore well advised not only to look at the property itself, but also at the tax consequences of the chosen structure.

Why investing through a company seems attractive

A company is often used to hold and operate real estate. In practice, this is clear. The property is separated from other activities, risks can be better managed and the entry or exit of investors is often easier via shares than via a direct transfer of bricks.

That is also where the pitfall lies. A stock transaction often feels like something different than a real estate transaction. Legally, this is also the case. But when it comes to transfer tax, the law may look at this differently under certain circumstances. Then it is not decisive that only shares are delivered, but that real estate is essentially acquired through those shares.

For investors, this means that the question is not just: do I buy stocks or buy real estate? The more important question is often: do these shares represent such a real estate interest from a tax point of view that transfer tax may be appropriate?

When shares in a real estate company can still be taxed

The core of the regulation is that shares in a real estate legal person can be treated as immovable property. As a result, the acquisition of shares can be taxed as if the underlying property were acquired directly.

This is relevant for a variety of transactions. For example, buying a real estate company, attracting an investor, restructuring a group or gradually building up an interest in a real estate company. In all these cases, transfer tax may be appropriate if the legal conditions are met.

In practice, this is an important difference with the idea that a share deal automatically remains exempt from the tax. So that is not the case. The tax assessment requires a substantive analysis of the company, the real estate, the purpose of that property within the company and the size of the interest that is acquired.

When is there a real estate legal person?

Whether a company qualifies as a real estate legal person depends on two conditions: the possession requirement and the purpose. Only if both requirements are met can the shares be treated as fictitious real estate for transfer tax purposes.

The possession requirement: how much of the assets consists of real estate?

The possession requirement refers to the composition of the company's assets. More than 50% of the total assets must consist of immovable property. In addition, at least 30% of the total assets must consist of immovable property located in the Netherlands.

That sounds quite technical on paper, and it is. The assessment requires a comparison between the value of the properties and the value of all the company's assets combined. So it can't just be done with a quick look at the balance sheet. The valuation of assets plays an essential role.

It is also important that not only real estate held directly can be relevant. Rights related to real estate and economic ownership can also count. As a result, a company can fall under the scheme earlier than meets the eye.

For startups and scale-ups, this is particularly relevant when real estate is combined with other assets, such as software, operating rights or operational services. The presence of other business assets does not automatically mean that the company is excluded from this regulation.

The purpose: what is the property for?

In addition to the possession requirement, the purpose applies. This means that the immovable property as a whole must be wholly or at least 70% useful in obtaining, disposing of or exploiting those properties.

This puts the function of the real estate at the center. Not every company that owns or uses real estate does so in a way that leads to qualification as a real estate legal person. The question is whether the property is primarily held for the purpose of real estate activities, or whether it is primarily an asset within another company.

In practice, that distinction is not always easy. After all, real estate can have different roles. Sometimes it's the core of the revenue model. Sometimes it only supports a wider activity. It is precisely at this point that discussions often arise about the correct tax interpretation.

This is an interesting point of attention for young growth companies. Especially when it comes to innovative concepts, real estate and services sometimes overlap. Think of companies that offer spaces as part of a broader service concept. Then it is important to properly assess what role the real estate really plays within the company.

The review looks beyond just the time of the deal

An important point is that we not only look at the situation at the time of acquisition. The period before that also counts. Indeed, the test must not only take place at the time of the acquisition of shares, but also at any time in the previous year.

This means that temporary changes in the structure or composition of the assets do not always prevent the scheme from applying. A company that looks different on the transaction date may still fall within the scope of the scheme if the conditions are met earlier in that year.

For investors and sellers, this is practically important. Anyone who only looks at the tax position just before a transaction may be too late. The analysis must be broader than just closing. The run-up to the transaction must also be included.

Corporate structures also play a part

The tax assessment does not necessarily stop with one separate example. In certain cases, account must be taken of participations in which the company to be assessed holds an interest of at least one third party. Then consolidation takes place before the possession requirement and purpose test.

This is particularly relevant in group structures where real estate, operations and financing are divided between several companies. What still seems mixed at the level of one entity can lean much more towards real estate on a consolidated basis.

In addition, certain assets may be disregarded. Claims against related parties may be eliminated from the review under circumstances. Other movable assets can also be corrected in specific situations if there are debts to related parties.

The message is clear: a real estate structure cannot always be assessed fiscally on the basis of the single balance sheet alone. An in-depth analysis is necessary, especially when working with internal loans, group financing or a layered structure.

For startups and scale-ups, this is extra relevant when growth involves multiple entities, investment vehicles and internal funding flows. A structure that makes commercial sense can be unexpected from a tax point of view.

When is the acquisition of shares taxed?

The fact that a company qualifies as a real estate legal person does not mean that every share transaction is automatically taxed. There must also be a qualifying acquisition.

For legal persons, in principle, a taxable acquisition occurs when an interest from at least one third party is acquired. A more nuanced arrangement applies to natural persons, including interests that have already been held and the interests of certain related persons or bodies.

In practice, it is particularly important that not only one stand-alone delivery is considered. Shares already held, shares that will still be acquired from the same or related agreement and the interests of related parties can also count. In addition, acquisitions within a period of two years may be treated as coherent under certain circumstances.

This makes the scheme relevant for more than just classic buy-sell transactions. Phased participations, incremental investments and transactions through affiliated companies also require attention.

For startups and scale-ups, this is a useful warning. Investment rounds often involve tranches, conversions or subsequent steps. Especially then, it is wise not only to look at each individual step, but at the material overall picture.

It's not just the number of shares that matters

When assessing the interest, it is not just about the nominal share capital. The material financial interest that the shares represent is decisive.

This means that different share classes can have different tax effects. Ordinary shares, preferred shares, or other rights do not always represent the same economic weight. So the cap table does not automatically tell the whole story.

This is important for every investor who works with different shareholder rights, but certainly also for startups and scale-ups. There are often several types of rights there, for example through investment rounds or restructuring. Then it is not only necessary to look at how many shares someone formally holds, but especially at what economic importance is involved.

Changes to existing rights may also be relevant.

Not only the acquisition of new shares can be fiscally important. A change in the rights attached to existing shares may also result in a relevant increase in the material interest.

In other words: even without the delivery of additional shares, the fiscal position can change if a shareholder benefits more economically. This makes the scheme broader than is often thought.

In practice, this means that not only transaction documentation but also changes in shareholder rights deserve attention. A change that makes business law or commercial sense can still have tax consequences.

What about exemptions?

In transfer tax, exemptions are usually written for the direct acquisition of immovable property. This is less obvious when it comes to acquiring shares in a real estate legal person. However, under certain circumstances, a similar outcome can be achieved.

It is important that the case law has accepted that an acquisition of shares in a real estate legal person can also be considered exempt, insofar as otherwise tax would be levied on immovable property that would remain exempt if acquired directly.

For investors, this is an important nuance. So the form of the deal isn't always the only thing that matters. The nature of the underlying property and how a direct acquisition would have been treated for tax purposes may also be relevant.

By the way, this does not mean that a share transaction automatically results in the same result as a direct real estate transaction. However, it means that the analysis must always be substantive and not solely based on the chosen legal route.

What is the tax calculated on then?

If there is a taxable acquisition of shares in a real estate legal entity, the value of the properties that are represented directly or indirectly by those shares.

That is an important point. The commercial purchase price of the shares is therefore not necessarily decisive. The levy focuses on the value of the underlying real estate interest that is acquired through the shares.

This can have major consequences for transactions. Examples include valuation issues, the allocation of tax burdens in the purchase documentation and the question of what guarantees or indemnities are necessary. Those who are not clear in advance what exactly is represented by the stocks can be faced with an unpleasant tax outcome afterwards.

Practical points of attention for those who invest in real estate through a company

Anyone who buys, holds or sells real estate through a company would do well to identify a few points early.

First of all, it is wise to check whether the company qualifies as a real estate legal person. This requires more than a global impression of the balance sheet. The precise composition of the assets, the function of the property and the group structure are important here.

In addition, it is important not only to look at the direct transaction. Related transactions, interests already held, future steps and interests of related parties may also be relevant to whether a taxable acquisition occurs.

Furthermore, the economic content of stocks and shareholder rights deserves attention. Not only the number of shares matters, but the actual financial importance that they represent.

For startups and scale-ups, there's something more. In young growth companies, real estate, operations, technology and investment structure are often intertwined. This makes it extra important to assess early on whether real estate is only supportive, or is so central that fiscal real estate rules will dominate. Especially with rapid growth, new investors and phased expansions, that can make a difference.

Lastly

Investing in real estate through a company can be practical and strategically attractive. But that route does not automatically prevent transfer tax from coming into view.

Those who acquire shares in a real estate company can end up in a tax situation that is very similar to a direct real estate transfer. That is why when investing via a private company, it is essential not only to look at the deal structure, but also at the real estate position, the purpose of the real estate within the company and the economic importance that is actually acquired.

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