The topic of Dutch investment funds returns like a boomerang. The issues of greater accessibility for foreign investors and funds wishing to invest capital outside the EU region, as well as the mere fact of the reputation of the Netherlands as a stable jurisdiction in terms of investment-friendly legislation, are certainly factors of great interest. We have therefore decided to go a little further in the process of creating such a fund, this time from a practical point of view.
Obtaining a license/permit
The first and at the same time the key step in the whole procedure, in accordance with Dutch law, is to obtain permission to establish a fund. For this purpose, you should submit an appropriate application to the Netherlands Authority for Financial Markets (“AFM”) – the equivalent of Polish Financial Supervision Authority, whose supervision is subject to the financial market in the Netherlands. As in Poland, the application is submitted on an official form and contains a number of standard questions regarding basic matters concerning the client or the issue of capital. Therefore, a number of questions need to be answered at the start. A set of supporting documents, which shall then be verified and examined by the AFM, is attached to the application.
Part of the application is a test of the predisposition and credibility of the members of the Management Board and members of the Supervisory Board of the fund.
The following annexes shall be attached to the application:
- notification form of the fund
- management company notification form
- the application form for the examination of suitability and reliability for each member of the Management Board and each member of the Supervisory Board.
Timetable for the registration of AIF
Again, as in Poland, the procedure before the financial market regulator (AFM) lasts about 5-6 months. In practice, it takes up to 8 months to register a participant in the AFM register, including the time it takes to prepare a complete application.
Costs of the registration of AIF
The official fee for applying for a licence shall be EUR 5,500. AFM charges additional fees for the aforementioned suitability and reliability tests. The annual basic fee for the renewal of the authorisation is EUR 5,920. Depending on the value of the fund’s assets, an additional variable fee is added.
Minimum required amount of initial capital and own funds
The minimum initial capital required shall be EUR 125,000, unless the fund is constituted as an investment entity with legal personality without a separate Alternative Investment Fund Manager (‘AIFM’). In this case, the minimum initial capital required will be EUR 300,000. In addition, if the AIFM does not have separate professional indemnity insurance, additional own funds will be required.
Minimum required amount of own funds
In addition to the minimum amount of initial capital, additional own funds equal to 0.02% of the amount by which the value of assets under management exceeds EUR 250 million are required. However, the additional funds cannot be lower than the so-called fixed overheads requirement, which is one quarter of annual expenditure.
Additional corporate requirements
The conduct of business or organisational requirements (integrity, risk management, product approval and review process, conflicts of interest) must of course be implemented in accordance with the AIFM Directive. This implies the need to implement a number of additional procedures and regulations defining the basic features and requirements/internal regulations of the fund.
The management company and the AIF must also have their registered office in the Netherlands. And this in turn means the need to meet the far-reaching requirements related to the possession of the so-called substance by the fund manager in the Netherlands. These include the need to maintain the office, staff, but also real management, i.e. making decisions related to the fund in the Netherlands.
Of course, account should be taken of the possibility of additional requirements if the fund were to deal in securities as part of a public offering.
Taxation of income from investments carried out
The standard corporate income tax rate is 20% (for profits up to EUR 200,000) / 25% (for profits above EUR 200,000). No withholding tax on interest and royalties.
The standard Dutch withholding tax rate on outgoing dividends is 15%. However, the reduction or exemption may be applied on the basis of the EU Parent-Subsidiary Directive, the Double Taxation Treaty or by using a Dutch company and other arrangements that allow such flows to be designed in an optimal way.
Transfer pricing tax rules in the Netherlands are based on OECD market value principles.
If, despite the much higher costs of setting up a Dutch fund than a Polish alternative investment company, you are considering such a structure. First of all, we invite you to read the second text about the structures of Dutch funds or maybe it will be easier to contact us and discuss which entity will be optimal.