Investment Funds 2020

Last Updated November 26, 2019

Netherlands

Law and Practice

Authors



Loyens & Loeff has been serving the investment fund industry for more than three decades. The team advises both managers and investors worldwide on the relevant tax and law aspects of fund formation. With approximately 60 dedicated investment management specialists from the various disciplines (legal, tax and regulatory) focusing on the formation of alternative investment funds, Loyens & Loeff is one of the largest continental European specialist groups in the investment management practice. It covers the entire chain of services and has become a leader and developed specialty know-how in the key alternative asset classes, including private equity, fund of funds, infrastructure, real estate, and private debt. The firm has handled many notable transactions in the Netherlands, Belgium, Luxembourg, the UK, the USA, Switzerland and Asia.

The Netherlands is a commonly used jurisdiction for the formation of investment funds, and has a sophisticated, clear and flexible legal and governance system. In addition to its stable business and political environment, the Netherlands has various tax advantages that also make it an attractive fund jurisdiction. Capital is raised both internationally and from domestic investors (eg, Dutch pension funds).

As a location for private equity and venture capital funds, the Netherlands is typically used by managers who operate in and from the Netherlands – ie, in situations where the majority of the management team resides in the Netherlands and operates from an office in the Netherlands. However, the Netherlands is also frequently used as a fund structuring jurisdiction by managers who have their head office outside of the Netherlands, in which case they typically have some form of presence in the Netherlands, often for operational and tax substance purposes.

The types of investment funds that are mainly set up in the Netherlands are private equity funds, venture capital funds and funds focusing on real estate and infrastructure assets.

In the Netherlands, depending on the tax analyses performed in relation to them, alternative investment funds (AIFs) are generally structured in the form of a limited partnership (commanditaire vennootschap, or CV), a co-operative (coöperatie, or Coop), a contractual fund for joint account (fonds voor gemene rekening, or FGR) and/or a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid, or BV), or a combination thereof.

Private Equity Funds

Private equity funds are generally structured in the form of a CV, or a Coop.

CV

A CV is a limited partnership for the purpose of a durable co-operation between one or more managing (or general) partners (beherend vennoten), each with unlimited liability, and one or more limited partners (commanditaire vennoten). A CV has no legal personality and is not a separate legal entity distinct from its partners. In principle, assets cannot be held by a CV in its own name, but are held either by a community of property of the partners (gemeenschap) or by one or more partners or a third party for the account of the community of property of the partners. Investors participate in the CV as limited partners and receive a limited partnership interest in the fund. Substantially all terms and conditions of an AIF can be laid down in the limited partnership agreement of the CV.

Coop

A Coop is a special form of association, which is governed by certain specific rules and, to a large extent, the general rules applicable to Dutch associations (verenigingen). As a type of association, the Coop is a separate entity from its members (ie, it has separate legal personality), with legal title and beneficial ownership of its assets. Investors participate in a Coop as members, with corresponding membership interests. A Coop does not have capital divided into shares or units.

BV

The BV is the Dutch equivalent of a private company with limited liability, and is generally the preferred legal form for privately held companies in the Netherlands. The BV is a legal entity with capital divided into one or more transferrable shares, and has legal personality. A BV is incorporated by the execution of a notarial deed of incorporation (including the articles of association of the BV) to that effect.

Hedge Funds, Debt Funds, Real Estate Funds

These funds are generally structured as an FGR, which is not a legal entity. It is a contractual arrangement sui generis (often referred to as its terms and conditions) between a manager and its investors (ie, the participants), obliging the manager to invest and manage assets contributed by the participants for their joint account. Generally, the legal ownership of the FGR assets is held by a separate legal entity (ie, the titleholder). The FGR is not dealt with in Dutch corporate law. Parties are free to determine the financial and governance structure of an FGR.

The FGR is established by the execution of a notarial or private deed setting out its terms and conditions. The parties involved are the manager, the titleholder and at least one participant.

It is difficult to describe a process that applies to the setting up of investment funds in the Netherlands in general, as this mainly depends on the specific facts and circumstances (eg, first-time fund versus successor funds, number and type of investors, etc). Nevertheless, as a general rule, fund managers typically start discussing the structure and terms and conditions of the investment fund with their professional advisers. During these discussions, the fund manager will decide on the type of structure (the outcome of discussions on the various tax aspects, the investor type it wishes to bind and the type of investments and investment purposes of the fund) and will prepare a term sheet setting forth the main terms and conditions of the investment fund. In order to start (pre-)marketing activities, the fund manager will prepare the marketing material (eg, the information memorandum, presentations, teasers, pitchbooks etc). Depending on the regulatory regime of the investment fund (please see below), (regulatory) approvals and/or registrations will first need to be obtained and/or made before the fund manager may approach potential investors. The fund manager typically prepares the main fund agreement, management agreement and subscription agreement for investors to review. Additional investors may be admitted at subsequent closings. During negotiations, investors may request side letters and/or legal and tax opinions.

Under Dutch law, the regulatory regime and supervision with respect to investment funds concern the manager of an investment fund, rather than the investment fund itself (unless the latter is managed internally).

The Fully Licensed Regime

Pursuant to the Dutch Act on Financial Supervision (Wet op het financieel toezicht AFS), an alternative investment fund manager (AIFM) is prohibited in the Netherlands from managing an AIF or marketing interests in an AIF without a licence thereto from the Netherlands Authority for the Financial Markets (Stichting Autoriteit Financiële Markten – AFM). The AFM will grant a licence to a manager upon application, if the manager meets the requirements under Dutch law. The licence requirements relate to, inter alia, the suitability and trustworthiness of the board members, the operational and control structure, the management of potential conflicts of interests, the appointment of a depositary, solidity and minimum own funds requirements. The AFM has a review period of 26 weeks and may request additional documents or information during the application process (the review period will then be suspended).

If a Dutch AIFM holds a licence pursuant to the Alternative Investment Fund Managers Directive (Directive 2011/61/EC – AIFMD), it is in principle only authorised to offer the interests in the AIF it manages to professional investors within the meaning of the AFS. However, if the AIFM complies with the “retail top-up regime” (as further discussed under 3 Retail Funds), the AIFM may also offer interests to non-professional investors in the Netherlands.

A licensed Dutch AIFM can manage a new AIF within the investment strategy covered by its licence, and can market such AIF to professional investors if it has obtained approval thereto from the AFM. In order to obtain approval, a so-called notification form investment institution should be submitted to the AFM, with the following attached:

  • a structure chart of the AIF and all connected entities;
  • the fund agreement and other contractual arrangements between the vehicle and the investors;
  • the prospectus in which the information required pursuant to article 23 AIFMD is contained; and
  • a notification form containing information on the depositary.

The AFM has one month to decide on the application, which can be extended by one month. If the AIF is managed or marketed to professional investors outside the Netherlands, a marketing passport needs to be complied with, pursuant to the Dutch implementation of article 32 AIFMD.

Registration Regime for “Small Managers”

There is an exception from the above-mentioned licence obligation for Dutch AIFMs who can make use of the so-called "small managers registration regime" (Small Managers Regime) of section 2:66a of the AFS. In order to be able to make use of this exemption, each of the following conditions have to be met by the AIFM:

  • the AIFM manages directly – or through an undertaking with which it is linked through common management, common control or a qualified holding – portfolios of AIFs whose assets under management (AuM) in total do not exceed (the AuM Thresholds):
    1. EUR100 million; or
    2. EUR500 million if all the AIFs managed by the AIFM are unleveraged and there are no redemption or repayment rights exercisable with respect to interests in the AIFs for a period of five years following the date of the acquisition of the interests in the respective AIFs; and
  • interests in each AIF managed by the AIFM may only be marketed (the Placement Restrictions):
    1. to professional investors within the meaning of section 1:1 of the AFS;
    2. to fewer than 150 persons; or
    3. for a countervalue of at least EUR100,000 per investor, with the amount of EUR100,000 to be provided at once.

The AFM clarified that the following conditions should be met, in order to make use of this Placement Restriction,:

  • the amount of the first capital commitment per investor is at least EUR100,000 (exclusive of costs);
  • the first amount called under the commitment per investor should be at least EUR100,000; and
  • the amount of committed capital may never fall below EUR100,000.

It is possible to meet more than one Placement Restriction, but it is not possible to combine Placement Restrictions.

A Dutch AIFM that meets the AuM Thresholds and the Placement Restrictions as set out above and wants to make use of the Small Managers Regime needs to register itself and the AIF it manages/intends to market with the AF, by submitting a registration form (including, inter alia, an overview of the AuM and a description of the investment strategy). The AFM charges EUR4,400 for a registration. After review and acceptance of the registration form, the AIFM and the AIFs managed by it will be included in the public register of the AFM kept on its website. If the AIFM meets the conditions of the Small Managers Regime, it can start marketing after the registration is submitted to the AFM; there is no waiting period. If the AIFM wishes to raise a new AIF after registering itself, it should register the AIF two weeks prior to the commencement of the marketing on the AIF. This term of two weeks is a request from the AFM and is not provided for in Dutch legislation, but it is advisable to take the waiting period into account. If the AIFM exceeds the AuM Thresholds and the Placement Restrictions, the AIFM must apply for a licence from the AFM within 30 calendar days.

Exemptions to the general licence requirement are available in the following instances:

  • when using a passport by a licensed EU AIFM;
  • when marketing units in an AIF in the Netherlands using the EuVECA label pursuant to the Regulation on European Venture Capital Funds (Regulation (EU) 345/2013); and
  • when marketing units in an AIF in the Netherlands under the Dutch implementation of the national private placement regime of article 42 AIFMD (the National Private Placement Regime).

The Dutch legal forms commonly used for investment fund formations are a CV, a Coop, an FGR and/or a BV.

The Netherlands furthermore provides for two specific fund regimes that may be used for specific strategies, being the exempted investment institution (vrijgestelde beleggingsinstelling – VBI) and the fiscal investment institution (fiscale beleggingsinstelling – FBI), which is a Dutch REIT regime. All these forms provide for the limited liability of investors. Typically, upon the request of investors, legal opinions are given in this respect, subject to the applicable assumptions and qualifications.

CV

A CV is a limited partnership for the purpose of a durable co-operation between one or more managing (or general) partners (beherend vennoten), each with unlimited liability, and one or more limited partners (commanditaire or stille vennoten) who are not personally liable towards third parties for the obligations of the CV in excess of the amount they have contributed or have agreed to contribute to the CV, unless the names of the limited partners (or characteristic elements of their names) are used in the name of the CV or the limited partners engage in any act of management or control (daden van beheer) or are involved in any activities of the CV (even by virtue of a power of attorney – volmacht). However, a limited partner may be held liable for obligations of the CV if:

  • such limited partner has committed a tort (onrechtmatige daad);
  • such limited partner qualifies as a policy maker (beleidsbepaler) or a co-policy maker (medebeleidsbepaler) of the general partner and there is evidently improper management of the general partner;
  • such limited partner voluntarily assumes liability for the obligations of the CV; or
  • in certain exceptional circumstances only, a limited partner is identified with a general partner.

Coop

If the articles of association do not provide otherwise, members and former members of a Coop are liable for deficits upon liquidation or bankruptcy. However, Dutch law allows the liability of the members to be limited or excluded in the articles of association. The letters W.A. (wettelijke aansprakelijkheid – unlimited liability), B.A. (beperkte aansprakelijkheid – limited liability), or U.A. (uitsluiting aansprakelijkheid – exclusion of liability), respectively, have to be added to the name of the Coop to indicate the level of liability of the members. A member of a co-operative U.A. is not personally liable for any deficit of the Coop. However, a member may be held liable for the obligations of the Coop if:

  • such member has committed a tort (onrechtmatige daad);
  • such member qualifies as a policy maker (beleidsbepaler) or a co-policy maker (medebeleidsbepaler) of the co-operative and there is evidently improper management of the Coop; or
  • such member voluntarily assumes liability for the obligations of the Coop.

BV

A BV is a legal entity with capital divided into one or more transferrable shares, which has legal personality (rechtspersoonlijkheid). A shareholder of a BV is, in principle, not personally liable for acts performed in the name of the company, and does not have to contribute to the losses of the company in excess of the amount to be paid up on his shares. However, the liability of a shareholder for the obligations of the BV may arise if:

  • such shareholder committed a tort (onrechtmatige daad);
  • such shareholder qualifies as a policy maker (beleidsbepaler) or a co-policy maker (medebeleidsbepaler) of the company and there is evidently improper management of the company;
  • such shareholder voluntarily assumes liability for the obligations of the company;
  • in exceptional circumstances, where "hiding" behind separate legal identities constitutes an abuse of law, such shareholder may be identified (vereenzelvigd) with the company; or
  • a shareholder receives a distribution in excess of the company’s freely distributable reserves while being aware – or when they reasonably should have been aware – that such distribution was not permitted.

FGR

The liability of a participant of an FGR to make contributions is generally limited to the amount which each participant has paid or agreed to pay. However, although the FGR is not a legal entity (rechtspersoon) or a partnership (personenvennootschap), but a contractual arrangement sui generis, the possibility of a FGR being requalified as a partnership (maatschap/vennootschap onder firma) or a limited partnership (commanditaire vennootschap) among the manager, the title holder and the investors (ie, the participants) or among the participants cannot be ruled out if, as a factual matter, it meets the constitutive requirements of such a partnership. Upon such a requalification, the investors may become liable for equal amounts (gelijke delen) (if the FGR is requalified as a maatschap) or jointly and severally liable (hoofdelijk aansprakelijk) (if the FGR is requalified as a vennootschap onder firma or commanditatire vennootschap) for the liabilities of such partnership.

Pursuant to the Dutch implementation of article 23 of the AIFMD, an AIFM should provide professional investors with a prospectus when marketing an AIF in the Netherlands if the AIFM holds a licence from the AFM or if the Dutch AIF is managed by a non-EEA AIFM under the National Private Placement Regime. If the AIF is marketed under the retail top-up regime to non-professional investors, additional disclosure requirements apply, as set out under 3 Retail Funds.

Dutch AIFMs that are registered under the Small Managers Regime should include a selling legend in the private placement memorandum and other marketing materials, in which the Placement Restrictions that will be used by the AIFM (as set out in 2.1.2 Common Process for Setting up Investment Funds) are explained. If the marketing is not limited to professional investors, the marketing materials and offering documentation must contain an exemption statement in the manner as provided for by the AFM, and AIFMs registered under the Small Managers Regime and authorised AIFMs under the fully licensed regime have to prepare a PRIIPS Key Information Document (KID).

On the basis of their home country rules implementing the AIFMD, authorised AIFMs from other EEA Member States may also be required to provide a prospectus when marketing to Dutch investors, pursuant to article 32 AIFMD.

In addition, if an AIF is closed-end with tradable units (ie, the units are transferable), the AIF should publish an approved prospectus pursuant to the Prospectus Regulation (EU 2017/1129), unless an exemption applies (eg, when the units in the AIF are only offered to qualified investors within the meaning of the AFS, when the offer is directed to fewer than 150 persons, or when the units in the AIF can only be acquired for an equivalent value of at least EUR100,000 per investor).

The main fund investors located in the Netherlands investing in investment funds are Dutch pension funds, commercial banks and insurance companies. There are also multiple Dutch family offices and multi-family offices/asset managers, high net worth individuals and regional public investment institutions that invest in funds. The Dutch Government (via EIF) frequently invests in Dutch funds targeting SMEs.

Dutch fund managers often adopt the legal form of a BV to carry on their risk and portfolio management activities for the benefit of the investment funds under management.

From a tax perspective, a Dutch investor that applied for the tax status of a VBI or FBI is not allowed to invest in a tax-transparent investment fund that is considered to be engaged in a trade or business from a Dutch tax perspective.

If the investment fund is structured in the form of a "closed limited partnership under Dutch law" (ie, a tax-transparent entity for Dutch tax purposes) or a Coop, the fund documentation will most likely contain provisions pursuant to which the unanimous prior consent of the investors is required for certain transfers and/or admissions. These restrictions also apply to transfers to affiliates. In practice, however, these restrictions, do not result in any issues. In addition, the fund documentation generally provides that this consent shall be deemed to have been given if an investor has not declined its approval within four weeks of the date on which the request for approval was sent.

From a regulatory perspective, AIFMs under the Small Managers Regime may only offer the interests in each AIF in accordance with the Placement Restrictions.

Dutch or EU authorised AIFMs are restricted to offering the interests in the AIFs they manage to professional investors (within the meaning of Section 1:1 of the AFS), unless they have opted for the "retail top-up". The AIFM is not required to comply with the requirements under the retail top-up regime if interests are offered for a countervalue of more than EUR100,000 per investor.

Non-EEA AIFMs making use of the National Private Placement Regime may only be offered to “qualified investors” within the meaning of the AFS.

Under Dutch law, the regulatory regime and supervision with respect to investment funds is the concern of the manager of an investment fund, rather than the investment fund itself (unless the latter is managed internally). In principle, managers of AIFs that are active in the Netherlands fall within the scope of the AIFMD and the Dutch implementation thereof in the AFS and the rules and regulation promulgated thereunder.

It is, in principle, prohibited in the Netherlands for an AIFM to manage an AIF or to market interest in an AIF without having obtained a licence from the AFM. This is only different if an exemption to the licence requirement is available, such as using a passport by a licensed EU AIFM, making use of the Small Managers Regime or registration under the National Private Placement Regime.

In principle, there are no investment limitations, other than those included in the authorisation (licence or registration). For instance, if an AIFM holds a licence for managing AIFs investing in financial instruments and intends to manage an AIF that invests in real estate, the AIFM will have to apply for an extension of the scope of its licence.

Pursuant to the Dutch Trust Offices Act (Wet toezicht trustkantoren), it is prohibited to provide the following trust services (trustdiensten) in the Netherlands, unless a licence to do so has been obtained from the Dutch Central Bank (De Nederlandsche Bank N.V, DNB.):

  • being a director/partner of a legal entity/company;
  • providing a (postal) address for an object company and performing “additional activities” such as record-keeping or preparing and filing tax returns (domicile plus);
  • selling or intermediating in the sale of legal entities;
  • acting as a trustee; and
  • providing a conduit company.

Non-local service providers located in another EEA Member State are prohibited from providing trust services in the Netherlands, unless a trust office licence has been obtained. Non-local service providers located outside the EEA cannot apply for such a licence, so are prohibited from offering trust services in the Netherlands. With respect to custody services, a licence pursuant to MiFID II (2014/65/EU) may be required.

An AIFM authorised in another EEA Member State in accordance with article 6 sub 1 of the AIFMD may manage a Dutch AIF in the Netherlands on a cross-border basis with a passport, provided that the procedure of article 33 AIFMD is followed, which, in summary, entails certain documentation and information being provided to the home Member State regulator of the AIFM, and insofar as the AIFM has notified the AFM of its intentions to manage a Dutch AIF in the Netherlands.

An AIFM within the EEA that is not authorised in another EEA Member State is not allowed to manage Dutch AIFs on a cross-border basis. The Small Managers Regime as set out under 2.1.2 Common Process for Setting up Investment Funds is not available to “small” EU AIFMs outside the Netherlands, nor to “small” non-EEA AIFMs.

A non-EEA AIFM may manage a Dutch AIF on a cross-border basis if such AIFM complies with certain reporting, disclosure and transparency requirements relating to the annual report, disclosures to investors (both initially and on an ongoing basis), reporting obligations to regulatory authorities and, where relevant, transparency and asset stripping requirements relating to investments in portfolio companies, and if appropriate co-operation arrangements are in place between the supervisory authority of the non-EEA country where the AIFM is established and the AFM. In addition, a notification should be filed with the AFM, including an attestation of the home country supervisor of the non-EEA AIFM. Furthermore, the non-EEA country where the AIFM is established should not be listed as a non-co-operative country for the purposes of the Financial Action Task Force (FATF). In this event, units in the relevant AIFs may only be offered to “qualified investors”, within the meaning of the AFS.

With respect to the regulatory approval process, please see 2.1.2 Common Process for Setting up Investment Funds.

As a general rule, marketing information provided by an AIFM has to be accurate, clear and not misleading. Also, all information provided by the AIFM may not be detrimental to the information to be supplied or made available pursuant to the AFS, and it should be made clear whether or not documents are commercial.

Pursuant to the Dutch implementation of article 23 of the AIFMD, an AIFM should provide investors with a prospectus when marketing an AIF in the Netherlands if the AIFM holds a licence from the AFM or if the Dutch AIF is managed by a non-EEA AIFM under the National Private Placement Regime.

Dutch AIFMs that are registered as small managers under the Small Managers Regime should include a selling legend in the PPM and other marketing materials, in which the Placement Restrictions that will be used by the AIFM (as set out under 2.3.2 Requirements for Non-local Service Providers) are explained. If the marketing is not limited to professional investors, the PPM and other marketing materials – and the offering documentation (such as the subscription agreement) – must contain an exemption statement as provided for by the AFM and in the manner as provided for by the AFM.

Please see 2.2.3 Restrictions on Investors regarding the applicable restrictions on investors.

For Dutch AIFMs that are registered under the Small Managers Regime, from a regulatory perspective, there are generally no investor protection rules that should be taken into account.

For the AIFMs (including Dutch licensed AIFMs) authorised under the fully licensed regime, the investor protection rules pursuant to the AIFMD apply. Generally speaking, no gold plating of the AIFMD has taken place in the Netherlands, which means that, inter alia, the following AIFMD investor protection rules on the following topics should be taken into account:

  • operating conditions, including requirements regarding remuneration, conflict of interest and risk management;
  • depositary;
  • fair treatment of investors; and
  • transparency requirements.

The AFM may be described as a supervisor who duly considers the legal basis for its supervision and enforcement, while adopting a rather pragmatic approach if possible. This is no different when it comes to the supervision of AIFMs on the basis of the Dutch implementation of the AIFMD.

The AFM is usually careful in its assessments as it does not want to set undesired precedents. At the same time, the AFM typically shows an understanding that the financial businesses and structures do not necessarily follow a "one size fits all" model and therefore in general is willing to "think along" and be flexible where this is possible, without affecting the quality of the regulatory supervision. In short, the AFM approach can be described as thorough yet co-operative if possible.

For Dutch authorised AIFMs, the operational requirements pursuant to the AIFMD apply, with respect to conflicts of interest, valuation, risk management, liquidity management, delegation, appointing a depositary, and transparency, such as disclosure requirements (annual report and disclosure to investors). Generally speaking, provided that the offering is limited to professional investors, no gold plating of the AIFMD has taken place in the Netherlands. Generally, there are no restrictions on the types of activity or the types of investments for the AIF, provided that the envisaged activities/investments fall within the investment strategy covered by the AIFM’s licence.

Licensed AIFMS have to appoint a depositary for the AIF. In principle, in the Netherlands such depositary is subject to a licence requirement (a depositary generally holds a licence as a trust office, investment firm or credit institution), unless a specific exemption to the licence requirement is available. If the AIF has no legal personality, the legal ownership of the assets under management have to be held by a separate legal entity whose sole object stated in the articles of association is holding the legal ownership of the assets of investment funds.

Certain other operational requirements are also relevant, such as customer due diligence requirements on the basis of the Dutch implementation of the (revised) Fourth Anti-Money Laundering and Terrorist Financing Directive, which is applicable to AIFs.

Dutch AIFMs registered under the Small Managers Regime are, in principle, not subject to any specific operational requirements.

All types of investment funds in the Netherlands generally have access to subscription financing and leverage financing. Traditional subscription financing remains the main type of financing selected by funds in the Netherlands, although there has been an overall increase in the use of financing by funds, including fund-level leverage. An important consequence of incurring leverage at the level of a Dutch fund is that, depending on the structure of the fund and the details of the financing, the relevant manager may be required to obtain authorisation in the Netherlands.

Other than the specific requirements on leverage and borrowing that can be derived from the AIFMD and UCITS, there are generally no specific restrictions, issues or requirements in relation to borrowing by funds in the Netherlands. However, the following more general restrictions may apply, which are relevant for all borrowers located in the Netherlands.

For all practical purposes, there are no material restrictions on borrowing funds, provided that funds are attracted from professional market parties (eg, banks, pension funds and those persons that commit at least EUR100,000).

Typically, financing granted to a Dutch fund would be secured by providing security in the form of a right of pledge over the receivables or contractual rights that the investors owe to the fund arising out of the fund agreement, such as the right to make drawdowns from the capital commitments. Pursuant to Dutch law, security over receivables can be established by way of a disclosed right of pledge, or by way of an undisclosed right of pledge. Generally, in relation to financing granted to a Dutch fund, a disclosed right of pledges over those receivables or contractual rights is created. A disclosed right of pledge is created by way of a security agreement and notification of the right of pledge to the relevant debtors of the secured receivables. There is no prescribed form for notification, and no requirement to include a detailed description of the security agreement as long as it includes the name of the pledgor as included in the security agreement. An undisclosed right of pledge is created either by way of a notarial deed or by way of a security agreement that is registered with the Dutch tax authorities for date-stamping purposes.

In addition, depending on the type of financing and the structure of the fund, security could also be granted in respect of the assets in which a fund would (indirectly) invest.

There are generally no issues that commonly arise in relation to fund finance in the Netherlands.

In the Netherlands, a CV (and its foreign law equivalents) can be organised as a tax-transparent entity (a “closed” CV) or as a tax-opaque entity (an “open” CV). AIFs in the Netherlands are often structured as a tax-transparent (closed) CV. The closed character requires that any admission or substitution of a limited partner, as well as any change in relative interests among the existing limited partners, is subject to the prior unanimous consent of all partners, both general and limited partners. These restrictions also apply to transfers to affiliates. The fund documentation generally provides that such consent shall be deemed to have been given if an investor has not declined its approval within four weeks of the date on which the request for approval was sent.

A Coop cannot be organised as a tax-transparent entity in the Netherlands. A Coop is subject to corporate income tax on worldwide income, provided that it is fully exempt from Dutch corporate income tax on dividends and capital gains derived from the qualifying equity stakes in portfolio companies (the participation exemption). Typically, the investments made by buy-out funds and venture capital funds in their portfolio companies are eligible for the participation exemption. Profit distributions made by a Coop are subject to Dutch dividend tax if the Coop qualifies as a mere holding vehicle. A Coop that is used as principal fund vehicle by fund managers that are (substantially) based in the Netherlands may, however, be eligible for an exemption.

Similar to the CV, also with regard to the FGR, two different types of entity exist: so-called "closed" FGRs (Closed FGR) and "open" FGRs (Open FGR). A Closed FGR is a transparent entity for Dutch tax purposes. An FGR is considered a Closed FGR if either the participations in the FGR are not transferable other than to the FGR itself by way of redemption, or if the participations are transferable only with the consent of all other participants. For example, debt funds may be structured as a closed FGR. As a consequence of its tax transparency, any income and gains realised by investing through the Closed FGR are attributed to the participants as if the participants were investing directly in the investment portfolio of the FGR.

Open FGRs (ie, FGRs that do not meet the transferability criteria for the Closed FGR) are subject to Dutch corporate income tax on worldwide income (similar to the Coop), and profit distributions made by an Open FGR are, in principle, subject to Dutch dividend withholding tax. However, if certain conditions are met, the Open FGR can opt for the status of "exempt investment institution" (vrijgestelde beleggingsinstelling – or VBI) or "fiscal investment institution" (fiscale beleggingsinstelling – or FBI).

An FGR that elects to be treated as VBI is fully tax exempt – ie, the VBI is not subject to Dutch corporate income tax and its profit distributions are not subject to Dutch dividend withholding tax. A VBI may only invest in financial instruments, including transferable securities.

The FBI is subject to Dutch corporate income tax at a rate of 0%. The FBI may only hold mere portfolio investments. However, unlike the VBI, the FBI may also invest in real estate. Consequently, in practice the FBI may be referred to as the Dutch REIT regime. The FBI is required to meet statutory requirements as to its shareholders and leverage restrictions. Furthermore, the FBI must distribute its net income within eight months of the fiscal year-end. Profit distributions made by the FBI are, in principle, subject to 15% Dutch dividend withholding tax.

Retail Funds (eg, UCITS) are often structured in the form of an Open FGR or a public limited liability company (naamloze vennootschap met beperkte aansprakelijkheid – NV) that adopts the legal status of an investment institution with variable capital (beleggingsmaatschappij met variabel kapitaal – BMVK).

With respect to the description of the Open FGR, please see the description of the FGR under 2.1.1 Fund Structures.

The NV has legal personality and capital divided into shares. Shareholders of an NV are required to hold at least one physical meeting each year. In contrast to the contractual set up of the FGR, the NV is subject to Dutch corporate law, and is incorporated by the execution of a notarial deed of incorporation (including the articles of association of the NV) to that effect. The incorporation of an NV requires a bank account to be set up in the company's name prior to incorporation, a bank statement providing evidence of the payment of the minimum paid-in share capital (if in cash) or a description of the contribution drawn up and signed by the incorporators, and an auditor’s certificate attesting to such payment (if in kind).

Both the Open FGR and the NV BMVK are suitable for the set up for (semi) open-end and closed-end funds as well as for umbrella funds. Both the participations in the FGR and the shares in the NV BMVK can be listed on a stock exchange.

The (managers of) retail investments funds have to be authorised on the basis of either the Dutch implementation of the AIFMD and the AIFMD retail top-up regime, or the Dutch implementation of the Directive 2009/65/EC of 13 July 2009 undertakings for collective investment in transferable securities (as amended) (UCITS).

AIFMD

Please see 2.1.2 Common Process for Setting up Investment Funds regarding the registration and/or approval requirements for AIFMs and AIFs pursuant to the Dutch implementation of the AIFMD. As the authorisation pursuant to the AIFMD is, in principle, limited to professional investors, managers who intend to offer interest in the AIF they manage to non-professional investors (retail) in the Netherlands should comply with the so-called retail top-up. The licence for these authorised AIFMs should specifically include the retail top-up. The authorised AIFM with a retail top-up will have to meet all requirements that apply for authorised AIFMs under the fully licensed regime. In addition, the retail top-up regime, inter alia, requires the manager to comply with certain additional compliance, information and reporting requirements. However, the manager is not required to comply with the requirements under the retail top-up regime if interests are offered to non-professional investors for a countervalue of more than EUR100,000 per investor. AIFMs have to prepare a UCITS-like KID (in the Dutch language) for each new AIF they are marketing, and provide this to the investors prior to investing in the AIF. In this respect, please see 3.1.4 Disclosure Requirements.

UCITS

Pursuant to section 2:96b AFS, it is prohibited to manage and market UCITS funds in the Netherlands without a licence from the AFM. A licence can be obtained by the UCITS fund manager (ManCo) or by the (self-managed) UCITS. The AFM will grant a licence upon application, if the ManCo meets the licence requirements under Dutch law. The licence requirements relate to, inter alia, the suitability and trustworthiness of the board members, the operational and control structure, the appointment of a depositary, solidity and minimum own funds requirements. Holders of a qualifying holding (ie, >10% capital or voting rights) need to obtain a declaration of no objection from the DNB. With respect to a licence application of the ManCo, the AFM has a review period of 13 weeks for a licence application of a ManCo, and eight weeks for a licence application of a UCITS. The AFM may request additional documents or information during the application process. The review period is suspended while additional documents are being requested.

A licensed ManCo can manage a new UCITS within the investment strategy covered by its licence, and can market such UCITS to retail investors if it has submitted the notification form to the AFM at least two weeks prior to the marketing of the respective UCITS. The following should be attached to the notification form:

  • a prospectus (pursuant to section 4:49 AFS); and
  • a so-called key investor information document (Essentiele Beleggersinformatie) (hereinafter UCITS KID).

Until 31 December 2021, UCITS benefit from an exemption to the PRIIPS KID requirements under the PRIIPS Regulation. As of 1 January 2022, a PRIIPS KID will have to be made available to retail investors.

Open FGR

Please see 2.1.3 Limited Liability for a description of the Open FGR, and the limited liability of investors in an FGR.

NV

An NV is a legal entity with capital divided into one or more transferrable shares, which has legal personality (rechtspersoonlijkheid). A shareholder of an NV is, in principle, not personally liable for acts performed in the name of the company and does not have to contribute to the losses of the company in excess of the amount to be paid up on his shares. However, the liability of a shareholder for the obligations of the NV may arise if:

  • such shareholder committed a tort (onrechtmatige daad);
  • such shareholder qualifies as a policy maker (beleidsbepaler) or a co-policy maker (medebeleidsbepaler) of the company and there is evidently improper management of the company;
  • such shareholder voluntarily assumes liability for the obligations of the company;
  • in exceptional circumstances, where "hiding" behind separate legal identities constitutes an abuse of law, such shareholder may be identified (vereenzelvigd) with the company; or
  • a shareholder receives a distribution in excess of the company’s freely distributable reserves while being aware – or when they should reasonably have been aware – that such distribution was not permitted.

When a shareholder supports or effects a dividend or other distribution whilst knowing that the NV would, as a consequence, not be able to continue paying its debts when these become due, it may qualify as acting in a tortious manner.

UCITS

The ManCo has to publish the following on its website:

  • a prospectus including the information required pursuant to article 4:49 of the AFS in conjunction with article 118 of the Market Conduct Supervision Financial Institutions Decree (the Decree) and Annex I to the Decree (such as, inter alia, certain (specific) information about the fund, the (co-) policy makers, changes in conditions, the provision of information, the fund activities and investment strategy, costs and remuneration, participation rights, risk profile of the fund, valuation of assets, etc);
  • the fund rules or the articles of associations of the UCITS; and
  • if made public, the annual accounts of the UCITS of the two preceding years (on the basis of article 4:50 AFS).

Furthermore, a UCITS KID should be available, in Dutch.

AIFM with Retail Top-up

In principle, the authorised AIFM with a retail top-up will have to meet all (disclosure) requirements that apply for authorised AIFMs under the fully licensed regime (as set out in 2.1.2 Common Process for Setting up Investment Funds).

With respect to an AIF (which is closed-end) with tradable units (ie, the units are transferable), an approved prospectus should be published pursuant to the Prospectus Regulation (EU 2017/1129), unless an exemption applies.

With respect to an AIF whose units are not transferable or in case an exemption applies as a result of which there is no prospectus requirement, a prospectus including the information required pursuant to article 23 AIFMD should be made available and published on the AIFM’s website, to be supplemented with particular information deemed important for retail investors as set out in the retail top-up regime (such as, inter alia, certain (specific) information about the fund, the (co-) policy makers, changes in conditions, the provision of information, the fund activities and investment strategy, costs and remuneration, participation rights, risk profile of the fund, valuation of assets, etc). Also, semiannual accounts will have to be published.

Furthermore, AIFMs have to prepare a key investor information document similar to the UCITS KID (UCITS-like KID) (in the Dutch language) for each new AIF they are marketing and provide this to the investors prior to them investing in the AIF. AIFs that currently produce a UCITS-like KID under the national retail top-up regime can benefit from an exemption to the PRIIPS KID requirements under the PRIIPS Regulation until 31 December 2021. As of 1 January 2022, a PRIIPS KID will have to be made available to retail investors.

AIFMs registered under the Small Managers Regime and authorised AIFMS under the full licence have to prepare a PRIIPS KID when offering interests to retail investors for a countervalue of more than EUR100,000 per investor.

In general, private individuals invest in liquid funds, for the purpose of their asset management.

Dutch fund managers often adopt the legal form of a BV to carry on their risk and portfolio management activities for the benefit of the investment funds under management.

There are no restrictions on the types of investors that can invest in a retail fund.

The (managers of) retail investment funds have to be authorised on the basis of either the Dutch implementation of the AIFMD and the AIFMD retail top-up regime, or the Dutch implementation of UCITS.

With respect to authorised AIFMs with a retail top-up, in principle no investment limitations apply. A Dutch UCITS, however, should take into account certain specific investment limitations as set out in the Dutch implementation of the UCITS directive. For instance, pursuant to article 130-143 of the Decree, restrictions apply with respect to specified categories of financial instruments in which the assets under management will have to be invested, and specific investment limits apply in that respect.

Please see 2.3.2 Requirements for Non-local Service Providers.

AIFMD

With respect to local regulatory requirements for non-local AIFMs, please see 2.3.3 Local Regulatory Requirements for Non-local Managers.

UCITS

A non-local EEA-authorised ManCo may manage and market authorised UCITS funds in the Netherlands on a cross-border basis, provided that the passporting procedure (art. 91 and further of the UCITS Directive) is followed. The EEA ManCo will need to obtain separate approval from the AFM for the management of a Dutch UCITS fund in the Netherlands (pursuant to the Dutch implementation of Article 5(3) of the UCITS Directive). If a non-Dutch UCITS fund is marketed in the Netherlands, the UCITS KID will have to be provided in the Dutch language.

AIFMD

With respect to the regulatory approval process for an AIFM, please see 2.1.2 Common Process for Setting up Investment Funds.

UCITS

If a ManCo applies for a licence from the AFM pursuant to the AFS, the AFM has a review period of 13 weeks. With respect to a licence application for a UCITS, the AFM has a review period of eight weeks. During the application process, the AFM may request additional documents or information; the review period is suspended while the AFM is requesting additional documents. A licensed ManCo can manage a new UCITS if it has submitted the notification from UCITS to the AFM at least two weeks prior to the marketing of the respective UCITS.

As a general rule, information provided by an AIFM or ManCo has to be accurate, clear and not misleading. Also, all information provided by the AIFM or ManCo may not be detrimental to the information to be supplied or made available pursuant to the AFS, and it should be made clear whether documents are commercial. Also, certain specific rules regarding marketing materials apply. Please also see 3.1.4 Disclosure Requirements.

In addition, the Unfair Commercial Practice Act (Wet oneerlijke handelspraktijken – UCPA) applies to all financial institutions that market, offer or sell products or services to consumers in the Netherlands, regardless of the authorisation, registration or exemptions that may be relied upon for Dutch financial regulatory purposes. If the AFM, as competent supervisory authority of the UCPA, deems that information provided to consumers is misleading or unfair, it may, for example, impose a fine on the (managers of the) fund in question.

There are no restrictions on the types of investors that can invest in a retail fund.

In principle, the authorised AIFM with a retail top-up will have to meet all requirements that apply for authorised AIFMs under the fully licensed regime, please see 2.3.7 Investor Protection Rules.

Authorised AIFMs with a retail top-up and authorised ManCos have to comply with certain investor protection requirements pursuant to the AFS and the promulgated regulations thereunder, such as the requirement to have certain organisational and administrative procedures in place relating to, inter alia, conflicts of interest, complaints handling and product approval procedures. In addition, the requirement to be registered with the Dutch Financial Services Complaints Tribunal (Klachteninstituut Financiële Dienstverlening) applies.

The AFM may be described as a supervisor who duly considers the legal basis for its supervision and enforcement, while adopting a rather pragmatic approach if possible. Please see 2.3.8 Approach of the Regulator.

In principle, the authorised AIFM with a retail top-up will have to meet all requirements that apply for authorised AIFMs under the fully licensed regime.

With respect to authorised Dutch UCITS, certain specific operational requirements apply, as set out in the Dutch implementation of the UCITS directive. For instance, pursuant to the AFS and the rules and regulations promulgated thereunder, restrictions apply with respect to specified categories of financial instruments in which the assets under management will have to be invested, and specific investment limits apply in that respect. Also, the legal ownership of the assets under management of the UCITS has to be held by a separate legal entity whose sole object as stated in the articles of association is holding the legal ownership of the assets of investment funds.

Authorised Dutch UCITS have to appoint a depositary. In principle, in the Netherlands such depositary is subject to a licence requirement (a depositary generally holds a licence as trust office, investment firm or credit institution), unless a specific exemption to the licence requirement is available.

Certain other operational requirements are also relevant, such as customer due diligence requirements on the basis of the Dutch implementation of the (revised) Fourth Anti-Money Laundering and Terrorist Financing Directive, which is applicable to Dutch UCITS.

Please see 2.5 Fund Finance.

Retail funds that are structured as Open FGR or NV BMVK often elect to be treated as FBI.

Such a "fiscal investment institution" is subject to Dutch corporate income tax at a 0% rate, but may be entitled to the benefits of the Dutch tax treaty network.

Profit distributions by an FBI are, in principle, subject to 15% Dutch dividend withholding tax, with two important exceptions:

  • The FBI can apply a rebate for the amount of directly suffered (foreign) withholding taxes against the FBI’s own obligation to remit 15% Dutch dividend tax to the Dutch tax authorities, withheld in respect of its own profit distributions. Effectively, the (foreign) withholding tax levied in connection with the investments of the FBI will be converted into Dutch withholding tax, for which the retail investors may be eligible for a credit or (partial) refund. This is considered an apparent benefit of the FBI regime compared to other investment tax regimes (including the Dutch VBI regime), where (foreign) withholding taxes suffered in connection with the investment portfolio are often neither creditable nor refundable, as a consequence of which such withholding taxes will be a fund cost reducing the return on investment.
  • The FBI can elect to apply a so-called reinvestment reserve (herbeleggingsreserve) by claiming such a reserve in its Dutch corporate income tax return. This reserve is equal to the net balance of (unrealised) gains and losses reduced with a proportionate part of the running costs of the FBI. By creating a reinvestment reserve, items of a capital nature will be excluded from the FBI’s taxable profits and, therefore, will not fall under the annual distribution obligation. Furthermore, subject to certain provisos, the FBI can make distributions at the expense of the reinvestment reserve free from Dutch dividend withholding tax, so that items of a capital nature realised by the FBI are effectively subject to neither Dutch corporate income tax nor Dutch dividend withholding tax.

Legislation on Partnerships

In February 2019, a draft legislative proposal was published by the Dutch government which aims to modernise the legislation on partnerships. One of the most remarkable amendments would be that a partnership would obtain legal personality. After a first public consultation, during which all interested persons could state their opinion on the proposal, an updated draft legislative proposal is expected to be published this year, again making it possible to submit an opinion.

ESG Regulations

On 9 December 2019, the EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (the Disclosure Regulation) was published in the Official Journal of the European Union (OJEU). The Disclosure Regulation aims to reduce information asymmetries in principal-agent relationships with regard to the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social characteristics, and sustainable investment. Hereto, the regulation requires financial market participants (such as AIMFs) and financial advisers (including AIMFs with a MiFID top-up) to make pre-contractual and ongoing disclosures to end investors when they act as agents of those end investors (principals). A regulation regarding sustainable benchmarks (Regulation (EU) 2019/2089)) was also published in the OJEU on 9 December 2019, and on 18 December 2019 a political agreement between the European Parliament and the European Council on the development of an EU-classification system for environmentally sustainable economic activities was reached (the so-called Taxonomy Regulation).

Cross-border Distribution

On 12 July 2019, the following legislative acts were published in the Official Journal of the EU (OJ):

  • Directive (EU) 2019/1160 amending the UCITS Directive and the Alternative Investment Fund Managers Directive with regard to the cross-border distribution of collective investment undertakings; and
  • Regulation (EU) 2019/1156 on facilitating the cross-border distribution of collective investment undertakings and amending the European Venture Capital Funds Regulation, the European Social Entrepreneurship Funds Regulation, and the Regulation on key information documents for packaged retail and insurance-based investment products.

The cross-border directive and regulation are aimed at reducing regulatory barriers to the cross-border distribution of funds in Europe, and apply to both UCITS and funds under AIFMD. The changes will largely take effect from 2 August 2021.

Loyens & Loeff

Fred. Roeskestraat 100
1076 ED Amsterdam
Nederland

+31 20 578 52 77

+31 20 578 58 00

vilmar.feenstra@loyensloeff.com www.loyensloeff.com
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Law and Practice

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Loyens & Loeff has been serving the investment fund industry for more than three decades. The team advises both managers and investors worldwide on the relevant tax and law aspects of fund formation. With approximately 60 dedicated investment management specialists from the various disciplines (legal, tax and regulatory) focusing on the formation of alternative investment funds, Loyens & Loeff is one of the largest continental European specialist groups in the investment management practice. It covers the entire chain of services and has become a leader and developed specialty know-how in the key alternative asset classes, including private equity, fund of funds, infrastructure, real estate, and private debt. The firm has handled many notable transactions in the Netherlands, Belgium, Luxembourg, the UK, the USA, Switzerland and Asia.

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