Conversion of Dutch real estate

An alternative to new development is the conversion and repurposing of existing buildings. Once you sell a building which has recently been converted, a Dutch tax problem becomes relevant. 

RETT vs VAT

The transfer of ownership of a building is taxable with 10.4% real estate transfer tax (RETT), and 2% if the buyer uses it as residence. RETT is exempt if 21% VAT is due on the transfer of a newly constructed building before its first occupation. Depending on the nature and the use of the building, the buyer of the building might be able to deduct the paid VAT. 

There is a big difference in taxation between 10.4% RETT and 21% VAT. Depending on the buyer’s ability to deduct VAT, it varies on a case-by-case basis which of these taxes is less expensive.

Converted or constructed?

Because of these taxes, it becomes relevant to determine if a building is considered to be newly constructed. At what point has an existing building been converted to such extent that the original building has ceased to exist and a new building has been constructed?

In November 2022, the Dutch Supreme Court ruled that only changes to, or renewal of, the architectural construction of the building would result in the determination of a newly constructed building; and that conversions would generally not result in a new building. Repurposing or the costs of the conversion were not decisive for the question of whether a new building had been constructed.

The Dutch court also ruled an EU court verdict from 2017 regarding a Polish case to be not applicable in Dutch legislation.

EU Court

Not long after the verdict of the Dutch Supreme Court, the EU Court ruled in March 2023, in a Belgian case, that VAT should be levied on a building that had been “subject to substantial modifications intended to modify the use or alter considerably the conditions of its occupation”. This verdict is considered to confirm the case from 2017.

This new verdict has raised questions if the Netherlands is compliant with EU legislation. According to the EU view, VAT might be due sooner than according to the Dutch view. The EU court seems to consider the purpose of the building about which the Dutch court has ruled to be not decisive.

It is expected that the Dutch court will submit a case to the EU court. This could result in a different taxation when converting real estate. Taxation on conversion remains yet another challenge for Dutch real estate.

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Edward Hendrickx is EJP’s Founder, Partner & Tax Specialist. He specialised in international tax advice, mergers & acquisitions, and consultancy on entrepreneurship & for larger SME clients.