The Netherlands as a hub for alternative investments

Benefiting from a favourable business climate, robust infrastructure, and a strategic position as a gateway to Europe, the Netherlands presents enticing options for fund managers seeking practical and tax-friendly solutions in the alternative investment fund (AIF) space, write Tom Loonen and Jan Saalfrank of Pinsent Masons.

With a well-established legal environment and an open economy, the Dutch landscape enables seamless access to the European fund market, attracting professionals eager to capitalise on its advantageous offerings, they write in their latest contribution as Investment Officer knowledge partner.

Introduction 

Managers of alternative investment funds (AIFs) frequently find their way to the Netherlands, predominantly since it offers a competent, transparent and adaptable legal and governance structure for AIF to operate under the Alternative Fund Managers Directive (AIFMD). Besides having a stable political and corporate climate, the Netherlands typically offer a number of tax benefits and is therefore considered to be a popular fund jurisdiction. 

By operating in and from the Netherlands, fund managers often utilize the country as their site for private equity and venture capital funds. In this article we describe the legal landscape in the Netherlands for fund managers and briefly explain the different legal forms.

Legal framework

The main regulatory framework for establishing and operating AIFs in the Netherlands is the Dutch Act on the financial supervision (Wet op het financieel toezicht, the AFS) into which the AIFMD has been implemented. Furthermore, dependent on their legal form, AIFs will be subject to legislation from the Dutch Civil Code (Burgerlijk Wetboek) or the Dutch Mercantile Code (Wetboek van Koophandel).

Legal forms

Dutch law offers a variety of legal forms for structuring an AIF and the choice is generally depending on the outcome of a tax analysis, carried out prior to the establishment of an AIF. 

The legal forms most used are – briefly – set forth below:

• A private limited liability company (besloten vennootschap met beperkte aansprakelijkheid, a BV) or public limited liability company (naamloze vennootschap, NV) – NV and BV have legal personality.
• A cooperative with exclusion of liability (coöperatie met uitsluiting van aansprakelijkheid, Coop) which is a specific form of an association with legal personality.
• A limited partnership (commanditaire vennootschap, CV), without legal personality, is established between one or more general partners and one or more limited partners. The liability of the general partners on the one hand, is unlimited and on the other hand, liability of the limited partners towards third parties is limited to the amount they contributed (or: agreed to contribute). This limitation applies unless such limited partner commits tort (onrechtmatige daad), engages in acts of management of the CV or in certain other situations primarily where a limited partner qualifies as a policy maker of the CV.
• A fund for the joint account (fonds voor gemene rekening, FGR), without legal personality is an agreement sui generis among the fund manager, the depositary (a legal entity that holds the assets) and the participants. Typically, the terms and conditions of FGRs stipulate that the FGR is not a partnership and that the liability of its investors is limited to the amount they paid or agreed to pay. Nonetheless, there is the (albeit unlikely) chance, depending on the legal arrangements governing the FGR, of requalification to a partnership, which, in the worst case scenario, may lead to joint and several liability of the participants. In spite of this risk, the FGR is a frequently used structure to set up Dutch AIFs. 

The main features of the various types of AIFs are set forth below in the table:

Regulatory regime

The AFS prohibits fund managers to manage an AIF and to market AIF-units in the Netherlands (unless a specific exemption or exception applies) without having obtained a license from the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten). The AFS distinguishes two regulatory regimes: (i) the full AIFMD regime; and (ii) the registration regime. 

The full AIFMD regime involves the application for a license and will entitle the fund manager to a European passport to expand activities throughout the European Economic Area. The registration regime is available for Dutch based fund managers only , involves a registration, some limited reporting obligations and does not entitle the fund manager to a European passport. 

The registration regime applies, provided that the aggregate of assets under management (AUM) of the relevant fund manager does not exceed EUR 100 million. In case all AIFs managed by the fund manager operate unleveraged, this threshold is EUR 500 million, with the additional conditions that the AIFs do not offer redemption or repayment rights for the first five years following acquisition of the units. 

Further limitations are in the manner of offering units. Units may be offered to: 

1. professional investors; 
2. less than 150 persons; 
3. against a countervalue of at least EUR 100,000 per investor (exclusive of costs); or
4. with a nominal value per unit of at least EUR 100,000. 

In case of the conditions set forth under (iii) and (iv) above, the initial amount of EUR 100,000 must be paid in full immediately and the amount of committed capital per participant may, during the investment, not fall below EUR 100,000 (decreases in value not included). 

Conclusion

The Dutch legal environment offers various practical and tax friendly solutions for AIFs. Combined with the open economy in the Netherlands, the favourable and efficient business climate, the good infrastructure and the “gateway to Europe” function, the Netherlands provides various suitable options for fund managers to onboard the European fund market. 

Tom Loonen is professor of financial law at Vrije Universiteit Amsterdam and special counsel Pinsent Masons PLC Netherlands, while Jan Saalfrank, partner investment funds at Pinsent Masons PLC Luxembourg. The law firm is an Investment Officer knowledge partner.