Dutch Limited Partnerships Attractive Alternative to Luxembourg and Irish Fund Structuring

Jones Day

Proposed changes to Dutch tax law will make Dutch limited partnerships attractive private equity and venture capital fund and feeder fund alternatives to Irish and Luxembourg equivalents.

A Dutch limited partnership (commanditaire vennootschap or "CV") is similar to Anglo Saxon limited partnerships widely used in private equity and venture capital fund structuring. Dutch law requires a CV to have at least one limited partner and one general partner. Limited partners have limited liability, provided that they do not participate in the management of the CV and their name is not used in the name of the CV. The CV is established by the general partner(s) and limited partner(s) entering into a limited partnership agreement ("LPA"). There is a high level of flexibility with respect to drafting the LPA.

Under current tax law in the Netherlands, CVs can either be structured as opaque or transparent for corporate income tax purposes. To achieve transparency, the LPA must include strict admission and transfer restrictions; any admission of a limited partner to the CV or transfer of a limited partnership interest must have consent from all CV partners (not just the general partner as is customary elsewhere).

Pursuant to proposed new tax legislation in the Netherlands which is aimed to enter into force on 1 January 2022, all CVs will be considered tax transparent without the need for the above-mentioned admission and transfer restrictions in the LPA. As such, the Dutch CV will align with the international standard that limited partnerships generally are considered tax transparent.

The Netherlands provides a stable economic and political environment and offers a legal and tax framework that is attractive for local and foreign investors, fund sponsors and managers looking for an entry point into the EU regulated market. With the abolition of the CV’s admission and transfer restrictions, the Netherlands will become an attractive alternative to Luxembourg and Irish partnerships for funds and management vehicles.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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