The Netherlands - Tax

In our previous quarterly update (Q1 2025) we noted that the Dutch government published the findings of a study concerning the Dutch lucrative interest regime (‘lucratiefbelangregeling’). On 3 July 2025, the Dutch government passed a motion following the findings in the study. The changes proposed in this motion would primarily affect managers in private equity (or other) fund structures, as structures using sweet equity, carried interest or other type of leveraged instruments would most likely be affected by the proposed changes to the Dutch lucrative interest regime.

Dutch tax treatment of lucrative interests

For a more comprehensive explanation of the Dutch tax treatment of lucrative interests, we refer to our previous quarterly update (Q1 2025). In short, certain types of management incentives, such as sweet equity or carried interest, may qualify as lucrative interest. This means that, for Dutch tax purposes, income from the corresponding shares is taxed in Box 1 with a top rate of 49.5%, rather than in Box 2 or Box 3, which have lower rates.

A taxpayer may opt for taxation in Box 2 if such taxpayer holds the lucrative interest through an intermediate holding company, in which said taxpayer must hold a substantial interest, and the intermediate holding company distributes, to said taxpayer, at least 95% of the profits of the lucrative interest in the year of realisation.

Changes of the lucrative interest regime

The passed motion concerns a change of the lucrative interest regime by implementing a higher tax rate in Box 2 regarding income from a lucrative interest. This is in line with one of the changes suggested as part of the Dutch public consultation. A full abolition of the Box 2 option seems off the table as it would, in short, be too complex and demanding in terms of audits, may trigger substantial additional discussions between the taxpayer and authorities, and would result in an unknown budgetary effect.

It is not clear what the exact special Box 2 rate for lucrative interests would be, but it should be between the top rate of Box 2 (31%) and the top rate of Box 1 (49.5%). A tax rate of 36% has been suggested, but not yet confirmed.

The motion requested the changes to be included in the Dutch Budget 2026, to be published on/around 16 September 2025. Therefore, if approved by Dutch Parliament and Senate in fall 2025, the change may become effective as early as 1 January 2026.

Expected implications

These changes might have a significant impact on (private equity) funds, although the exact details are yet to be confirmed. Furthermore, it remains unclear if transitional law will be provided for. As there is no (draft) legislation available, specific consequences for taxpayers currently holding a lucrative interest are unknown.

While referring to our previous quarterly updates for a more complete overview of the changes, the Dutch entity tax qualification rules have changed drastically since the start of 2025. Particularly the qualification of mutual investment funds (‘fonds voor gemene rekening’, “FGR”) has been a subject of discussion ever since.

On 12 June 2025, the State Secretary of Finance published a letter to the Dutch Parliament, containing the results of a study into the issues in light of the new FGR qualification. The letter also suggests possible follow-up steps. The possible implementation of any changes should not be expected earlier than January 2027.

Quick recap

On 1 January 2025, the qualification rules of the Dutch tax system have changed, aiming to reduce international entity qualification mismatches (hybrid mismatches). As part of this change, the Dutch government also abolished the non-transparency for open limited partnerships (‘open commanditaire vennootschappen’) and changed its definition of an FGR. An FGR is non-transparent for Dutch tax purposes and with the change in definition some partnerships or funds may now qualify as an FGR.

Findings of the state secretary

As mentioned, part of the new qualification rules was the abolition of non-transparency for limited partnerships. Limited partnerships are now by default tax transparent but may qualify for the new FGR definition. This would undermine the above-mentioned approach, as this could result in a limited partnership qualifying as non-transparent for Dutch tax purposes, thereby still causing hybrid mismatches. The study discusses various alternatives to counter this effect, but at this stage, there is no clear solution according to the State Secretary. Further studies should address possible solutions.