Fiscal juridical structure
Fiscal juridical structure
In the scope of maximal flexibility tailor-made fiscal/juridical structure can be chosen in consultation between Cibus Farmland Club and the land investor, in which the investment portfolio must be kept.
As the individual nature and composition of each separate project development can differ considerably from other, Cibus Farmland Club prefers the set up of separate juridical entities per ag-investment/farm-unit/cluster.
In this regard the investor determines in which country and subject to which fiscal law and in which structure the investment will be held. For instance, one may choose a fund structure or an agricultural enterprise, for instance structured via partnerships.
Summary tax analysis of the structure
Hereby we briefly discuss the corporate income and withholding tax consequences of the intended structure for the investor and Holdco.
Taxation of the Property Companies
The Property Companies are generally subject to tax at a rate of 16%. This will apply to the net profits from the land, minus costs
such as general expenses, management fees and possibly interest expenses.
Income from the investments
Holdco would hold interests of 100% in the Property Company of Companies that have capital divided in shares and are ordinary companies (SRLs) in Romania that are subject to a profit tax. In addition investors should understand that the Property Companies conduct active business (i.e. exploiting land plots), therefore the Property Companies would qualify for the application of the Dutch participation exemption and therefore dividends and capital gains received by Holdco from its interest in the Property Companies would be exempt from taxation in the Netherlands. No withholding tax are applicable on dividends from Romania to the Netherlands.
Interest income and payments
For tax purposes in the Netherlands, based on Dutch transfer pricing rules, the Investor and Holdco are required to report interest income on respectively any Investor’s Loan and Holdco’s Loan. In addition the Investor and Holdco must have documentation that shows that the interest meets market conditions. No withholding tax would apply from payments of interest from Romania to the Netherlands.
The income at the level of the Investor and Holdco from respectively the Investor’s Loan and Holdco’s Loan would be subject to corporate income tax.
Based on the proposed Dutch 2007 corporate income tax reform; the corporate income tax rate will be 20-25% as of January 1st, 2014. A corresponding deduction is available for the Property Companies in Romania, subject to certain restrictions that will need to be borne in mind when structuring any debt.
If the loans are structured as a hybrid loan, then the interest income will not be subject to Dutch tax at the level of Holdco. For this purpose, the loan should have a maturity date of at least 50 years, it should be subordinated to other creditors and the interest should be somehow related to the profits of the borrower, e.g. an interest of 6% payable only if the profits of the borrower are at least equal to that interest amount and e.g. 7 or 8% if the profits exceed a certain profit threshold. Given that the loan will be from a parent to a wholly owned subsidiary, such term should not have any negative commercial consequences. The interest payable by the Romanian property company may be deducted from the taxable income up to 6%, if certain conditions are met.
If the Investor is a Dutch corporate entity, dividends distributed by Holdco to the Investor would be exempt from Dutch withholding tax, since Holdco would qualify for the application of the Dutch participation at the level of the Investor. If the Investor is a corporate entity resident outside of the Netherlands, depending on the jurisdiction, dividend distributions from Holdco to the Investor may be subject to withholding tax in the Netherlands at a rate varying between 0 and 15%.