Interest in open-ended limited partnerships (CVs) is growing. High-net-worth individuals face the risk of their financial position being made public via the UBO register. To prevent this, an anonymisation structure can be set up using a CV. The structure is not set up to evade tax, but to protect against criminals and competitors.
UBO
UBO stands for ‘ultimate beneficial owner’. In other words, a UBO is a natural person who is the ultimate owner of, or has control over, a particular legal entity. A person is considered a UBO if they hold more than 25 per cent of the shares, voting rights or de facto control. In all likelihood, the UBO register will be introduced in 2019. You can find more information about the UBO register in our article UBO register not until 2019.
Opportunities
To prevent a private individual’s financial position from becoming public knowledge, one option to consider is transferring all assets to a private holding. This is because private assets do not appear in the UBO register. From a tax perspective, however, this option is less attractive. In addition to being taxed on the benefit derived from a substantial interest (Box 2 tax), low-yielding assets are likely to be taxed more heavily in Box 3 than they would be within the private limited company.
Two other ways of anonymising assets are the CV and the open-ended mutual fund (for more information on mutual funds, see: Is a mutual fund something for you?). Whether this will actually succeed depends on the final form of the UBO register.
A CV could also offer a tax advantage. If the structure is not designed to conceal assets but allows for tax evasion, tax assessments may be imposed.
Anonymisation using a CV
Anonymisation by means of a CV works as follows. The director and majority shareholder (DGA) exchanges the shares in his personal holding company for shares in an open CV. This can be done without any tax implications by means of a share merger. A CV has at least one managing partner and one limited (silent) partner. The managing partner is a foundation of which the DGA is the director. The limited partner is the DGA personally. The CV is not required to publish the names of its limited partners in the Companies Register. This ensures privacy for the DGA.
No tax avoidance
The State Secretary for Finance has informed the House of Representatives in a letter On 20 November 2018, he responded to questions regarding the anonymisation of assets via a limited partnership. In doing so, he stated that he could not rule out the possibility that open limited partnerships are still being used in conjunction with anonymisation structures. This is because the Tax and Customs Administration issues rulings, upon request, for tax-neutral share mergers, as it is obliged to do so by law. However, no preliminary consultations are now held regarding limited partnership structures for the anonymisation of assets in connection with the Anti-Money Laundering Directive. According to the State Secretary, the CV cannot be used for anonymisation vis-à-vis the tax authorities, as regulations stipulate that the management and ownership structure of the CV and the extent of its assets must be disclosed to the tax authorities.
CAHR
The CAHR (Central Shareholders’ Register) seems closer than ever. A proposal on this matter is currently under consideration private member’s bill at the House of Representatives. The CAHR collects information on shares, shareholders, usufructuaries and mortgagees of private limited companies (BVs) and unlisted public limited companies (NVs). The Tax and Customs Administration and other designated public bodies are granted access to the CAHR.
The CAHR is regarded as a tool that can help prevent and combat financial and economic crime. The CAHR provides a broader overview than the UBO register and is therefore important for combating crime. Currently, only shareholders who are sole shareholders are registered with the Chamber of Commerce. The CAHR registers all shareholders of private limited companies (BVs) and (unlisted) public limited companies (NVs), whilst the UBO register also covers foundations, associations and partnerships.
Success?
It remains to be seen whether anonymising assets through a limited partnership (CV) will achieve the desired result. Although it is not yet clear, it appears that the CV does not need to be registered in the commercial register. However, the CV will be subject to the UBO register. The situation is not yet clear for mutual funds.
The advantages of a CV over a mutual fund are: there is no requirement for two participants each holding a minimum stake of 10%; the tax authorities will not make a fuss about it acting as an active holding company; and the director and major shareholder may be married under the community of property regime. A disadvantage of the CV is that there is currently no scheme in place to allow the assets in the CV to be repaid tax-free. So far, it appears that the mutual fund is preferred when it comes to anonymity.
Want to know more?
Would you like to find out more about the options for investing assets in a CV or an open-ended mutual fund? Please contact Get in touch with one of our advisers.