The Netherlands is ideally placed within Europe, being less than two hours away from the main financial centres such as London, Frankfurt and Paris. It is home to some of Europe's largest pension plans, many of who are active allocators to alternative investment funds, and boasts a world-class business environment and workforce. Indeed, as PwC point out in a recent report*, the Netherlands was ranked number 7 in the world by Forbes' `Best Countries for Business' in 2016.
Moreover, the Netherlands operates an attractive tax regime and incentive programs. Corporate income tax stands at 20 per cent on earnings up to EUR200,000, rising to 25 per cent for taxable profits greater than EUR200,000 and most fund structures are tax transparent, while the other tax regimes have other benefits. These are all attractive considerations for any new start-up manager looking for a well regulated centrally located jurisdiction that offers a high degree of flexibility; certainly when it comes to operating an AIF under the AIFM Directive.
As Joris Groot (pictured), Business Development Manager at Circle Partners, comments: "Across most EU jurisdictions, either the management company or the AIF needs to be licensed and requires some form of approval process. The Netherlands, however, has the possibility to offer an exception to the rule. Under its `light regime', neither needs to be licensed or supervised at all. Provided the manager runs an AIF with less than EUR100 million in AUM, he can avoid licensing and apply for an exemption, although he will be subject to certain registration and reporting obligations. For example, the manager must include a selling restriction in a prescribed form in and documents announcing the offer of participations in their fund."
Taking this registration route, all the manager needs to do is register the management company with the Dutch regulator, the Authority for the Financial Markets (Autoriteit Financiële Markten or AFM) and pay a one-off fee of EUR1,500. It is a very cost effective solution for fund managers below the threshold of EUR100 million.
There is no ongoing supervision by the AFM, hence why the light regime is an attractive option for any (EU-based) start-up manager, not only Dutch managers.
Circle Partners operates in Amersfoort in the Netherlands as an independent fund administrator, helping to guide start-up managers through the process of bringing a new fund to market in all major fund jurisdictions. It has over 17 years of experience in fund administration, fund set-up and fund structuring.
Launching a Dutch AIF under the light regime requires the management company to have a registered office in the Netherlands, and is a Dutch company, "which we can arrange for as part of our service package".
"Under the registration regime, the regulator has no say in the process and annual reports to the regulator serve more as a statistical purpose. All the manager needs to do is to register the management company with the AFM and pay a one-off fee of EUR1,500," confirms Groot.
In his view, the Dutch light regime has proven to be very cost effective, fast to set-up and efficient compared to other European jurisdictions and also allows full flexibility in relation to the investment strategy. All these factors have proven to be of importance for emerging managers, he says.
A second option for new managers is to opt fully into AIFMD – even if the manager is de minimis and running less than EUR100 million – and go through the licensing process to become a Dutch AIFM and therefore benefit from the opportunity to freely passport their AIF under the distribution rules of AIFMD.
This is mandatory once the AIF's assets exceed EUR100 million (open ended), or EUR500 million (close ended).
"Once the threshold is exceeded the fund structure remains intact but the management company then faces two options: one is to go through the approval process to obtain its own Dutch AIFM license. The second is to appoint a third party AIFM, who offers its license to support the ongoing activities of the fund.
"A Dutch AIFM will then be subject to ongoing regulatory supervision by the regulator. Once the manager has obtained a license they are free to manage either a Dutch AIF, or an AIF domiciled in any other EU Member State, and benefit fully from the passporting regime. While remaining de minimis, once you know that your AUM is likely to exceed EUR100 million, you can commence the licensing process for the management company and continue to manage the AIF during the transition phase from sub-threshold to full AIFMD compliance," explains Groot.
Discussing the level of fund activity in 2017, Groot says that so far, Circle Partners has realised a "very healthy level of growth" and is seeing continued interest from those wishing to establish an alternative investment fund structure in the Netherlands; not just in hedge funds but also private equity, real estate and venture capital.
"What I would say is that the vast majority of new funds are established under the light regime or work with existing third party AIFMs (in an outsourced arrangement). Obtaining your own AIFMD license has proven to be quite an expensive and cumbersome process."
Circle helps with all the paperwork and the licensing application for the management company, utilising its network of local law firms, once the manager is ready to operate fully under AIFMD.
"We can provide investment managers with practical advice and assistance in setting up their fund in the Netherlands, as well as other fund jurisdictions, and introduce them to specialised legal and tax advisers, banks, brokers and auditors. Furthermore, we have an in-depth understanding of the structural and regulatory issues surrounding the set-up of investment funds in the Netherlands and have extensive experience in fund administration," says Groot.
Circle's range of services includes:
In terms of structuring options, the most common option is to set up the AIF as an FGR, in the form of an open-ended fund structure. This would be the choice for hedge funds, whereas a Dutch limited partnership or commanditaire vennootschap (CV) would ordinarily be used for real estate, venture capital and private equity funds.
"The Netherlands is a very attractive place for business, the central geographical position, highly developed infrastructure and its multilingual highly educated workforce are some of the reasons why numerous European, American and Asian companies have established their offices in the Netherlands. In addition, it has a good number of bilateral tax treaties with EU and non-EU countries," concludes Groot. n
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