Two important developments in December 2025 attempted to address the unintended consequences of the reform:

• the updated Fund Decree (Fondsbesluit) published on 2 December 2025; and

• the Consultation Proposal (Wet aanpassing FGR) released on 15 December 2025.

Together, these measures were intended to provide short-term guidance and a longer-term legislative solution. However, the consultation process closed on 2 February 2026 with significant criticism from the market.

A common theme in the consultation responses was that the proposed “opt-out” regime is too restrictive and difficult to apply in practice, particularly for international investment funds. As a result, the proposal is widely expected to be revised before it reaches parliament.

Why the FGR Reform Matters

The classification of an investment vehicle as either tax-transparent or non-transparent has major Dutch tax implications. A transparent fund is generally ignored for Dutch tax purposes, meaning investors are taxed directly on their share of the income. A non-transparent FGR, by contrast, becomes a standalone Dutch taxpayer subject to:

• Dutch corporate income tax (CIT);

• Dutch dividend withholding tax (DWT) at 15%; and

• potentially Dutch conditional withholding tax rules.

For many international structures, particularly foreign partnerships investing into Dutch assets, the 2025 reform unexpectedly triggered non-transparent status for the first time. This created immediate concerns around Dutch withholding tax leakage, treaty access, compliance obligations, and investor reporting. The issue is especially relevant for private equity, private debt, real estate, infrastructure, and other alternative investment structures that historically operated as transparent vehicles from a Dutch tax perspective.

How the Dutch FGR Rules Changed

Before 2025, the Dutch FGR regime largely depended on the distinction between “open” and “closed” funds. The decisive factor was whether transfers of participations required unanimous consent from all investors. If unanimous consent was required, the fund was generally treated as transparent. If participations were freely transferable, the fund could qualify as non-transparent.

The 2025 reform replaced this framework with a broader classification test. Under the new rules, an entity may qualify as an FGR if it:

• constitutes a collective investment arrangement;

• qualifies as an AIF or UCITS;

• engages in “normal portfolio management”; and

• issues transferable participation rights.

In practice, this broadened the scope of entities potentially caught by the FGR rules. One of the most significant consequences is that foreign partnerships can now be classified as equivalent to a Dutch non-transparent FGR, even where they would otherwise resemble a transparent partnership structure under Dutch tax principles. This development has proven particularly problematic for US, UK, Luxembourg, and Cayman investment structures with Dutch investments or Dutch investors.

The Three Main Problems Created by the Reform

The market quickly identified three major issues following the introduction of the new rules.

1- Foreign partnerships unexpectedly caught by the rules

Many foreign investment vehicles that were never intended to fall within the FGR regime suddenly faced potential Dutch corporate income tax and dividend withholding tax obligations. This became particularly sensitive for internationally marketed investment funds with Dutch exposure.

2- Reliance on Dutch financial regulatory terminology

The original rules referred heavily to concepts from the Dutch Financial Supervision Act (Wet op het financieel toezicht or Wft), creating uncertainty because tax classification became closely linked to financial regulatory definitions. Market participants argued that this approach was difficult to apply in cross-border situations.

3- The “normal portfolio management” test remains unclear

This remains the biggest unresolved issue in practice. The requirement is difficult to interpret for many active investment strategies, particularly private debt, infrastructure, and real estate funds. The distinction between passive investment and active business activity continues to create uncertainty, especially for structures involving operational influence or more sophisticated financing arrangements.

Importantly, while the December 2025 Fund Decree introduced limited guidance on this issue, the Consultation Proposal itself did not materially address it.

What the December 2025 Fund Decree Clarified

The updated Fund Decree is already in force and provides practical guidance for taxpayers navigating the new regime.

One of its most relevant clarifications is that registration with the Dutch Authority for the Financial Markets (AFM) can serve as decisive evidence that a fund qualifies as an AIF or UCITS. Equivalent EU registrations may also suffice for EU-based funds.

The Decree also clarified that:

• family funds raising capital exclusively within a pre-existing family circle cannot qualify as FGRs;

• certain transfer events, such as inheritance or marital division, are ignored when assessing transferability; and

• “redemption funds” remain transparent where participations can only be transferred back to the fund itself.

Debt fund safe harbor

For debt funds, the Decree introduced a limited safe harbor under which lending activities may still qualify as “normal portfolio management” if several cumulative conditions are satisfied. These include:

• no more than 10% exposure to a single borrower;

• restrictions on lower-rated loans;

• leverage capped at 20%;

• management fees capped at 1%; and

• no performance-based compensation.

In practice, many institutional private debt funds are unlikely to satisfy all conditions simultaneously. As a result, many structures will still require a case-by-case analysis under Dutch tax principles.

The Consultation Proposal and the Market Response

The Consultation Proposal attempted to introduce a structural solution through an optional “opt-out” regime. Under the proposal, qualifying FGRs could elect to remain transparent provided they satisfied several cumulative conditions, including:

• a maximum of 20 ultimate investors;

• extensive investor reporting obligations to the Dutch tax authorities; and

• a one-time irrevocable election.

The proposal also included potentially significant tax consequences when entering or exiting the regime because unrealized gains could become taxable without rollover relief.

The market reaction was overwhelmingly critical. Many consultation responses argued that the 20-investor threshold effectively excludes most institutional investment structures and therefore fails to solve the core issue created by the 2025 reform. Concerns were also raised about:

• the administrative burden;

• investor identification requirements;

• the lack of rollover relief; and

• the practical difficulties of applying the regime to non-Dutch funds with no Dutch-source income.

An alternative “opt-in” approach has since emerged as the preferred solution among many market participants. Under this model, transparency would become the default position, while qualifying funds could elect into non-transparent FGR treatment if commercially desirable. Certain large-scale investment funds could still remain mandatorily non-transparent.

At this stage, many advisers consider it unlikely that the current opt-out proposal will proceed in its existing form.

Transitional Relief Offers Time, But Not Certainty

The Dutch government has extended transitional relief until January 1, 2028, providing affected funds with additional time while the legislative process continues.

The grandfathering regime now also extends to certain limited partnerships established on or after January 1, 2026, provided the relevant conditions are met.

Nevertheless, important uncertainties remain. One particularly relevant question for investment funds is whether the transitional regime applies only for Dutch corporate income tax purposes or also protects funds from dividend withholding tax and conditional withholding tax exposure. The current proposal does not clearly resolve this point.

Funds relying on grandfathering relief should therefore carefully assess whether any withholding tax exposure remains.

The Wider Withholding Tax Context

The FGR reform is unfolding against a broader European debate on Dutch withholding tax rules for investment funds.

The European Commission’s infringement procedure against the Netherlands (INFR 2024/4017) remains ongoing and concerns the Dutch remittance reduction scheme available only to Dutch investment funds. According to the Commission, the current approach may restrict the free movement of capital under EU law.

This dispute exists alongside continuing discussions regarding Dutch Supreme Court case law on withholding tax refunds for foreign investment funds. Together, these developments mean that fund classification, treaty access, withholding tax recovery, and EU law considerations are becoming increasingly interconnected.

Practical Takeaways

For investment funds and asset managers, the Fund Decree already provides useful guidance and should be considered immediately in fund classification analyses. Non-EU funds remain exposed to uncertainty because the Decree offers limited guidance on non-EU AIF and UCITS equivalence. Funds relying on transitional relief should also verify whether protection extends beyond corporate income tax to dividend withholding tax and conditional withholding taxes.

For tax advisers and legal professionals, the legislative process remains highly fluid. The final framework could differ substantially from the December 2025 draft, particularly if the government moves toward an opt-in system. The “normal portfolio management” criterion also remains the most significant unresolved technical issue and will likely continue to require detailed factual analysis.

For the time being, the extension of transitional relief until 2028 offers some breathing room. However, the underlying classification issues, especially for foreign partnerships and alternative investment structures, remain unresolved.

Tax professionals and fund managers should therefore expect continued developments throughout 2026 and into 2027, with the final shape of the Dutch FGR regime still very much open.