Set Up Fund for Joint Account (FGR) in the Netherlands
Updated on Thursday 06th February 2020
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The investment funds legislation in the Netherlands is quite flexible allowing for several types of funds to be established. The most employed type of alternative investment fund in the Netherlands is the fund for joint account (fonds voor gemene rekening), shortly known as FGR. The most important feature of the FGR is that it is a non-corporate structure.
Our company registration representatives in the Netherlands can offer detailed information on the most important types of investment funds that can be set up here. Professional investors who want to set up an investment fund in the Netherlands can rely on our local consultants for assistance in setting it up under the form of a fund for joint account.
What is a Dutch FGR and how can it be established?
As a non-corporate structure, the Dutch FGR can only be established by signing a contract. The agreement will be signed by a manager, the AIF manager, the investor or investors and the owner of the investment fund. The owner will usually be a foundation registered in the Netherlands in order to separate the assets of the owner from the manager’s assets. Through the agreement, the manager takes the responsibility of investing and administering the fund forjoint account’s assets of the investors, also called participants.
The contract is usually referred to as the Terms and Conditions of the fund and will be attached to a prospectus. This documents will usually contain information about the investment strategy, the costs related to managing the fund, the restrictions, the subscription and redemption requirements.
The main regulations for setting up a Dutch FGR
The fund for joint account is one of the preferred structures for starting an investment fund in the Netherlands because it is easier to register than any other business form suitable for the undertakings of investment funds. Even so, there are various regulations which must be respected upon the establishment of an FGR.
In order to understand how the FGR works, here are some its most important features:
the Dutch fund for joint account is a pooled type of investment vehicle;
the FGR can be used for the creation of institutional and retail investment funds, but also for asset pooling activities;
the FGR can take the form of an open-ended, semi-open-ended and closed-ended investment fund;
the FGR can also be used for the creation of private and umbrella investment funds;
the fund for joint account falls under the regulations of the Financial Supervision Law in the Netherlands.
Registration requirements for an FGR in the Netherlands
Theregistration of an FGR is completed through the drafting and execution of a notarial deed, as mentioned above. It is important to know that in the beginning, at least two parties must participate in the creation of the fund – the manager and one participant. In practice, a depositary is also appointed upon the creation of a Dutch fund for joint account.
The Terms and Conditions of the FGR must comprise the following information:
- the name and the registered address of the Dutch fund for joint account;
- the purpose of the FGR and the conditions for admitting new participants;
- the transferability requirements imposed on participants to the FGR;
- the contribution obligations of the participants and the allocation of the results of the FGR;
- how the manager and the depositary of the fund can be replaced;
- the dissolution and liquidation conditions of the Dutch fund for joint account.
It is also possible for the Terms and Conditions of the FGR to contain provisions about how the fund manager and the depositary perform their activities.
The agreement for the creation of an FGR in the Netherlands
As mentioned earlier, the fund for joint account is set up through an agreement, also known as Terms and Conditions. This agreement will usually contain provisions on the rights and obligations of the participants. In most cases, the participants in a Dutch FGR are the legal owner, the manager and the investors.
- the investment strategy and the restrictions of the fund;
- the subscription and redemption terms;
- the costs related to the management of the fund;
- information on the service providers and other important information that must be presented to the investors.
The FGR has various particularities, one of the most important referring to the fact that the legal owner of such an entity is usually a Dutch foundation which was created for the sole purpose of legally owning the assets of the FGR. This is will allow the separation of the fund’s assets from those of the manager’s. This will require the manager to invest and administer the assets of the participants on behalf of the FGR.
You can rely on our local consultants for the preparation of the Terms and Conditions and Prospectus when setting up an investment fund under the structure of a Dutch FGR.
Governance requirements for an FGR in the Netherlands
One of the most important advantages of the FGR is that there are no conditions imposed on the governance of the fund. It is a common practice for the participants to be granted with voting rights upon their entry in the fund. It is possible, though, for the fund to appoint supervisory and advisory boards.
In most situations, the structure of the fund imposes the governance requirements.
Considering the creation of an investment fund requires a lot of attention, we recommend you discuss with our company registration representatives in the Netherlands for detailed information about the requirements which must be respected in the case of establishment of an FGR.
The main types of Dutch investment funds
The Netherlands is a very appreciated investment destination for professional investors because it allows for the creation of the main types of funds available at a global level. Moreover, as an EU member state, those who set up investment funds in the Netherlands can operate in other EU countries based on the passporting rights of the respective fund. It is also possible for foreign investors who have created EU-based investment funds to operate on the Dutch market based on the same rights.
Under the Dutch legislation, local and foreign investors have the same rights in terms of creating investment funds by using the main structures available here. These are the Undertakings for Collective Investment in Transferable Securities (UCITS), the Alternative Investment Funds (AIFs), the retail, non-retail UCITS and exempt funds.
The main structures to use when setting up a fund in the Netherlands are the private and public limited liability companies (BV and NV) and the limited partnership as corporate entities, and the cooperative and the fund for joint account (FGR) as non-corporate entities. When choosing the investment vehicle, investors must pay attention to the following aspects:
- the registration procedure and how long it takes;
- the structure of the fund which can be transparent and non-transparent entities;
- the taxation of the fund (the Netherlands imposes several tax regimes based on the investment vehicle selected);
- the minimum share capital requirements for each type of fund.
Our company formation agents in the Netherlands can help you select an appropriate investment vehicle based on your intentions.
Setting up a Dutch fund as an FGR
The fund for joint account is a popular investment vehicle for local and foreign investors interested in setting up pension funds. It is also often employed by institutional investors because it is a non-corporate entity, therefore its creation consists in a contractual agreement drafted under the Dutch legislation. The contract is signed by the investment manager, the depositary and the participants to the fund. In order to use an FGR as an investment vehicle, the members are not required to participate in the fund with a specific amount of money, however, they will be entitled to benefits and profits based on the size of their interest and income generated by the assets held by the FGR.
The benefits that can be obtained from the membership in a fund set up as under an FGR are represented by participations issued in registered forms. A particularity of investment funds created as funds for joint account in the Netherlands is that they cannot issue participations under the form of certificates. However, the FGR is a very flexible entity under which the terms and conditions can be personalized to the needs of the investors.
Our company formation advisors in the Netherlands can help you set up investment funds with the desired structure.
Open-ended and closed-ended FGRs in the Netherlands
As mentioned above, Dutch FGR can take the form of open-ended and closed-ended investment funds. The type of fund created will impact thetaxation of the FGR.
The open-ended FGR will be subject to the corporate and the dividend tax in the Netherlands. If certain conditions are met, the FGR can apply for the Exempt Investment Institution (VBI) status or for the Fiscal Investment Institution (FBI) status. Under the criteria of these institutions, the open-ended FGR can obtain reduced corporate tax rates or even full exemptions from the corporate tax.
The closed-ended FGR, on the other hand, is seen as a transparent type of investment fund, therefore will not be subject to the corporate tax.
The conditions under which a Dutch fund for joint account is deemed an open or closed-ended fund can be explained by our local representatives.
- if the fund will be subject to the corporate tax, it will pay it at a rate of 20% or 25%;
- if created as an FBI or VBI, the FGR will be subject to a 0% rate of corporate tax;
- a 15% withholding tax on dividend payments will also be applied to open-ended FGRs;
- the 15% dividend tax can be reduced up to a rate of 0% where double tax treaty provisions apply in the case of foreign participants in the fund.
You can also watch our video on how to open an FGR in the Netherlands:
Why open a fund for joint account in the Netherlands?
The main reason why it is worth to set up a Dutch FGR is that it must only be registered before a notary, unlike companies which must be registered with the Trade Register. Also, the fund for joint account can be used to set up several types of fund, among which open or closed-ended funds.
The FGR is also a very good option from a taxation point of view, as it is not subject to the corporate and dividend taxes if registered as tax-transparent. It must be taken into consideration that several conditions apply for Dutch FGR to be considered a tax-transparent fund, among which not being registered as a limited partnership. Also, tax-transparent FGRs are not required to register with the tax authorities.
For assistance in opening an FGR, please contact our Dutch company formation agents.