How to Start a Hedge Fund in Netherlands

Updated on Saturday 12th February 2022

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Foreign investors can open various types of investment funds in the Netherlands, including hedge funds, which are alternative investment vehicles in which the businessmen pool their financial assets to perform different investment strategies. The procedure of starting a hedge fund in the Netherlands must be completed following the regulations applicable under the Dutch legislation.

Investment funds legislation in the Netherlands

The Netherlands provides for several laws that need to be respected when creating investment funds. Among these, there are national laws but also EU directives that were transposed in the local regulations or respected as required. Among these, we mention the following:

the 2013 Financial Markets Supervision Act;
the Alternative Investment Fund Manager Directive;
the Financial Markets Supervision Law;
the Supervision of Market Conduct Decree;
the Supervision Conduct of Financial Firms Decree.

The last two regulations were recently enabled. Along with them, in 2019 a new EU directive was introduced. The 2019/2088 Regulation on sustainability‐related disclosures in the financial services sector is one of the most recent changes that was implemented at EU level, so not only do those who operate hedge funds in the Netherlands need to comply with it, but all EU-located funds must respect it.

If you need more information on the types of investment funds you can create in the Netherlands, our local affiliates can provide useful information.

Legal entities under which you can operate a Dutch hedge fund

Even if there have been changes in the law, the legal entities that can be used to create hedge funds in the Netherlands remain the same. There are about 4 types of structures that can be employed for this purpose, namely:

two corporate forms: the private (BV) and public (NV) limited liability companies;
two non-corporate forms: the limited partnership and the fund for joint account.

Hedge funds can also be created as cooperatives in the Netherlands. This enters the non-corporate forms such a fund can take.

You can choose any of these forms for the creation of hedge funds, however, there are several important aspects to consider, and one of them covers the taxation of the fund.

Hedge funds in the Netherlands

Businessmen who are interested in how to start a hedge fund in the Netherlands must know that first, they should decide on the business structure the fund will have.

In the Netherlands, hedge funds can be set up as one of the following:

• investment company;
• investment fund.

A hedge fund falls under the regulations of the Alternative Investment Fund Manager Directive (AIFMD) established by the European Union. The Netherlands has modified its national legislation to incorporate the AIFMD regulations. Investors who want to know more on how to start a fund can find out further details on the AIFMD regulations in our investment publication.

The following video offers a short presentation on the Dutch hedge funds:

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Structure of hedge funds in the Netherlands

Investors who are starting a hedge fund in the Netherlands can set up the vehicle as one of the structures mentioned below:

• open-ended funds;
• closed-ended funds.

The main difference between these structures refers to the issuance of shares that can be managed through that respective structure. In the case of a hedge fund set up as an open-ended vehicle, the investors will not have any restrictions for the issuance of bonds or shares, a situation which is not applicable for the closed-ended structure.

Regulatory bodies for investment funds

Dutch hedge funds have to follow the regulations imposed by the Authority for the Financial Markets (AFM) and the Dutch Central Bank (DCB), each institution dealing with different aspects related to the proper functioning of the investment vehicles available here.

As hedge funds in the Netherlands are considered alternative investment funds, they will need to obtain a license issued by the AFM, which can be further on used on other European markets which are included in the European Community.

Operating a hedge fund in the Netherlands under a corporate form

The BV and NV are legal entities that need to be registered with the Companies House when setting up hedge funds in the Netherlands. Only after that, the prospectus for the authorization of the fund can be filed with the Authority for the Financial Markets.

There are several advantages linked to using these entities, and among them, here are the most important:

through them, the fund can issue shares;
the NV can be used as an investment company with variable capital which is popular in other EU countries, such as Luxembourg;
these business forms can also be used to set up investment open-ended and closed-ended companies.

From a taxation point of view, they can be subject to Fiscal Investment Institution (FII) or the Exempt Investment Institution (EII) regimes.

More details on the taxation of Dutch hedge funds are available with our partners.

Setting up a hedge fund under a non-corporate entity

The Netherlands is one of the several countries that enable the use of a few non-corporate forms to operate investment funds. Among them, the limited partnership which is also often employed in Singapore (one of the most appealing investment destinations in Southeast Asia), but also the fund for joint account and cooperative.

These entities have the advantage of being created quite fast and requiring fewer documents compared to the BV and NV. However, the authorization requirements remain the same as for any other legal entity.

They are often employed by those who want to operate Dutch hedge funds dealing with real estate assets and daily trading operations.

Taxation of hedge funds

As mentioned previously, there are several fiscal regimes that apply to hedge funds in the Netherlands. These are:

the regular system under which funds are taxed with the corporate and withholding tax on dividend payments;
the Fiscal Investment Institution (FII) regime;
the Exempt Investment Institution (EII) regime.

Out of these, hedge funds created as cooperatives will only be taxed under the regular regime.

In order to be taxed under any of the above-mentioned systems, it is important to note that specific requirements apply. One of the most important refers to the shareholding participation divided between corporate and individual shareholders.

Statistics of the Dutch investment funds sector

According to recent data, the number of hedge funds in the Netherlands has remained steady, as it follows:

in the 3^rd quarter (Q3) of 2020, the total number of funds was around 1,750;
in Q4 of the same year, the number increased to 1,759;
in the first quarter of 2021, there were only 1,620 investment funds operating in the Netherlands.

However, the Dutch legislation provides several exemptions related to the licensing requirements, which can be further on detailed by our affiliates in Netherlands.