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What Is a Dutch FGR?
– A Dutch “Fonds voor Gemene Rekening” (FGR), or “Fund for Joint Account”, is a form of Dutch investment fund, meaning a pooled investment vehicle.
– It provides a flexible and tax-efficient structure for collective investments.
– It is utilized by both institutional and retail investors.
– It can be structured as either open-ended or closed-ended.
Can One Person Use Two Entities in an FGR?
FGR as a Contractual Arrangement:
An FGR is not a legal entity in itself, but rather a contractual agreement between the participants (investors) and the fund manager.
Legal Ownership:
The assets held within the FGR are legally owned by a designated entity, typically a Dutch foundation distinct from the participants.
Tax Transparency:
For Dutch tax purposes, the FGR is generally treated as tax transparent. This means that income and capital gains are attributed directly to the participants, as if they owned the underlying assets themselves.
Multiple FGRs:
An individual may participate in multiple FGRs; however, each FGR is recognized as a separate contractual and legal structure.
Why the Dutch FGR Is So Popular Offshore.
– An FGR offers the ability to reclaim a portion of withholding tax paid in other countries, potentially resulting in higher returns for investors.
– Fast setup process
– Cost-efficient structure
Open vs. Closed FGRs Explained.
– Under Dutch tax law, an FGR is classified as either open or closed.
– An open FGR is subject to Dutch corporate income tax.
– A closed FGR, on the other hand, is not subject to Dutch corporate income tax. The investment results of a closed FGR are taxed directly at the level of the participants.
– An FGR is considered open if participations are freely transferable.
– This is not the case if unanimous prior consent of all participants is required (‘consent requirement’), or if transfers are only allowed to the FGR itself (‘redemption requirement’) or to relatives by blood or marriage in the direct line of the participant.
New FGR Rules in the Netherlands (2025 Update).
An FGR will be transparent for Dutch tax purposes, unless it meets all of the following criteria:
- It qualifies as an ‘investment fund’ (e.g., an AIF) or a ‘fund for collective investment in transferable securities’ (i.e., a UCITS) within the meaning of the Dutch Financial Supervision Act.
- It is established for collective investment purposes, generally involving at least two investors.
- It follows a strategy that qualifies as ‘normal’ portfolio management.
- The participations in the fund are represented by ‘tradeable participation certificates’. Participation certificates are not considered tradeable if they are only transferable to the fund by way of redemption (a Redemption Fund).
FGRs: A Contractual Structure, Not a Company.
– An FGR is a pooled investment vehicle.
It is not a corporate body and does not possess a separate legal personality.
– An FGR is structured through a contractual agreement (commonly referred to as its “Terms and Conditions”) between a manager (the “Fund Manager”) and its investors (the “Participants”).
– This agreement obliges the Fund Manager to invest and manage, for the joint account of the Participants, the assets contributed by the Participants.
– Typically, legal ownership of the FGR’s assets is held by a separate custodian or depositary, which is usually structured as a Dutch foundation (a “Depositary Custodian”).
Establishing an FGR via Notarial Deed.
An FGR is not governed by Dutch corporate law.
- Parties are generally free to determine the financial and governance structure of an FGR. As such, the term refers primarily to a commercial arrangement and a tax qualification rather than a legal classification.
An FGR is established through the execution of a notarial deed setting out its Terms and Conditions.
The parties involved are:
- the Fund Manager;
- the Depositary Custodian; and
- at least one Participant.
The Terms and Conditions typically include:
• the name;
• purpose;
• seat of the FGR;
• provisions on dissolution and liquidation;
• admittance of new Participants;
• allocation of the investment profits of the FGR;
• substitution of the Fund Manager and the Depositary Custodian.
• The terms under which the Fund Manager and the Depositary Custodian provide their services on behalf of the FGR are either set out in the Terms and Conditions are laid down in a separate investment management agreement.
• If desirable, a custody agreement may be entered into between the Depositary Custodian and the Fund Manager.
• The Depositary Custodian is managed by a board of directors. Acting as custodian of the FGR, it holds legal title to all of the fund’s investments.
• Participants do not have a proprietary interest in the investments. They hold only contractual rights against the Depositary Custodian and are entitled to the beneficial ownership of the investments.
• Each Participant signs a subscription agreement with the Fund Manager (and, often, also with the Depositary Custodian and the fund’s administrator (the “Administrator”)), which specifies the size of the Participant’s investment and makes the Terms and Conditions applicable.
• Participants typically have no liability beyond the contractual obligation to contribute as agreed in the subscription agreement. They are entitled to a share in the profits of the fund and in the assets held by the Depositary Custodian, proportionate to their contribution.
Regulatory Oversight of FGRs in the Netherlands.
• The FGRs may qualify as “investment funds” (beleggingsinstellingen) under the Dutch Act on Financial Supervision (Wet op het financieel toezicht, the “AFS”).
• Under the AFS, an investment fund may take the form of a corporate entity or an unincorporated/contractual arrangement (such as an FGR) that qualifies as a collective investment undertaking, including any investment compartments thereof, which:
i. raises capital from multiple investors with the intention of investing that capital in accordance with a defined investment policy for the benefit of those investors; and
ii. does not require authorization under the regime applicable to Undertakings for Collective Investment in Transferable Securities (UCITS), consistent with the definition of an alternative investment fund (AIF) as implemented under the Alternative Investment Fund Managers Directive (AIFMD) in Dutch law.
• It is possible that certain FGRs may fall outside the scope of this definition, particularly where they do not “raise capital” or lack a “defined investment policy.” However, the Dutch Authority for the Financial Markets (AFM) applies a broad interpretation of the investment fund concept, potentially capturing a wide range of structures under the regulatory framework.
Is a Fund Manager Required for an FGR?
• If the FGRs qualify as funds under the AFS, the Fund Manager is required to hold a license issued by the AFM in order to manage a Dutch fund or offer participations to investors in the Netherlands.
• An exemption from this license requirement is available for certain types of Fund Managers established in a country outside the European Union (third-country Fund Managers). This applies where such Fund Managers are registered with their home state regulators and are subject to a certain degree of supervision, and where the home state regulator and the AFM have entered into an information-sharing Memorandum of Understanding (MoU) pursuant to the AIFMD.
• Jurisdictions that have entered into such an MoU include the EU, the United States, Switzerland, New Zealand, New Caledonia, the Netherlands’ overseas municipalities, and Montenegro.
Duties of a Foreign Fund Manager for FGRs.
• Such a Fund Manager must notify the AFM of its intention to manage a fund in the Netherlands (or to offer a fund to investors in the Netherlands) by submitting a specific notification form to the AFM (the “Notification”).
• The Notification must be accompanied by an attestation from the competent authority in the Fund Manager’s home state, confirming that the Fund Manager is able to effectively comply with the cooperation agreement between that authority and the AFM (the “Attestation”).
• There are no formal requirements regarding the format of the Attestation. The Notification serves informational purposes only, and it is the Fund Manager’s responsibility to ensure that all conditions for reliance on the exemption are met.
CRS Treatment of FGRs.
• In general, an FGR should report its financial accounts (“Financial Accounts”), which consist of the Equity and Debt Interests in the FGR held by the Participants / account holders (“Account Holders”).
• A Financial Institution is considered resident in a participating jurisdiction (“Participating Jurisdiction”) if it is subject to the jurisdiction of that Participating Jurisdiction. Typically, this is the case when the Financial Institution is resident for tax purposes in a Participating Jurisdiction.
• However, where a Financial Institution does not have a tax residence (e.g. because it is tax transparent), it is considered to be subject to the jurisdiction of a Participating Jurisdiction if:
i. it is incorporated under the laws of that Participating Jurisdiction;
ii. it has its place of management in that Participating Jurisdiction; or
iii. it is subject to financial supervision in that Participating Jurisdiction.
• A tax-transparent Financial Institution will qualify as a Dutch tax resident for Common Reporting Standard (“CRS”) purposes if its place of effective management is located in the Netherlands.
• Since the FGRs in question are tax transparent and are managed by EWM in Montenegro, they would not qualify as tax residents in the Netherlands for CRS purposes.
• If the FGRs are instead treated as tax resident in Montenegro, they would not have a CRS reporting obligation, as Montenegro has not implemented the CRS. In other words, the FGRs would not qualify as Financial Institutions in a Participating Jurisdiction.
• However, if the FGRs are not considered tax resident in Montenegro, they would be subject to CRS reporting in the Netherlands, given that they are incorporated under Dutch law.
• In that case, the FGRs would be required to report the Equity and Debt Interests held by the Participants.
FGRs and the CRS Classification of a Depository Custodian.
– The two Depositary Custodians would hold the legal ownership of the assets of multiple FGRs. Accordingly, the FGRs would be the sole Account Holders of the Depositary Custodians.
– The only income of the Depositary Custodians consists of custody fees charged for holding these assets.
– As entities that maintain assets for others and derive more than 20% of their income from custody fees, the Depositary Custodians would be classified as custodial institutions (“Custodial Institutions”) for CRS purposes.
– In the described setup, the Depositary Custodians derive 100% of their income from custody fees. A Custodial Institution qualifies as a Financial Institution under CRS. It is important to note that in this structure, the Depositary Custodians would not be classified as Investment Entities.
– Furthermore, it is our understanding that the Depositary Custodians would be Dutch foundations managed from either the United States or Montenegro. Provided that these countries consider the Depositary Custodians to be tax residents, the entities would be treated as non-Participating Jurisdiction Financial Institutions.
– As a result, the Depositary Custodians would not have CRS reporting obligations.
FGRs and the CRS Responsibilities of a Fund Manager.
– An Equity Interest in an Entity that qualifies as an Investment Entity solely because it acts as an investment manager would not be considered a Financial Account. Accordingly, the Fund Manager would have no reporting obligations under the CRS.
– Nonetheless, the Fund Manager would be responsible for the CRS reporting of the FGR if the FGR has a reporting obligation. However, if eg Montenegro, treats the FGR as a tax resident, no CRS reporting obligation would arise for the FGRs.
CRS Reporting. FGRs. Investment Entity.
– A Financial Institution holding a Financial Account for the benefit or account of another person would qualify as the Account Holder.
– Therefore, if the FGR were to invest in a target company that is an Investment Entity and a Financial Institution, this Investment Entity would be obligated to report under the CRS.
– The target company, as an Investment Entity, should regard the Depositary Custodian as the Account Holder.
– If the Depositary Custodian is tax resident in a non-Reportable Jurisdiction, the Account Holder would be a non-reportable person (“Reportable Person”) as it is not a Reportable Jurisdiction Person.
– Furthermore, the Depositary Custodian would not be an Investment Entity and thus would not be regarded as a Passive Non-Financial Entity (“Passive NFE”) by the reporting Investment Entity (target company).
– Even if the Depositary Custodian were a Reportable Jurisdiction Person, it would, as a Financial Institution, qualify as a non-reportable person and, therefore, there would be nothing to report by the reporting Investment Entity (target company).
FGR and the Passive NFE Problem.
– In the case where the target company qualifies as a Passive NFE, the bank (or any other Financial Institution) maintaining the assets of the target company should disclose the controlling persons (“Controlling Persons”) of the Passive NFE.
– As the owner of the Passive NFE is the Depositary Custodian, the bank would disclose the Controlling Persons of the Depositary Custodian.
– Since the Depositary Custodian maintains assets for multiple FGRs, there would be no individual who qualifies as a Controlling Person by holding a right to more than 25% of the Depositary Custodian’s assets.
– In such a case, the Controlling Persons would be the senior managing officials of the Depositary Custodian (i.e., Dutch foundation), which would be the Montenegro or USA-based directors of the Depositary Custodian. These individuals are non-Reportable Jurisdiction Persons.
Sondervermögen: Germany’s FGR Equivalent.
– In the context of Dutch tax law, a German Sondervermögen—specifically an investment fund or a fund for collective investment in transferable securities—may be regarded as equivalent to a Dutch Fonds voor Gemene Rekening (FGR). As a result, if a German Sondervermögen owns Dutch real estate, it may be subject to Dutch corporate income tax (CIT) on income derived from that real estate, in accordance with a ruling by the Dutch Supreme Court.
