For many Gulf families, a European structure is only usable if it can be operated in a way that is consistent with their principles. That requirement is not an obstacle to a well-designed Dutch holding; it is a design parameter, and one that is far easier to accommodate when it is built in from the start than retrofitted later. The families who run into difficulty are the ones who assemble a conventional structure first and discover the incompatibility when the first financing or investment is proposed.
The two points of friction
Sharia-compatible structuring meets conventional European finance at two places: the way debt is treated, and the nature of the underlying investments. Interest-bearing debt, the default of European real estate and corporate finance, requires an alternative. And investments into sectors or instruments that are not permissible have to be screened out at the level of the holding rather than discovered afterwards. Both are solvable, and both are cheaper to solve in the structure than in the transaction.
The two points also arise at different moments. The screening question is asked every time the holding invests. The financing question is usually settled when the asset is acquired, and is then fixed for years by the contract and by the way title is held. A financier offering an Islamic facility is likely to start with the ownership layer, because its technique depends on being able to take, hold and pass back an interest in the asset, and the family will want the documents to describe a return it can accept.
Financing without conventional interest
The established Islamic finance techniques, in which return is generated through a share of profit, a lease, or a cost-plus sale rather than through interest, are well understood by the European institutions that offer them and entirely compatible with a Dutch holding. What matters is that the ownership layer is designed to hold the asset in the form these techniques require, since some of them involve the financier taking a real interest in the asset for a period. A holding built assuming a conventional mortgage may not accommodate a diminishing partnership without restructuring, and restructuring a live financing is expensive.
Three of the established techniques show why the ownership layer matters. In a cost-plus sale the financier typically buys the asset and sells it on to the client at an agreed mark-up, paid over time. In a lease the financier owns the asset and the client pays rent, often with an undertaking that ownership will pass at the end of the term. In a diminishing partnership the financier and the client co-own the asset, and the client pays rent for the financier’s share while buying that share out in instalments. Each of these typically moves ownership, or an interest in it, at least once, and in the Netherlands the transfer tax follows ownership of Dutch real estate and extends, on the terms of the transfer tax law, to other interests, among them rights to which such real estate is subject, economic ownership and certain shares in property-rich entities.
The principle is a parameter, not a problem. Designed in from the first day it is a drafting choice; discovered at the first transaction it costs a restructuring.
Transfer tax follows ownership
Dutch real estate transfer tax is levied under article 2 of the Wet op belastingen van rechtsverkeer on the acquisition of real estate located in the Netherlands, or of rights to which such real estate is subject. The same article treats the acquisition of economic ownership as an acquisition, and defines economic ownership as a set of rights and obligations that represents an interest in the property, an interest that comprises at least some risk of change in value and belongs to someone other than the owner or the holder of a limited right. For a structure using Islamic finance this matters twice. The financier’s acquisition of title is itself an acquisition within article 2, and any arrangement under which the client bears the change in value of an asset still titled to the financier has to be tested against that definition.
The general rate in article 14 of that law is 10.4 per cent in the version in force in 2026, and the article sets different rates for other cases, among them residential property. Where the same property is acquired again within six months of a previous acquisition by another person, article 13 gives relief by reference to that earlier acquisition, on the terms it sets out and with a power to set a different period temporarily by order in council where developments in the property market give cause. That relief can matter for a cost-plus sale completed quickly. A lease or a diminishing partnership that runs for years will usually end well outside that window. Each transfer to the client then has to be costed as an acquisition in its own right, and in a diminishing partnership that means each purchase of a further share in the asset, not only the last. Where the client has already acquired economic ownership and tax was due on that acquisition, article 9(4) reduces the value on which the later acquisition of legal title by the same person, or by that person’s successor under matrimonial property or inheritance law, is taxed by the amount on which tax was due the first time; where one of the rates listed in article 9(5) applied to the first acquisition, that paragraph reduces the tax itself instead, within the limits it sets. Both paragraphs also work in the reverse order, on the terms they set out.
Holding the asset through shares does not by itself take it outside the tax. Article 4 extends the charge, on the asset tests and holding thresholds it sets out, to the acquisition of shares in legal entities whose assets consist largely of real estate with a minimum proportion in the Netherlands, a mechanism covered in our note on transfer tax on share deals. A financier that takes its interest through shares in a property-holding BV rather than in the building itself therefore has to run the same analysis.
The tax analysis still has to work
A structure that is compatible with the family’s principles but ignores the tax position solves one problem and creates another. The return generated through a lease or a profit share still has to be characterized for Dutch and treaty purposes, the deductibility of payments still has to be established, and the participation exemption still governs how gains and distributions move up the chain, as we set out in our note on the participation exemption. The point is that these two requirements, compatibility and tax efficiency, are not in tension. A good structure satisfies both, and a structure that satisfies only one has not been finished.
Deductibility is where the label matters least. In the version in force in 2026, article 15b of the Wet op de vennootschapsbelasting 1969 disallows net interest on loans to the extent that it exceeds the greater of 24.5 per cent of adjusted profit or one million euros, and carries the disallowed amount forward, deductible in a later year to the extent that year’s net interest falls below the limit, although article 15ba, on the terms it sets out, stops amounts carried forward from before a significant change in the ultimate interest in the taxpayer being taken into account after that change. For that purpose a loan is a claim or debt arising from a loan agreement or a comparable agreement, and interest expense includes costs relating to loans. At EU level, the Anti-Tax Avoidance Directive, whose interest limitation rule in article 4 applies to exceeding borrowing costs, defines borrowing costs in article 2(1) to include amounts under alternative financing arrangements, such as Islamic finance. Whether a particular lease or sale is a comparable agreement depends on its terms, but a return is not outside the rule simply because it is not called interest, as our note on interest deduction limits in the Netherlands explains for the rule generally.
Governance and screening
Where the family intends the holding to make ongoing investments rather than to hold a single asset, the compatibility requirement becomes a governance question: who decides what is permissible, on what standard, and how is that decision recorded. Building a screening standard into the holding’s governance, and the capacity to apply it, means the structure can operate over years without each investment becoming a fresh debate. This connects to the wider governance design we cover in our note on how family offices use Dutch BVs and stichtingen.
Dutch company law gives the screening standard two places to live, and they are not equally strong. Article 2:177 of the Dutch Civil Code, Book 2 requires the articles of association of a BV to state its object, and a family can write a permissible-investment standard into that object. Article 2:7, however, makes an act that exceeds the object voidable where the counterparty knew or, without its own investigation, should have known that the object was exceeded, and reserves that ground to the company itself. An object clause shapes what the board may do; it is a weak instrument for undoing a transaction once made.
The stronger place is the internal decision process. Under article 2:239(3), board decisions can be made subject, by or pursuant to the articles, only to the approval of another body of the company. Under article 2:239(4), the articles may require the board to follow the instructions of another body of the company, and the board must do so unless those instructions conflict with the interests of the company and its business. Both routes run through a body of the company, such as the general meeting. A Sharia adviser can advise that body, or can be brought inside the company as a member of one of its bodies, in which case any approval right rests with that body and not with the adviser personally, but the articles cannot make board decisions subject to the approval of an adviser who remains outside it.
What a retrofit actually involves
The principle stated above is a cost statement, and the mechanics bear it out. If a holding was built for a conventional mortgage and the family later wants a diminishing partnership, the asset or the shares that carry it usually have to move: to the financier, into a new co-ownership, or into a new vehicle. Each movement of Dutch real estate, or of shares in an entity within article 4 of the transfer tax law, is potentially a new taxable acquisition. The issue of shares in a BV after incorporation, and their transfer by delivery, require a deed executed before a notary established in the Netherlands under article 2:196 of the Civil Code.
The existing lender adds a further layer. A conventional facility is normally secured on the asset and often on the shares, and that security will normally have to be released or replaced under the facility terms before anything moves. Together they are the difference between a clause in the founding documents and a transaction in its own right, which is why the ownership layer is best settled before the first financing is signed.
Substance remains the foundation
None of this displaces the requirement for genuine substance. A Sharia-compatible holding is still a holding, and a holding without resident directors, real decision-making and a genuine presence in the Netherlands is as fragile as any other paper structure. The requirements are the same as for any serious holding, set out in our note on Dutch substance requirements, and they are the foundation on which both the compatibility and the tax position rest.
The same facts are what a bank examines. Under article 3 of the Wwft, the Dutch anti-money laundering act, a bank’s customer due diligence must enable it, among other things, to identify the ultimate beneficial owner of the client and take reasonable measures to verify that person’s identity, to take reasonable measures to understand the ownership and control structure of a corporate client, and to monitor the relationship on an ongoing basis, examining the source of funds where necessary. A holding whose directors can explain its decisions and whose ownership chain is documented is easier to take through that review, and the register side of the ownership question is covered in our note on the Dutch UBO register for foreign shareholders.
Montclare runs a dedicated Middle East desk, structuring the corporate, tax and holding architecture for groups and families entering Europe through the Netherlands. Our services are set out on our services page.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.