Tuesday, June 26, 2007

Dutch Tax Office rejects Islamic Mortgage structure

Dutch tax office rejects Halal-Mortgage structure

A Dutch Islamic bank, the Bilaa-Riba bank in the Dutch city Leiden has been working on a Mortgage construction in which the client would not pay interest. This is important for people that follow the Islam, since the Shariah forbids Riba (interest). Of course there are other methods for investment, many of which are allowed. The way this mortgage structure was supposed to be working is with a buyback system (called Murabaha). In this system, the bank buys the property from the seller, retains it for a couple of days, and then sells it to the buying party that would normally borrow money from the bank to be able to pay for the property.

Of course, this bank is no charitable organization, so in this construction, there is a way in which the bank gains income, which is not through interest, strictly speaking. The bank sells the property to the buyer for a higher price than for which it bought it a couple of days earlier. The buyers pays the debt in monthly installments, and in the end pays of the house in a way very similar to a normal mortgage, but without the involvement of interest.

This construction is being used in many countries with a Moslem population, especially in the Arabic countries.

The Dutch Islamic Bilaa-Riba bank wanted to offer Dutch Moslems the same possibility. However, this construction does not fit easily inside the Dutch tax law system. The former Dutch minister of finance, Mr. Zalm, already pointed out that he would not revise the laws to make Islamic banking possible, and that companies that want to set up such a structure should make sure that it can be done within the existing set of rules about tax on mortgages. The Bilaa-Riba bank tried to do so, but now it has been made public that the Dutch Tax Authority decided that the construction, as proposed now by the bank, is not allowed. Apparently, this decision was already taken in the beginning of this year, but news of this decision has not surfaced before.

The Dutch Islamic bank Bilaa-Riba is now studying other ways to bring its customers halal mortgages.



This Article is written by the author of this web, but is based on news sources in Dutch

By Trends For Now

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