Country - Belgium
Taxes
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A. AVAILABLE INVESTMENT STRUCTURES
Which legal structures are available for investment in real estate in Belgium?
Investors wishing to invest in Belgian real estate can choose between:
- direct acquisition of the real estate or the rights to it;
- indirect acquisition through the purchase of shares in a corporate vehicle (including investment in a REIT (SICAFI)) that owns, or has rights to, the real estate;
- construction of a new building in Belgium;
- investment in a long lease or similar, such as a real property certificate.
All of these can be carried out through direct acquisition from abroad, direct acquisition from abroad through a local permanent establishment or indirect acquisition through a local company.
B. TRANSFER TAXES, NOTARY FEES AND OTHER ACQUISITION COSTS
How is the purchase of a real estate asset taxed?
Asset deals:
Indirect taxes:
- Registration duties (Registratierecht/Droit d'enregistrement).
- VAT (Belasting over de Toegevoegde Waarde - BTW/Taxe sur la Valeur Ajoutée - TVA).
Share deals:
In principle, share deals are not subject to any indirect taxation, irrespective of the type of assets held by a company. However, certain anti-abuse rules may apply in extreme cases.
Transferring ownership (through a sale, exchange etc) and setting up, or selling, a usufruct relating to immovable goods located in Belgium is subject to a 12.5% registration duty (10% in the Flemish region). This is calculated on either the contractual price or the market value, whichever is higher. Under certain conditions, a reduced registration duty at a rate of 5% (8% in the Brussels region) applies to purchases by corporate entities or individuals whose business activities mainly consist of buying and selling real estate, for example, property traders.
The acquisition of real rights (rights in rem) can be considered as an alternative to purchasing. These are normally granted for a very long period (up to 99 years), and give extensive rights to the holder. If they are not subject to VAT, they are subject to registration duty at the rate of 0.2%, calculated on the total cost incurred by the tenant. In certain circumstances, however, the establishment of a long lease and building rights is deemed by the tax authorities to constitute a sale. In this case the 12.5% or 10% duty is payable on the market value of full ownership of the property.
A contribution in kind or in cash to the share capital of a Belgian company is, in principle, subject to registration duty, but this is normally 0%, except in the case of contributions by individuals of buildings allocated for private use, where the 12.5%/10% rate applies.
The transfer of an entire business undertaking is only subject to a lump sum tax of EUR 25 if the transferring company is registered in an EU member state and the transfer is made almost exclusively in exchange for shares.
The transfer of an entire business undertaking through a merger or division is treated in a similar way.
Following a recent Supreme Court case, a transaction in which the receiving company acquires the assets of its subsidiary, if it already owns 100% of the capital, is also considered to be a merger under the Belgian Registration Tax Code. A transaction of this kind, therefore, is no longer subject to the 12.5% or 10% real estate transfer tax.
See section E for the tax regime which applies to "new" buildings.
The Belgian VAT Code stipulates that the transfer of the assets of a business, or of an operating division of a business, relating to a merger, consolidation or other form of reorganisation, is not subject to VAT, provided the recipient is a VAT taxpayer. In this case, the recipient will be deemed to have assumed all the rights and liabilities of the transferor. However, the following conditions must be met:
- legal ownership of the property must be transferred through a sale, contribution or another transaction;
- the transfer must be made for a consideration or for free;
- both the transferor and the recipient must be VAT taxpayers;
- the transfer must relate to an entire business or to a separate operating division.
Do any specific rules for transfer taxes apply if the asset is a shopping centre or another asset used for retail activities?
No, unless the asset consists of an entire undertaking, or a separate operating division. However, it is not clear under Belgian law whether shopping centres or other assets used for retail activities qualify as separate operating divisions.
How is the purchase of shares in an SPV holding real estate taxed?
As mentioned above, the sale of shares in a company holding real estate is not normally treated as a sale of the real estate itself. No transfer tax is due on the sale of shares in a Belgian company.
Certain anti-abuse rules may apply in extreme cases. The sale of shares in a property company has been challenged by the Belgian tax authorities on the basis that the intention of the contracting parties was, in fact, to sell the property rather than the company.
The sale of shares in a SPV is not subject to VAT. Any VAT charged on costs incurred by the seller relating to a sale of shares is not VAT deductible.
Who normally pays the transfer taxes, the buyer or the seller?
Although both parties are jointly liable for registration duty, according to Belgian civil law, all costs relating to the notarial deed (such as transfer taxes) are payable by the buyer. The parties can, however, agree for the seller to pay any costs relating to the notarial deed instead.
Are notary fees determined by law or should they be negotiated?
Notaries' fees are determined by law and depend on the transfer value of the property. Rates range from 0.057% to 4.56%.
Are there any other costs related to the purchase of real estate assets or SPVs?
Costs include the fees of professional advisors.
In addition, a documentary duty is payable on the notarial deed relating to the purchase. This must be paid to the notary public before the deed is registered.
Lastly, indirect taxes are payable on loans secured by a mortgage as follows:
- 1% registration duty;
- 0.3% mortgage tax calculated on the basis of the guaranteed debt.
C. TAXATION OF RUNNING INCOME
How is income generated from the letting of real estate taxed in Belgium?
(a) Direct investment through a permanent establishment
If a foreign investor has a permanent establishment in Belgium, business profits generated by the permanent establishment are subject to Belgian non-resident corporation tax, at the rate of 33.99%. Lower tax rates apply in some cases. Furthermore, tax can be reduced by applying a tax deduction for risk capital (DRC) for the cost of equity funding.
Furthermore, for income tax purposes all property located in Belgium is allocated a deemed income based on an estimate of its normal net annual rental income. This deemed income is subject to immovable withholding tax (précompte immobilier/onroerende voorheffing) and is payable annually by the owner or possessor of, or beneficiary of any real rights to, the real estate.
The annual immovable withholding tax on real estate is charged at the rate of 1.25% (2.5% in the Flemish region) of the indexed deemed rental income, and is collected by the regional tax authority. Additional provincial and municipal taxes are also payable. These additional taxes are based on the immovable withholding tax itself and not the deemed rental income.
(b) Direct investment without a permanent establishment
If a foreign investor does not have a permanent establishment in Belgium, it will, in principle, still be taxed on the income from the sale or letting of Belgian property at the rate of 33.99%. Lower tax rates apply in some cases. A tax deduction for risk capital (DRC) can also be made.
The immovable withholding tax also applies.
(c) Indirect investment through a corporate entity (a non-transparent entity)
The income from letting Belgian property received by a corporate entity resident in Belgium for income tax purposes is subject to corporation tax at the rate of 33.99%. A tax deduction for risk capital (DRC) can also be made.
The immovable withholding tax also applies.
(d) Indirect investment through a partnership entity (a transparent entity)
Since a partnership is considered to be transparent for income tax purposes, any profits generated are deemed to be the profits of each individual partner.
Any income derived from letting property in Belgium is, therefore, taxed as above, depending on whether or not the real estate is regarded as a permanent establishment in relation to each partner.
The partnership will be liable for immovable withholding tax, if it has an independent legal personality, which means that it will be regarded as the property's owner, possessor, usufructuary, leaseholder or building rights holder.
How can income generated by investment be transferred to a foreign investor?
(a) Direct investment through a permanent establishment
Once the income has been subject to the relevant income tax, no further taxation applies to its transfer to a foreign investor.
(b) Direct investment without a permanent establishment
As above.
(c) Indirect investment through a corporate entity
Distribution of dividends to shareholders
The distribution of dividends is taxed at the level of the company, at a rate of 33.99% or lower.
Profits which have been subject to corporation tax can be distributed to shareholders with no additional corporation tax burden in the hands of the distributing entity.
As a general rule, dividends paid by Belgian companies are subject to a 25% withholding tax.
However, a 15% withholding tax rate applies to dividends on shares which were issued on or after 1 January 1994 in exchange for contributions of cash, and which, since then, have either been registered with the issuer or have been subject to an unsecured deposit with a bank, public credit institution or similar institution in Belgium.
Tax rates may be reduced under a double tax treaty if the dividends are paid to foreign companies, or, in some cases, under Belgian domestic legal provisions.
Under the EU Parent-Subsidiary Directive no withholding tax is payable on dividends paid by a Belgian company to another EU company, provided that the latter has held 15% of the shares in the former for an uninterrupted period of 12 months, preceding the date of distribution of the dividends.
The same exemption applies to any qualifying parent company outside the EU which has tax residence in a country with which Belgium has concluded a double tax treaty which contains an exchange of information clause.
Dividends paid by a Belgian company to Belgian resident individuals are subject to a withholding tax of 25%/15% (to be retained and paid by the company).
Taxation at the level of the shareholder
Income from shares in the hands of a Belgian entity holding a participation in a real estate company, is considered under certain conditions to be definitively taxed income ("DTI"). As such, 95% is deductible from the taxable income of the Belgian entity, provided its participation in the real estate company is at least 10% or EUR 1.2 million.
To qualify for the dividends-received deduction, the dividends must also relate to shares that have been held, or will be held, in full ownership for an uninterrupted period of at least one year. Exchanges of shares resulting from certain types of tax-neutral reorganisations do not breach this condition.
(d) Indirect investment through a partnership
If a foreign investor has invested through a Belgian partnership which is treated as transparent for income tax purposes, the business profits will already have been taxed, and so the partners will not be taxed again.
Are there local taxes on the possession of real estate assets?
There are a number of local taxes imposed by regions, provinces and communes which are linked either to the real estate itself or to its use. Examples include local taxes on the use of office space, parking spaces, billboards etc.
D. DEPRECIATION
What are the basic rules for the depreciation of real estate assets?
With the exception of land, most property-related assets are depreciable. The original acquisition cost is generally the basis for depreciation, and the depreciation rate is based on the normal useful life of the asset.
The Belgian tax authorities recommend depreciation rates as follows: standard straight line depreciation rates are 5% for industrial buildings, 3% for commercial and office buildings, and 20% for machinery and equipment.
No depreciation is permitted for the year an asset is disposed of.
Ancillary expenses incurred at the time of acquisition can only be depreciated in the same way as the asset to which they relate.
Can land be depreciated?
No. However, if the land has permanently reduced in value, a one-off write-down to fair value is possible. Ancillary expenses relating to the acquisition of land can be the subject of a write-down and may qualify as deductible expenses.
Can a participation in an SPV holding real estate be depreciated?
No. A participation can, however, be subject to a one-off write-down, provided that it has permanently reduced in value. These capital losses are not tax deductible, except where the company is wound up, and, even then, only up to the amount of the paid-up capital of the liquidated company.
E. VAT
Is the purchase of real estate assets subject to VAT?
New buildings can be subject to VAT. In this case, registration duties are not payable on the value of the building, but only on the value of the land. The VAT regime applies to the sale of, and the grant of real rights and financial leases to, new buildings if certain conditions are met.
A building is considered as "new" for VAT purposes until 31 December of the second year following the year in which the building is first used. Older buildings which have been substantially modified can also be classified as "new buildings" for VAT purposes.
A person selling or establishing real rights under the VAT regime will be classified as one of the following:
- A professional developer: professional developers are registered VAT taxpayers and their sales of new buildings, as well as associated property rights, are always subject to VAT.
- An occasional taxpayer: someone who has opted for a transaction to be subject to VAT and has communicated this to the other party and to the Belgian VAT authorities.
Someone selling a property, or rights to a property, classified as a new building is considered as a VAT taxable person and will therefore be entitled to claim back any VAT paid on related goods and services.
The buyer must pay VAT on the purchase of a "new" building if the seller is a professional developer or someone who has opted for the sale to be subject to VAT.
How can VAT paid on the purchase price be recovered?
The buyer is entitled to recover any VAT paid if the new building is used by him in the context of VAT taxable activities. If the buyer uses the building for personal use or for the supply of VAT exempt goods or services then the VAT is not deductible.
Immovable investments are subject to a VAT revision period of 15 years. If the VAT status of the building changes during this time, for example if its use changes from a VAT taxable activity into a VAT exempt activity, a proportion of the VAT initially reclaimed on the purchase or construction of the building may have to be repaid. The repayment is calculated according to the number of years remaining within the 15-year time limit.
VAT incurred on the acquisition of a new building can, in principle, be immediately reclaimed in full.
The VAT is recovered by offsetting input VAT against output VAT, or by means of a request for a VAT refund.
F. LEVERAGE, THIN CAPITALISATION RULES
If interest payments are to be tax deductible, is it necessary for the financing to be taken out simultaneously with the purchase of the asset?
No. However, the investor must prove that the interest paid qualifies as a tax deductible expense.
Are there rules which limit the deductibility of interest for third party (bank) financing?
Interest paid on a loan for the purpose of acquiring real estate is, in principle, fully deductible, provided that it does not exceed the market rate. The latter does not apply to loan agreements with financial and similar institutions which should be fully deductible.
Where the lender is located in a country considered to be a tax haven specific legislation applies.
Interest paid to lenders located in a tax haven is only tax deductible if the taxpayer can convince the tax authorities that the payments meet the following conditions:
- they genuinely serve an economic purpose;
- they do not exceed an arm's-length rate of interest.
If the payments do not meet these criteria, then the full amount of the interest payments will be disallowed, not just the element exceeding an arm's-length rate.
Are there thin capitalisation rules in Belgium and if so, how do they work?
There is no general debt to equity requirement.
If the loan exceeds the amount of the taxed reserves, plus seven times the paid-up capital of the Belgian company, interest payments made to foreign companies established in countries with considerably more favourable tax regimes are not deductible, to the extent that the loan exceeds this amount.
A second thin capitalisation rule applies where the interest from a loan granted to a company by a shareholder (private individual) or by a director (individual or company) exceeds the total amount of taxed reserves and paid-up capital.
Does Belgium apply any withholding taxes on interest paid to foreign financing banks or to foreign shareholders?
When paying interest to a lender, Belgian companies and the Belgian establishments of foreign companies must withhold 15% tax, although this may be reduced or waived by a double taxation treaty or domestic law.
A new exemption from withholding tax applies to the interest on loans granted by credit institutions. Belgian corporate bodies, as well as professional individuals, can now pay interest gross on loans granted by credit institutions established either in the European Economic Area, or in a country with which Belgium has a bilateral tax treaty. This is particularly relevant for UK and US financial institutions that want to extend loans to Belgian corporate borrowers.
G. TAXATION OF CAPITAL GAINS
How are capital gains deriving from the sale of real estate assets taxed in Belgium?
(a) Real estate assets held by foreign investors directly without a permanent establishment in Belgium
Capital gains on the sale of land, buildings or equipment, made by foreign investors without a permanent establishment in Belgium are subject to non-resident corporation tax at the normal 33.99% rate (or applicable lower rates). The taxable amount is calculated as the proceeds of the sale less the tax value (historical cost less tax deductible depreciation and/or write-offs, plus any taxed revaluation surplus).
A foreign investor will only be able to deduct costs incurred directly in connection with the sale of the real estate.
Capital gains on the sale of immovable property made by non-resident entities are subject to a withholding tax of 33.99% retained at source by the notary public. The withholding tax, therefore, only results in a pre-financing cost.
(b) Real estate assets held by foreign investors through a permanent establishment in Belgium
Capital gains on the sale of land, buildings or equipment, made by foreign investors with a permanent establishment in Belgium are subject to non-resident corporation tax at the normal 33.99% rate (or applicable lower rates). The taxable amount is calculated as the proceeds of the sale less the tax value.
A foreign investor can deduct costs incurred directly in connection with the sale of the real estate, as well as part of any costs incurred at its head office, which can be attributed to the permanent establishment.
Capital gains on immovable property made by non-resident entities are subject to a withholding tax of 33.99% retained at source by the notary public. The withholding tax, therefore, only results in a pre-financing cost.
How are capital gains deriving from the sale of shares/interests in a corporate entity taxed in Belgium?
In principle, capital gains on the sale of shares in a property company (with the exception of a SICAFI or Belgian REIT) are tax exempt in Belgium at the level of the shareholder. Unless the tax authorities allege that there have been speculative activities, capital gains made on shares by Belgian individuals that are not held for business purposes are tax exempt.
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