Yes. There are no restrictions in Belgium on foreign investors making direct investments in property, irrespective of its intended use.
Last modified 13 Jun 2024
Whether real estate in Belgium held by a foreign company constitutes a permanent establishment (vaste inrichting/établissement stable) or not is a pure tax question. In addition, the foreign investor can decide to set up a branch (bijkantoor/succursale”) in Belgium through which the real property will be held. The costs of setting up a branch amount to approximately EUR2,500. Recurring costs relating to corporate and accounting compliance include accounting fees for non-resident corporate income tax and (possibly) VAT compliance purposes. These annual costs amount to approximately EUR20,000.
A branch must be registered in Belgium. For the opening of a branch office in Belgium, the file of the foreign company must be filed with the competent Belgian Enterprise Court. This file must, amongst other things, include the deed of incorporation, the articles of association and the most recently closed annual accounts of the financial year of the foreign company. The legal representative(s) of the branch must also be registered. It takes about 10 days for the registration of the branch to be completed.
Last modified 13 Jun 2024
On 1 January 2020, the new Companies and Associations Code entered into force in Belgium. This new Code has thoroughly reformed company law in Belgium, which has led to the reduction of the number of possible legal forms for a company to four big categories:
The most common company forms in Belgium for holding real estate under the old law were the private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) and the public limited company (naamloze vennootschap). Both company types have been reformed as a result of the new legislation. The private company with limited liability was transformed into the private limited company. The public limited company kept its name.
The private limited company and the public limited company are still the most commonly used company forms for holding real estate, with the public limited company form being intended for larger companies.
The cooperative company form is now limited to real cooperative purposes in the sense of the ICA cooperative principles. Under the new law, this is interpreted strictly and the sanction is judicial dissolution if the conditions are not met. These conditions will often not be met in the case of holding real estate and therefore this form of company will only rarely be used for holding real estate, except when one wants to establish a social B-REIT (see below).
It is also legally possible to invest indirectly through a partnership, but there are no specific investment structures for this. Corporate vehicles are normally used.
Indirect investment is also possible through collective investment vehicles or through regulated real estate investment companies. The law of 12 May 2014, as last amended by the law of 28 April 2020, has created a separate vehicle for investing in real estate to be distinguished from a real estate investment fund, namely a regulated real estate investment company (B-REIT), ie a company incorporated for an unlimited period of time with the purpose of:
A B-REIT is either:
The real estate investment fund differs from a B-REIT as follows:
A new type of real estate investment fund was introduced by virtue of the Royal Decree of 9 November 2016: the specialized real estate investment fund or B-REIF (gespecialiseerd vastgoedbeleggingsfonds or GVBF/fonds d'investissement immobiliers spécialisé or FIIS). The B-REIF is meant to be an alternative to the existing types of real estate investment vehicles, and more in particular to the aforementioned B-REIT. The B-REIF has a limited duration of maximum 10 years. It may be extended by unanimous shareholders' decision for successive periods of maximum five years each.
Shares of a B-REIF can only be held by “eligible investors”. There are two types of eligible investors:
European long-term investment funds (“ELTIFs”) Introduced in 2015 by Regulation (EU) 2015/760, the European long-term investment funds (ELTIFs) are regulated alternative investment funds (AIFs) with a focus on private market investments. ELTIFs are the only type of funds dedicated to long-term investments that can be distributed on a cross border basis within the European Union to both professional and retail investors. The ELTIF regulation was recently amended[1] to enhance the attractiveness of ELTIFs as go-to vehicles for cross-border infrastructure, real-estate, and private equity financing from both retail and professional investors.
Real assets (being defined as assets that have an intrinsic value due to their substance and properties) fall within the scope of Eligible Investments in which an ELTIF may invest. Such real assets include immovable property, such as communication, environment, energy or transport infrastructure, social infrastructure, including retirement homes or hospitals, as well as infrastructure for education, health and welfare support or industrial facilities, installations, but also assets, including intellectual property, vessels, equipment, machinery, aircraft or rolling stock. Investments in commercial property, facilities or installations for education, counselling, research, development, including infrastructure and other assets that give rise to economic or social benefit, sports, or housing, including housing for senior residents or social housing, should also be deemed to be eligible investments in real assets due to the capacity of such assets to contribute to the objective of smart, sustainable and inclusive growth.
An ELTIF can be incorporated under any company form as exists in Belgium (ie (i) the private limited company (besloten vennootschap); (ii) the public limited company (naamloze vennootschap); (iii) the cooperative company (coöperatieve vennootschap); and partnership (maatschap) (which can take the form of a general partnership (vennootschap onder firma) or limited partnership (commanditaire vennootschap)).
1 Regulation (EU) 2023/606 amending Regulation (EU) 2015/760 as regards the requirements pertaining to the investment policies and operating conditions of European long-term investment funds and the scope of eligible investment assets, the portfolio composition and diversification requirements and the borrowing of cash and other fund rules which entered into force on 9 April 2023 and will start to apply on 10 January 2024.
Last modified 13 Jun 2024
As explained above, the new Belgian Companies and Associations Code entered into force on 1 January 2020. A number of company forms were abolished, such as the limited share partnership (commanditaire vennootschap op aandelen), and a number of company forms were (thoroughly) reformed, such as the public limited company and the private limited company.
The public limited company and the private limited company will continue to be the most commonly used company types for real estate companies.
The private limited company has become a more flexible company form in the new Belgian Companies and Associations Code. The most important change is that the private limited company no longer has a legal capital and that a minimum contribution is no longer required (see below). The closed nature of the company is maintained (ie there are legal restrictions on the transferability of shares in the law), but the law now also allows shareholders to abolish this limited transferability of the shares in the articles of association of the company.
The rules governing the public limited company were less thoroughly reformed and mainly streamlined. Public limited companies still have a legal capital and a minimum contribution and the shares are in principle freely transferable.
One of the most important changes in public limited companies was the introduction of different governance models, ie (i) the one-tier board model (consisting of a board of directors), (ii) the two-tier board model (consisting of a supervisory board and a management board) and (iii) the model where there is only one director (whether or not a natural or legal person) (see below for further elaboration).
Under the old law, a B-REIT could only be set up as a public limited company (Naamloze Vennootschap/Société anonyme) or as a limited partnership on shares (Commanditaire Vennootschap op Aandelen/Société en Commandite par Actions (Comm.VA./SCA)), with the exception of a 'social' B-REIT which needed to be set up as a co-operative partnership with limited liability serving a social purpose (coöperatieve vennootschap met beperkte aansprakelijkheid met sociaal oogmerk (CVBA)/société coopérative à responsabilité limitee avec but social (SCRL). However, as a result of the introduction of the new Belgian Companies and Associations Code, (i) the limited share partnership company form was abolished and (ii) the cooperative company form with limited liability was transformed to the cooperative company (Coöperatieve vennootschap/société coopérative, CV/SC).
The law on B-REITS has not yet been fully aligned with the new Belgian Companies and Associations Code. The Law of 28 April 2020 did, however, make it possible already for the B-REIT to take the form of a public limited company managed by a single director (see below for further elaboration), provided that this director is a public limited company itself with a collegial board of directors. This change has already been implemented to accommodate the B-REITS having the company form of the limited share partnerships (Commanditaire Vennootschap op Aandelen/Société en Commandite par Actions (Comm.VA./SCA)) under the old law. A typical feature of this old company form was the management structure (ie a single director-legal person). Since some of these B-REITS already wanted to amend their articles of association in the light of the new Belgian Companies and Associations Code, this amendment was also already entered into the law of 12 May 2014, as last amended by the law of 28 April 2020.
In addition, a public B-REIT must be listed on the stock exchange (Euronext Brussels). An ‘institutional’ B-REIT is an unlisted joint venture real estate investment fund set up by a public B-REIT, controlling the fund, on the one hand, and by one or more qualified institutional or professional investor(s), or natural persons (provided that the minimum subscription amount is provided for in a Royal Decree) on the other hand. A 'social' B-REIT does not need to be listed as well, set up by non-professional investor(s), complying with certain conditions, on the one hand, and by one or more qualified investor(s) on the other hand.
A B-REIF may be set up as a public limited company (SA/NV) or a partnership (SCS/Comm.V). The shares of such B-REIF do not need to be listed.
As mentioned above, neither the ELTIF Regulation nor Belgian law prescribe any specific corporate form for the incorporation of a Belgian ELTIF. Most commonly, alternative investment funds (AIFs) are structured as limited partnership (commanditaire vennootschap)). This type of company is characterised by the association of two types of partners: on the one hand the general partner(s), who assume(s) unlimited liability for the obligations of the partnership; and on the other hand, the limited partners, who’s liability is limited to their commitment. This company type allows for flexibility and a clear separation of liabilities between the fund manager (as general partner) and the investors (as limited partners).
Last modified 13 Jun 2024
For the private limited company there is no longer a minimum capital. The incorporators must ensure however that the company has a capital base that is sufficient in the light of the intended activity and also in view of the other sources of financing. When the company is being incorporated, they must therefore be able to present a financial plan showing the aforementioned.
Currently, still EUR61,500 fully paid up. Above the minimum each share must be paid in up to 25%.
EUR1,200,000 to be fully paid up at all times.
ELTIF Regulations does not prescribe minimum capital.
Last modified 13 Jun 2024
Approximately EUR5,000.
No capital duties apply to contributions in kind or in cash, unless an individual contributes property located in Belgium which can be used for residential purposes, in which case a 12.5% registration duty will apply (12% if the property is located in the Flemish Region).
There is no fixed cost: it depends on the costs related to the mandatory initial public offering and prospectus. Fees must be paid to the Financial Services and Markets Authority (FSMA) and stock exchange (Euronext Brussels).
No capital duties apply to contributions in kind or in cash, unless an individual contributes real estate located in Belgium which can be used for residential purposes, in which case a 12.5% registration duty will apply (12% if the real estate is located in the Flemish Region).
There is no fixed cost. Cost will depend on the complexity of the structure.
Last modified 13 Jun 2024
Approximately 10 days.
The process takes several months, depending on how long it takes to carry out the necessary filings with the Financial Services and Markets Authority (FSMA).
Last modified 13 Jun 2024
There can be one or more directors, which may or may not constitute a collegial board of directors. These may be appointed or dismissed by the shareholders. Unless the articles of incorporation provide otherwise, the company is represented officially by a single director acting individually.
By law, a statutory auditor need only be appointed if the company exceeds two of the following thresholds during two consecutive financial years:
An auditor must also be appointed if the company belongs to a group of companies that needs to publish consolidated accounts.
In addition, since the entry into force of the new Belgian Companies and Associations Code, the day-to-day management of a private limited company can also be transferred to one or more persons, each acting alone or jointly as a collegial management body, which was not possible under the old legislation.
The new Belgian Companies and Associations Code has introduced three governance models for public limited companies.
In this model, a public limited company is governed by a board of directors. The board of directors must have at least three directors, unless there are only two shareholders, in which case two directors will suffice. The board of directors normally represents the company but the articles of incorporation can provide for full representation by an individual director or by directors acting jointly. Day-to-day management can be delegated to one or more managing directors or general managers.
In a two-tier board model, the public limited company is managed by (i) a supervisory board consisting of directors on the one hand and (ii) a management board consisting of executives on the other hand.
The supervisory board is competent for the general policy and strategy of the company and the management board is competent for all powers that were not reserved to the supervisory board.
Both the supervisory board and the executive board are collegial bodies, each of which must consist of at least three members.
In addition, the articles of association of public limited liability companies may now also provide that public limited liability companies may be managed by a single director (whether or not a natural or legal person).
However, if the company is listed on the stock exchange or if a legal provision requires collegiate management, the sole director must be a public limited company with collegiate management.
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The same provisions relating to statutory auditors apply as mentioned in relation to private limited liability companies above.
Several requirements and restrictions apply, in addition to the requirements applicable to all listed companies. For instance, the board of directors of a public or social B-REIT must consist of at least three independent directors. However, if the B-REIT is a public limited company with one director, which must itself be a public limited company, the management of the director-legal person must consist of at least three independent directors.
In addition, for any acquisition or and disposal of real estate, the fund must be represented by two directors. By law, a statutory auditor (accredited with the FSMA) must be appointed. In general, each public B-REIT needs to organise an adequate internal control, of which the functioning needs to be reviewed annually. This 'adequate internal control' can be further specified by Royal Decree.
Furthermore, the remuneration of the directors and effective managers of the B-REIT may not be directly linked to the operations of the public B-REIT or its subsidiaries. Nevertheless, variable remuneration related to the consolidated net result (excluding fluctuations in the fair value of the assets and the financial instruments) is permissible.
As to remuneration, provisions and costs incumbent on the B-REIT, specific reporting requirements are to be observed.
Additional requirements apply in order to safeguard the independence of the real estate expert, who must value the assets of the B-REIT on a periodic and occasional basis. The remuneration of the expert may not be linked to the value of the real estate assets which he is to appraise. Furthermore, he may only be appointed for a term of three years (renewable) and can only be responsible for the valuation of any one real estate asset for a maximum of three years. Only after a cooling off period of three years following that, may the expert appraise that real estate asset again.
Only a European alternative investment fund manager (EU AIFM) as authorised under Article 4(1) of the Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD) can manage an ELTIF.
In Belgium, AIFMs need to be authorised by and are subject to supervision of the FSMA. A full description of the corporate governance rules applicable to (Belgian) AIFMs would exceed the scope of this contribution. Without being exhaustive, the shareholding and management of an AIFM shall be subject to approval by the FSMA. The AIFM has to appoint a depositary to safeguard the assets. Strict conflict of interest policies and remuneration policies will apply. An AIFM must have an initial capital of at least EUR125,000.
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A minimum of EUR2,000, as well as the cost of auditors: EUR10,000 to EUR20,000 (although this is only required when certain thresholds are exceeded).
A minimum of EUR2,500, as well as the cost of external auditors: EUR10–15,000.
There is no fixed cost: it depends on the size of the fund and the type of real estate invested in. The annual fee to be paid to the FSMA (Financial Services and Markets Authority) depends on the net assets of the fund.
There is no fixed cost.
Last modified 13 Jun 2024
Resident companies are subject to a standard corporate income tax rate of 25%. The first income band of EUR100,000 of small companies (see definition below) is subject to a lower rate of 20% (subject to certain conditions).
Regional tax is payable at the rate of 1.25% (in Brussels and Wallonia) or 3.97% (in Flanders) on the deemed rental income (or cadastral income) attributed to the property, plus additional local surcharges (which may increase this tax to around 30% to 50% of the cadastral income). Immovable withholding tax is tax deductible.
Taxation of the distribution of current income to investors
Withholding tax
A 30% withholding tax is due on the distribution of a dividend, irrespective of whether the shareholder is an individual or a corporate entity.
Under the EU Parent-Subsidiary Directive as implemented in Belgium, no withholding tax is payable on dividends paid by a Belgian company to another EU company, provided that:
This regime also applies to dividends paid by a Belgian company to a parent company resident in a country with which Belgium has signed a bilateral tax treaty or any other agreement which provides for the exchange of information between the two countries.
Where the minimum holding period of 12 months has not yet expired, the distributor of the dividends must provisionally retain the withholding tax theoretically due on the dividends and the beneficiary must sign a declaration that the participation will be held for at least 12 months. If the beneficiary does not comply with this declaration, the withholding tax must be paid to the tax authorities. If the declaration is complied with, the amount withheld can be paid to the shareholder.
The withholding tax rate may also be reduced under an applicable double taxation treaty if the dividends are paid to foreign companies that are resident of a treaty state, or also under domestic legal provisions in some cases. Domestic law also provides for reduced rates in specific circumstances (eg 15% on dividends distributed by B-REITs or B-REIFs that invest at least 80% of their real estate directly or indirectly in immovable property that is exclusively or mainly used or destined for residential care units adapted to healthcare).
Domestic law provides for reduced tax rates which may apply to the distribution to individuals of dividends (other than share buybacks or liquidation dividends) related to newly registered shares that were issued after 1 July 2013. These rates will apply provided that the following conditions are satisfied:
The reduced withholding tax rates will only apply to dividends paid out at the time of the profit distribution related to the second financial year following that of the contribution. Any such dividend distributions will be subject to a 20% withholding tax rate. Dividend distributions paid out at the time of the profit distribution related to the third or subsequent financial years following the financial year of the contribution, will be subject to a 15% withholding tax rate.
A company is 'small' if it stays below at least two of the following three thresholds during two consecutive financial years:
In the case of a group of affiliated companies (eg a holding company with operating subsidiaries), the above criteria need to be applied to the group as a whole. A parent company may opt to apply the 'simplified method', whereby the totals of annual turnover and balance sheet of all the related companies for assessment purposes are added up. The thresholds of annual turnover and total balance sheet are then increased by 20%.
Companies qualifying as small companies may set up a liquidation reserve in order to be able to distribute dividends at a reduced rate. This reserve can be formed through the attribution of (part of) the profits after tax as a liquidation reserve. This attribution is subject to a separately assessed tax of 10% at company level. If the liquidation reserve is distributed before the company is liquidated and within five years after the creation of the reserve, an additional withholding tax of 20% will be due (effectively bringing the total tax to 30%). If the distribution takes place after more than five years as from the creation of the reserve, a withholding tax of 5% will be due (effectively bringing the total tax to 15%). No withholding tax is due if the liquidation reserve is distributed upon liquidation of the company.
Income tax at the level of corporate shareholders resident for corporate income tax purposes
Corporate entities receiving dividends can normally benefit from the dividend-received deduction. As a result of this, 100% of the dividend received is exempt from corporation tax. Any excess dividend-received deduction in a given tax year (ie that could not be used in the year in which it arose due to a lack of net taxable income to offset it against) stemming from qualifying dividends received from an EU or EEA subsidiary (as defined in the Parent-Subsidiary Directive), can be carried forward indefinitely to future tax years. In practice, the Belgian tax administration also accepts that dividend-received deductions may be carried forward when they originate from qualifying dividends distributed by subsidiaries located in a third country with which Belgium has concluded a tax treaty which provides for an equal treatment provision for dividends.
The use of such carried-forward excess dividend-received deductions is limited in a given tax year to EUR1,000,000 plus 70% of the taxable basis in excess of EUR1,000,000. For income year 2023 (assessment year 2024), the 70% threshold was reduced to 40% to increase the minimal taxable basis to 60% instead of 30%. This measure was only of a temporary nature, as it was the intention to abolish this measure as soon as the global minimum tax rules (OECD Pillar Two) entered into force in Belgium. Hence, as of income year 2024, the threshold has again been increased to 70%. Carried forward excess dividend-received deductions that cannot be used due to this limitation may be further carried forward indefinitely.
Capital gains on the sale of real estate assets
Capital gains realized on the sale of a real estate asset held directly (buildings as well as land) are subject to normal corporation tax. A system of tax deferral may apply to the taxation of capital gains if the real estate has been held as a fixed asset for more than five years, provided that the proceeds are kept on a blocked reserve account and are entirely reinvested in depreciable intangible or tangible fixed assets that are used for business purposes in Belgium or in any other member state of the European Economic Area (EEA) within three or five years. Losses related to real estate can be offset against other income. Tax losses may be carried forward indefinitely, but their use in a given tax year is limited to EUR1,000,000 plus 70% of the taxable basis in excess of EUR1,000,000. For income year 2023 (assessment year 2024), the 70% threshold was reduced to 40% to increase the minimal taxable basis to 60% instead of 30%. This measure was only of a temporary nature, as it was the intention to abolish this measure as soon as the global minimum tax rules (OECD Pillar Two) entered into force in Belgium. Hence, as of income year 2024, the threshold has again been increased to 70%. Any carried forward tax losses that cannot be used due to this limitation may be further carried forward indefinitely.
Capital gains realised by non-resident companies on the sale of immovable property in Belgium are subject to a withholding tax retained at source by the notary public. Afterwards the companies may offset any relevant charges and losses carried forward against this income through their annual tax return. As such the withholding tax only constitutes in a pre-financing cost.
Capital gains on the sale of a participation in a BV/SRL
Unless there has been speculative activity, capital gains on the sale of shares realized by Belgian individuals that are not held for business purposes are tax-exempt. In the event of a speculative sale of shares that are not held for business purposes, a separate tax rate of 33% (plus a municipal surcharge) will apply to the capital gain.
Capital gains realized by Belgian individuals on the sale of shares held for business purposes are normally taxed at the general progressive income tax rates. A separate tax rate of 16.5% (plus a municipal surcharge) applies if the shares are held for more than five years. The minimum five-year holding period does not apply when the capital gains are realized in the context of the winding-up of a business or a branch of a business.
Capital gains realized by corporate shareholders on the sale of shares are exempt provided that:
If one (or more) of the three conditions are not fulfilled, the capital gains will be subject to corporation tax at the ordinary rate of 25% .
Corporation tax
In principle, there is no taxation of these entities' current income. They are subject to the standard corporation tax rate of 25% , but its taxable income only consists of specific items, such as received abnormal or gratuitous advantages and expenses that are not deductible (other than reductions in value or capital losses on shares). This usually means that its taxable base is limited.
An exit tax will become due, at the special corporation tax rate of currently 15% on the difference between the market value and the tax base of all assets when an existing ordinary taxed company is converted into a B-REIT or a B-REIF. The same special corporation tax rate applies to reorganizations involving a B-REIT or a B-REIF (unless only such entities are involved), including the contribution by an ordinary taxed company of a real estate asset into the share capital of such B-REIT or B-REIF.
Immovable withholding tax
Regional tax is payable at the rate of 1.25% (in Brussels and Wallonia) or 3.97% (in Flanders) on the deemed rental income (cadastral income) of the real estate, plus additional local surcharges (which may increase this tax to around 30% to 50% of the cadastral income). Immovable withholding tax is tax deductible.
Withholding tax
In principle, a 30% withholding tax will be due on the distribution of a dividend by a B-REIT or a B-REIF, irrespective of whether the shareholder is an individual or a corporate entity. A rate reduction may apply under a bilateral tax treaty.
Non-resident savers may benefit from an exemption of Belgian withholding tax on the dividends they receive from a B-REIT or a B-REIF, to the extent those dividends do not stem from Belgian real estate and dividend income.
Qualifying non-resident pension funds may in principle benefit from a general exemption from Belgian withholding tax on dividends received from a B-REIT or a B-REIF, irrespective of the source of income – Belgian or foreign – that is distributed.
Income tax at the level of a shareholder who is resident for income tax purposes
An individual shareholder of a B-REIT or a B-REIF who holds his shares as a private investment, can choose either to report or not to report the dividends in his personal income return. If the dividends are not reported in the personal income return, the withholding tax of 30% will be the final tax in the hands of the shareholder. Reporting the dividends in the personal income return may allow the shareholder, depending on the circumstances, to recover the withholding tax, in total or in part, and may thus result in a more beneficial taxation.
Corporate shareholders that are subject to the Belgian corporation tax will in principle be taxable on the dividends they receive from a B-REIT or a B-REIF. As a rule, such dividends are not eligible for the Belgian participation exemption regime. These will therefore be treated as ordinary income and will be included accordingly in the calculation of the corporation tax.
An exception to this rule applies for the categories of income listed below that are (re)distributed by a B-REIT or a B-REIF. To the extent and insofar dividends received from a B-REIT or a B-REIF encompass such income, these dividends benefit from the Belgian participation exemption regime and are therefore exempt from corporation tax in the hands of the shareholder:
Capital gains on the sale of real estate assets
There is no taxation of capital gains at the level of the B-REIT or the B-REIF, since capital gains are not part of the taxable income of the fund.
Capital gains on the sale of a participation in a B-REIT or a B-REIF
If the shareholder is a private individual, capital gains realized outside the scope of his business activities will, in principle, be exempt from income tax, unless the tax authorities can demonstrate that there has been speculation or that the sale of the participation is not consistent with the normal management of the taxpayer's estate.
In the hands of a corporate shareholder, the net capital gains realized on the shares of B-REIT or a B-REIF will be exempt from corporation tax to the same extent as that the dividends received from those shares would have been eligible for the participation exemption regime.
Corporation tax
In principle, there is no taxation of this entity's current income. It is subject to the standard corporation tax rate of 25%, but it’s taxable income only consists of specific items, such as received abnormal or gratuitous advantages and expenses that are not deductible (other than reductions in value or capital losses on shares). This usually means that it’s taxable base is limited.
Immovable withholding tax
Regional tax is payable at the rate of 1.25% (in Brussels and Wallonia) or 3.97% (in Flanders) on the deemed rental income (cadastral income) of the real estate, plus additional local surcharges (which may increase this tax to around 30% to 50% of the cadastral income). Immovable withholding tax is tax deductible.
Withholding tax
In principle, a 30% withholding tax will be due on the distribution of a dividend by an ELTIF, irrespective of whether the shareholder is an individual or a corporate entity. A rate reduction may apply under a bilateral tax treaty.
However, there are several domestic law exemptions that can be invoked by the ELTIF.
Income tax at the level of a corporate shareholder who is resident for income tax purposes
Dividends received on shares realized by a Belgian tax resident corporate investor are in principle subject to corporate income tax at the standard rate of 25%.
This type of investment income can however benefit from the ‘Dividend Received Deduction’, under which the income is fully exempt, provided that the following conditions are met:
The third condition is to be assessed at the level of the underlying investments (portfolio company, real estate asset etc) of the ELTIF. In other words, the dividends distributed by a Belgian ELTIF will be eligible for the Dividend Received Deduction at the level of the corporate investor, to the extent that income received by the ELTIF is derived from a company that is subject to the ordinary income tax regime in its jurisdiction.
The same transparency mechanism applies to foreign real estate income realized by an ELTIF. The real estate income distributed by a Belgian ELTIF will be eligible for the Dividend Received Deduction at the level of the Belgian corporate investors, provided that the real estate income realized by the Belgian ELTIF has been taxed abroad.
As a result, a breakdown between ‘good’ and ‘bad’ income (dividends, capital gains on shares and foreign real estate income) will have to be made, in order to determine the tax treatment of the dividend distributions by the Belgian ELTIF.
Income tax at the level of an individual shareholder who is resident for income tax purposes
An individual shareholder of an ELTIF who holds his shares as a private investment, can choose either to report or not to report the dividends in his personal income return. If the dividends are not reported in the personal income return, the withholding tax of 30% will be the final tax in the hands of the shareholder. Reporting the dividends in the personal income return may allow the shareholder, depending on the circumstances, to recover the withholding tax, in total or in part, and may thus result in a more beneficial taxation.
Corporate shareholders that are subject to the Belgian corporation tax will in principle be taxable on the dividends they receive from an ELTIF. As a rule, such dividends are not eligible for the Belgian participation exemption regime. These will therefore be treated as ordinary income and will be included accordingly in the calculation of the corporation tax.
However, the profit distribution by an ELTIF upon the redemption of its own shares and/or its (partial) liquidation will be exempt from Belgian withholding tax.
Capital gains on the sale of real estate assets
There is no taxation of capital gains at the level of the ELTIF, since capital gains are not part of the taxable income of the fund.
Capital gains on the sale of a participation in an ELTIF
If the shareholder is a private individual, capital gains realized outside the scope of his business activities will, in principle, be exempt from income tax, unless the tax authorities can demonstrate that there has been speculation or that the sale of the participation is not consistent with the normal management of the taxpayer's estate.
In the hands of a corporate shareholder, the net capital gains realized on the shares of an ELTIF will be exempt from corporation tax to the same extent as that the dividends received from those shares would have been eligible for the participation exemption regime.
Last modified 13 Jun 2024
Does the concept of a 'permanent establishment' apply when a foreign person invests in real estate and, if so, how much does it cost to set up such a permanent establishment, how long does it take and what corporate governance requirements apply?
Whether real estate in Belgium held by a foreign company constitutes a permanent establishment (vaste inrichting/établissement stable) or not is a pure tax question. In addition, the foreign investor can decide to set up a branch (bijkantoor/succursale”) in Belgium through which the real property will be held. The costs of setting up a branch amount to approximately EUR2,500. Recurring costs relating to corporate and accounting compliance include accounting fees for non-resident corporate income tax and (possibly) VAT compliance purposes. These annual costs amount to approximately EUR20,000.
A branch must be registered in Belgium. For the opening of a branch office in Belgium, the file of the foreign company must be filed with the competent Belgian Enterprise Court. This file must, amongst other things, include the deed of incorporation, the articles of association and the most recently closed annual accounts of the financial year of the foreign company. The legal representative(s) of the branch must also be registered. It takes about 10 days for the registration of the branch to be completed.
Last modified 13 Jun 2024