How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?
The taxes relating to income derived from real estate located in Belgium are as follows:
Immovable withholding tax on real estate amounts to 1.25% (in Brussels or Wallonia) or 3.97% (in Flanders) of the deemed rental income (revenu cadastral/kadastraal inkomen) attributed to the property, as indexed on 1 January of the relevant tax assessment year.
Additional provincial and municipal surcharges are levied on top of the (regional) immovable withholding tax, which may increase the effective tax rate to around 30% to 50% of the cadastral income, depending on the province and municipality where the real estate is located.
Belgian immovable withholding tax is not refundable and cannot be credited against corporate tax. However, it is fully deductible from a company’s taxable income.
For companies using or exploiting real estate, taxable income is determined on the basis of the accounting profit or loss realized.
The taxable income can be reduced by deducting the expenses associated with the real estate, such as the depreciation of buildings (depreciation of land is not possible), repairs, maintenance, renovation and similar costs, and interest on loans taken out to finance the acquisition of the real estate (with some limitations). In certain cases the company is also entitled to a deduction of an extra depreciation in the year of acquisition of a new building (investment tax deduction)
Corporate income tax, advance payments and withholding tax on income included in the tax base, are not deductible. This is also the case with interest on late payments, fines and any associated prosecution expenses.
Generally, taxes, fees and public service charges payable to the regions, as well as surcharges, penalties and other similar charges, are not deductible, but immovable withholding tax, registration duties on the transfer of the real estate and mortgage duties are tax deductible.
Capital gains from the sale of property (buildings as well as land) are subject to normal corporation tax. However, a system of deferred and spread taxation applies where the property sold was held for at least 5 years and the proceeds are entirely reinvested within three to five years in depreciable intangible or tangible fixed assets used for business purposes in Belgium or in any other member state of the European Economic Area (EEA). 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 €1 million plus 40% of the taxable basis in excess of €1 million. Any carried-forward tax losses that cannot be used due to this limitation may be further carried forward indefinitely.
Resident companies are subject to a standard corporate income tax rate of 25%. The first income band of €100,000 of small companies is subject to a lower rate of 20% (subject to certain conditions).
