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DIRECT PURCHASE OF REAL ESTATE
This section discusses the most important tax implications of the direct purchase of the real estate. First, it discusses the impact for resident individuals and non-resident individuals. Thereafter, it discusses the impact for resident companies and non-resident companies.
Resident individuals
Transfer Taxes
The purchase of real estate located in Belgium is subject to registration duties at a rate depending on the region in which the real estate is located (12.5% Walloon and Brussels regions/12% Flemish region as a basic rate – large number of reduced rates can be applicable in specific situations provided that certain conditions are fulfilled.). Registration duties are calculated on the contractual transfer value of the real estate. However, the taxable basis cannot in any case be less than the market value of the properties transferred.
Value-added tax
As a rule, the purchase of real estate is exempt from VAT and subject to registrations duties.
However, if the real estate qualifies as “new” for VAT purposes (i.e. until 31 December of the second year following the year in which it was first occupied), The purchase of real estate (and the adjoining land) can be subject to 21% VAT (unless specific rates apply).
The resident individual, acquirer of the building, who is not a VAT-taxable person is, in principle, not entitled to deduct this input VAT (unless re-sale within 2 years with option to tax).
The resident individual, acquirer of the building, who qualifies as a VAT taxable person will be entitled to (partially) deduct the input VAT incurred over the acquisition, provided the real estate is used for an economic activity). However, this deduction is subject to an adjustment period of 15 years (or 25 years in case of immovable rent for which an option to tax was applied) in case of change of use.
However, if the acquirer only carries out VAT exempt activities with no right to deduct the input VAT, it will be unable to deduct the VAT on the construction or acquisition costs. The input VAT could still be deducted on a later stage, prorata temporis, if (part of) the VAT exempt activities initially performed turn into taxable activities.
Deductibility of costs
Income deductions are almost all abolished and replaced by tax reductions.
If certain conditions are met, mortgage interest, as well as capital amortisations and mortgage protection insurance premiums resulting from a mortgage loan, are deductible for personal income tax purposes or give rise to a tax reduction. These reductions are slowly being abolished and are no longer possible in many cases (especially in the Brussels Region and in the Flemish Region).
Non-resident individuals
Same rates are applicable for non-resident individuals who wish to buy a real estate in Belgium. Rules about the registration taxation are linked to the location of the real estate, whatever the nationality or the residency of the individual would be.
If certain conditions are met and depending on the status and the Belgian location of the individual, there is also the possibility to declare the mortgage loans (amortisations, interests and protection insurance premiums resulting from mortgage loans) related to a real estate in Belgium, provided that conditions are fulfilled to do so. As for the resident individuals, these reductions are slowly being abolished and are no longer possible in many cases (especially if the individual is living in the Brussels Region and in the Flemish Region).
Resident companies
Transfer Taxes
The purchase of Belgian real estate is subject to registration duties due by the purchaser. The acquisition price (or the market value if higher) will be taxed at a rate of 12% or 12.5% depending on the region in which the real estate is located (Walloon, Brussel or Flemish).
Note that registration duties are considered as part of acquisition costs for tax purposes. As a result, they are depreciated either together with the asset to which they relate to or can be deducted entirely in the year of acquisition, depending on the size of the company.
One should always be careful if the land is part of the total acquisition price value since land is not depreciable. As a result, the total acquisition value must be split between the part relating to the land and the part of related to the construction.
Value-added tax
As a rule, the purchase of real estate is exempt from VAT and subject to registrations duties.
However, if the real estate qualifies as “new” for VAT purposes (i.e. until 31 December of the second year following the year in which it was first occupied), The purchase of real estate (and the adjoining land) can be subject to 21% VAT (unless specific rates apply).
The resident company, acquirer of the building, who is not a VAT taxable person and as such is acting outside the VAT scope (for example a passive holding) is , in principle, not entitled to deduct this input VAT (unless re-sale of a new building within 2 years with option to tax).
The resident company who, on the other hand, qualifies as a VAT taxable person will be entitled to (partially) deduct the input VAT incurred over the acquisition, provided the real estate is used for an economic (VAT) activity However, this deduction remains subject to an adjustment period of 15 years (or 25 years in case of immovable rent for which an option to tax was applied) in case of change of use.
However, if the acquirer only carries out VAT exempt activities with no right to deduct the input VAT, the acquirer will be unable to deduct the VAT on the construction or acquisition costs. The input VAT could still be deducted on a later stage, prorata temporis, if (part of) the VAT exempt activities initially performed turn into taxable activities (the adjustment period of 15 years also applies).
Deductibility of costs
The company’s income can be reduced by ancillary costs in connection with the acquisition of real estate (e.g., registration duties, commissions, architect’s fees, notary’s fees).
The depreciation basis is calculated based on the acquisition value of the real estate.
The annual depreciation is calculated based upon the useful economic life of the real estate. The following standard straight-line depreciation rates are generally accepted by the Belgian tax authorities: office buildings 3% and industrial buildings 5%.
Business expenses related to the real estate are deductible for tax purposes (e.g., interests on loans, annual depreciations, repairs, maintenance, annual real estate tax, losses – note that the deduction of some costs could be limited, e.g. regarding interests paid). Generally, note that regional taxes are non-deductible for tax purposes.
Non-resident companies
For the purpose of the application of tax treaties, Belgian real estate held by a foreign company does not per se constitute a permanent establishment in Belgium. The presence of a Belgian permanent establishment should in principle be recognised under tax treaties if the non-resident company actively carries on business in Belgium. This must be analysed based on factual elements. Income derived from Belgian real estate is subject to non-resident corporate income tax regardless of the presence of a permanent establishment of that company in Belgium.
INDIRECT PURCHASE OF REAL ESTATE
This section discusses the most important tax implications of the indirect (shares) purchase of the real estate. First, it discusses the impact on resident individuals and non-resident individuals. Thereafter, is discusses the impact for resident companies and non-resident companies.
Resident individuals
Transfer taxes
As a general rule, no registration duty is due to the acquisition of shares in a company that owns real estate.
Under certain circumstances, the purchase of shares could be challenged by the Belgian tax authorities especially if the sole or main asset of the company whose shares are sold consists of real estate. As a result, the purchase of shares could be subject to registration duties for instance if the Belgian tax authorities can sustain that the actual intention of the parties was “obviously” to sell the real estate itself rather than the company holding the targeted asset.
Personal income tax
In general, capital gains on shares realized outside the exercise of a professional activity and as part of the normal management of private assets are not taxable.
In the other cases, if the capital gains on shares are used for a professional activity, they will be taxed as a professional income, at the same rate as the other income earned by the individual. On the other hand, if capital gains on shares are not used for a professional activity and are realized outside the normal management of private assets, they are subject to a specific tax rate of 33%.
When a private individual (and possibly his family) owns shares in a Belgian company and sells them, the realized capital gain is taxable if the buyer is a legal person established outside the European Economic Area (EEA) and if, at any time during the five years preceding the sale, those shares represented more than 25% of the rights in the company whose shares are being sold. The capital gain is then subject to the so-called "capital gains tax for the sale of a substantial interest". The tax rate is 16.5%, to be increased with the municipal tax.
Dividend withholding tax
Dividends distributed by a Belgian company to its shareholders are subject to the sole and definitive 30% dividend withholding tax (with an exemption of the first EUR 800,00 dividends). Note that specific withholding tax exemptions and/or reductions based on domestic law may apply provided that certain conditions are met. Limitations can also apply based on double tax treaties.
Dividends distributed by a foreign company to a Belgian resident are also subject to taxation at a rate of 30% (or in some cases, at a lower rate, provided that Belgium has right of taxation based on the double tax treaties) but after the deduction of the potential foreign taxes already paid on them. The taxation of 30% (or lower rate) applies thus on the so-called “net border income”. Specific rules apply if the dividend is from a French source (application of the lump-sum foreign tax – but intended to be abolished when the new double taxation treaty between Belgium and France will enter into force).
VAT
No VAT is due on the acquisition of shares.
Non-resident individuals
Non-resident individuals are usually treated in the same manner as resident individuals for capital gains on shares and for dividends distributed by a Belgian company.
In contrast, dividends distributed by a foreign company to a non-resident individual are not taxable in Belgium but in the country where the individual is a resident (if such a taxation exists). Non-resident individuals can however mention in the Belgian non-resident tax return (if they need to fill in such a tax return), the withholding taxes actually levied by the company allocating the dividend.
However, one should always be careful with the presence of specific rules within double tax treaties, and the status of the individual.
Resident companies
Transfer taxes
As a general rule, no registration duty is due to the acquisition of shares in a company that owns real estate.
Under certain circumstances, the purchase of shares could be challenged by the Belgian tax authorities especially if the sole or main asset of the company whose shares are sold consists of real estate. As a result, the purchase of shares could be subject to registration duties for instance if the Belgian tax authorities can sustain that the actual intention of the parties was “obviously” to sell the real estate itself rather than the company holding the targeted asset.
Corporate income tax
At the moment of the acquisition of shares, no specific tax consequences apply to the purchaser of the shares. However, tax consequences may apply at the level of the target company if the change of control of the targeted company does not respond to the legitimate needs of a financial or economic nature. In such a case, some tax deductions (e.g. carried forward losses, notional interest deduction, investment deduction) will be definitively lost.
Under certain circumstances, the purchase of shares could be challenged by the Belgian tax authorities especially if the sole or main asset of the company whose share is sold consists of real estate. As a result, the purchase of shares could be subject to registration duties for instance if the Belgian tax authorities can sustain that the actual intention of the parties was “obviously” to sell the real estate itself rather than the company holding the targeted asset.
Losses
For the seller of the shares, capital losses on shares are not deductible except where the company is wound up, but only up to the amount of the paid-up capital of the liquidated company.
Fiscal unity
Since 1 January 2019, a limited tax consolidation has been introduced in Belgium. In summary, a group entity continues to be treated as a single taxpayer with a mechanism of “group contribution” between companies which are a member of the group. The amount of group contribution is limited to the current-year tax losses. The scope of the tax consolidation regime is limited to the parent, subsidiaries or sister companies of the taxpayer.
Non-resident companies
Non-resident companies are treated in the same manner as resident companies. However, a non-resident company cannot opt for the group contribution.
