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Acquiring Belgian Real Estate

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/10% Flemish region as a basic rate). Generally, registration duties are calculated on the contractual transfer value of the real estate or its market value, whichever is higher.  

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 ownership of the building (and the adjoining land) can be subject to 21% VAT (unless specific rates apply). The resident individual which 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 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 allowing input VAT deduction for a period of 15 years (or 25 years in case of immovable rent for which an option to tax was applied).

However, if the seller 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.

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. These reductions are slowly being abolished and are no longer possible in many cases.

Non-resident individuals

Taxation and benefits linked to real estate can vary depending on the status of the individual.

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 10% 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 ownership of the building (and the adjoining land) can be subject to 21% VAT (unless specific rates apply).

The resident individual which 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 company 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 allowing input VAT deduction for a period of 15 years (or 25 years in case of immovable rent for which an option to tax was applied).

However, if the seller only carries out VAT exempt activities without any right to deduct input VAT, it will be unable to deduct the VAT on the construction or acquisition costs.

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 which are not used for a professional activity are not taxable unless speculation can be invoked by the Belgian tax authorities. 

Under Belgian tax law, speculative capital gains are subject to a specific tax rate of 33%.

When a private individual (and possibly his family) owns shares in a Belgian company representing more than 25% of the capital, the realized capital gain is taxable if the buyer is a legal person established outside the European Economic Area (EEA). 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. Note that specific withholding tax exemptions and/or reductions based on domestic law may apply provided that certain conditions are met. 

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. However, one should always be careful with the presence of specific rules within double tax treaties. 

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.

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