DIRECT HOLDING OF REAL ESTATE
This section discusses the most important tax implications of the direct holding of real estate. First, it discusses the impact on resident individuals and non-resident individuals. Thereafter, it discusses the impact for resident companies and non-resident companies.
Personal income tax
Under Belgian tax law, the tax treatment of rental income depends on the destination of the real estate: private habitation or professional purposes. Rental income received by individuals is subject to personal income tax.
If the real estate is rented to individuals who use the immovable property for private habitations purposes, personal income tax will be calculated based on the notional rental value (revenue cadastral – kadastraal inkomen), indexed and increased by 40%.
If the real estate is rented to persons who use the immovable property for professional purposes (i.e. individual enterprise or companies), personal income tax will be calculated based on the actual rental income (rent price and benefits) received, decreased with fixed costs up to 40% of the rental income.
If the real estate is rented out to persons who use the immovable property partly for private purposes and partly for professional purposes and in the registered lease agreement a split-up is made between the use (percentage private vs. professional) and the price, then the individual will be taxed on the actual rent for the part related to the professional use. There will also be a pro rata of the indexed notional rental value for the remaining part (related to the private use of the property), increased by 40%. In case no split-up is made in the lease agreement, or in case no registered lease agreement is in place, the individual will be taxed on the actual rental income received, decreased with fixed costs up to 40% (as if the home would be used for professional purposes only).
Deductibility of costs, interest and depreciation and linked 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. It should be noted though that these reductions are slowly being abolished.
Taxation and benefits linked to real estate can vary depending on the status of the individual.
Corporate income tax
Income derived from leased real estate is subject to corporate income tax at a rate of25% as of 1 January 2020. A tax rate of 20% may apply to the extent that certain conditions are met.
Deductibility of costs, interest and depreciation
The company’s income can be reduced by business expenses in connection with the real estate (e.g., interest expenses on loans, annual depreciations, repairs, maintenance, annual real estate tax, losses). As a general rule, regional taxes are non-deductible for tax purposes.
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%.
With respect to interest, Belgian tax law contains specific deduction limitation rules, including the so-called “thin capitalisation rules” under which interest expenses are not tax deductible to the extent that a 5/1 debt-to-equity ratio is exceeded (i.e., the total of the interest-bearing loan is higher than five times the sum of the taxable reserves at the beginning of the taxable period plus the paid-up capital at the end of the same taxable period). This rule applies in respect of interest payments made to (1) beneficial owners which are either not subject to income tax or that are subject to income tax on this interest income but under a considerably more advantageous regime than the Belgian common tax regime but also to intra-group loans (2) beneficial owners that are part of the same group.
Anti-tax avoidance directive
Since 1 January 2019, a new interest deduction limitation rule is applicable in Belgium and is the result of the implementation of the Article 4 of the Anti-Tax Avoidance Directive I (Council Directive (EU) 2016/1164 of 12 July 2016). According to the new limitation rule, the tax deductibility of exceeding borrowing costs is limited to the higher amount of €3.000.000 or 30% of the tax-adjusted EBITDA. The exceeding borrowing costs in relation with a loan concluded before 17 June 2016 and for which no fundamental modification was provided, are not affected by the new regime and are still subject to the Thin Cap rules, same as interest payments to tax havens.
Losses – carry back/forward
In principle, Belgian resident companies can carry forward (tax) losses to offset the taxable base of their future income without time limitation. Since 1 January 2018, deduction of losses carried forward is limited to an amount of €1 million plus 70% of the portion of income exceeding that €1 million. As a result, the remaining 30% constitutes a minimum taxable base.
Restrictions of the tax deduction of losses carried forward also apply to the extent that a change in control of the targeted company does not respond to the legitimate needs of a financial or economic nature.
For the period 1 January 2023 – 31 December 2023 (tax year 2024), the deduction of losses carried forward will be limited to €1 million plus 40% (the remaining 60% will constitute a minimum taxable basis). In principle, this measure will be applicable for a one-year period.
A foreign company that holds Belgian real estate is taxed on the net profit generated by that Belgian real estate. Income derived from the lease of 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 HOLDING OF REAL ESTATE
This section discusses the most important tax implications of the indirect (shares) holding of 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.
Personal income 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. Limitations can also apply based on double tax treaties.
Non-resident individuals are in general treated in the same manner as resident individuals. However, one should always be careful with the presence of specific rules within double tax treaties.
Corporate income tax
As a general rule, a Belgian resident company is liable to corporate income tax on its total worldwide income, including income derived from a shareholding.
Deductibility of costs, interest payments and depreciation
The company’s income can be reduced by business expenses in connection to the shareholding. Generally, shares are not depreciable. A write-off on shares is not tax-deductible.
Anti-tax avoidance directive
Since 1 January 2019, a new interest deduction limitation rule is applicable in Belgium and is the result of the implementation of Article 4 of the Anti-Tax Avoidance Directive I (Council Directive (EU) 2016/1164 of 12 July 2016).
According to the new limitation rule, the tax deductibility of exceeding borrowing costs is limited to the higher amount of €3.000.000 or 30% of the tax-adjusted EBITDA. The exceeding borrowing costs in relation with a loan concluded before 17 June 2016 and for which no fundamental modification was provided, are not affected by the new regime and are still subject to the Thin Cap rules, same as interest payments to tax havens.
Distribution of income and gains
Dividends paid to another Belgian company can benefit from the Belgian participation exemption regime provided that the following conditions are cumulatively met:
- Taxation condition: the dividend must have been subject to tax at the level of the distributing company;
- Holding condition: the shares have been held or will be held in the distributing company in full ownership during an uninterrupted period of at least one year;
- Participation condition: a minimum holding of 10% in the subsidiary’s capital or an acquisition value of €2,500,000.
To the extent that these conditions are met, dividends will be 100% tax-exempt in the hands of the beneficiary company.
Non-resident companies are treated in the same manner as resident companies to the extent that the shareholding has been assigned to the permanent establishment of the foreign company.