Following the agreement reached by Belgium’s federal government on the 2024 Budget on 9 October 2023 (see our Tax Alert dated 12 October 2023) further details have become available with respect to the proposed measures relevant to the real estate sector, including: the introduction of a minimum five-year holding period for Belgian real estate investment funds (BE-REIFs); the nondeductibility of subscription tax; an increase in registration duties for long lease and building rights; and the removal of the reduced 6% VAT rate on demolition and reconstruction for real estate developers.
This alert provides a recap of those key measures, highlighting relevant subsequent clarifications and updates, together with details of a new provision to end the so-called “tax-on-tax effect” for BE-REIFs and Belgian regulated real estate investment trusts (BE-REITs).
It should be noted that this article has been prepared on the basis of the preliminary information available in relation to the budget agreement and it is possible that there may be amendments to the proposed measures.
Minimum five-year holding period for BE-REIFs
When an existing real estate company enters into the BE-REIF regime, a 15% exit tax is levied on latent capital gains and tax free reserves.
As from 1 January 2024, a minimum five-year “standstill” period would be introduced in relation to BE-REIFs (gespecialiseerde vastgoedbeleggingsfondsen (GVBF)/fonds d'investissement immobiliers spécialisés (FIIS)) implying that entities entering into the BE-REIF regime would be required to remain in the regime for a minimum period of five years.
The same five-year standstill period would apply to ownership of shares obtained in a BE-REIF in return for the contribution of real estate into the BE-REIF. The standstill period would apply to all the shares obtained in exchange for the contribution, which would have to be held for an uninterrupted period of five years as from the date the shares were acquired.
If the five-year standstill period is not satisfied, an additional 10% corporate income tax (CIT) would be imposed, increasing the initial exit tax rate to 25%.
Update: Based on the information currently available, it is our understanding that the additional 10% CIT would also apply to mergers or (partial) demergers into a BE-REIF. However, in this case, it would be sufficient for the BE-REIF to retain its status for five years as from the date of inclusion in the BE-REIF list, to avoid the additional (de)merger tax; it does not seem to be necessary for the BE-REIF to exist for another five years after the (de)merger.
Update: The rule would only apply to BE-REIF regime exits or transfers of shares into a BE-REIF following a contribution as from 1 January 2024 and not to earlier BE-REIF conversions or contributions if it would appear, as from 1 January 2024, that the five-year standstill period would not be respected. It seems that the rule would not apply to BE-REITs.
End of “tax-on-tax effect” for BE-REIFs and BE-REITs as from financial year 2024
Companies such as BE-REIFs and BE-REITs (gereglementeerde vastgoedvennootschappen (GVV)/sociétés immobilières réglementées (SIR)) are, in principle, only subject to tax on the total of disallowed items (excluding capital losses, write-offs on shares, and exceeding borrowing costs under the 30% of EBITDA interest limitation rule) and on benefits received other than at arm’s length.
CIT and provisions for CIT qualify as disallowed items that in principle, are included in the taxable base of a BE-REIF or BE-REIT, giving rise to the “tax-on-tax effect.”
The tax-on-tax issue led to a long-standing debate questioning whether CIT should be included in the taxable base of a BE-REIT or BE-REIF. Following court cases in 2016 (Belgian Constitutional Court) and 2019 (Supreme Court), the debate ended and CIT has subsequently been considered part of the taxable base of a BE-REIT or BE-REIF (see our Tax Alert of 11 October 2019).
New provisions: As part of the proposed 2024 budget measures, the government intends to mitigate the tax-on-tax effect, i.e., CIT would no longer have to be included in the taxable base of a BE-REIT or BE-REIF.
This provision would apply as from tax year 2025, in relation to financial years starting on or after 1 January 2024.
Nondeductibility of subscription tax
Investment vehicles such as BE-REITs and BE-REIFs are subject to an annual subscription tax in Belgium imposed on net assets placed in Belgium at a rate of 0.0925% and 0.01%, respectively.
As part of the Federal Budget 2023 measures, the Program Law of 26 December 2022 provided that 80% of the subscription tax due as from 1 January 2023 would be nondeductible (see our Tax Alert of 14 October 2022). Under the 2024 budget agreement, subscription taxes due as from 1 January 2024 would be fully nondeductible.
This provision would apply as from tax year 2025, in relation to financial years starting on or after 1 January 2024.
Update: Nondeductibility of the subscription tax would no longer lead to a tax-on-tax effect (see “End of “tax-on-tax effect” issue for BE-REIFs and BE-REITs as from financial year 2024,” above).
Increase in registration duties for long lease and building rights
Currently the standard registration duties in relation to the granting or transfer of long lease rights (erfpacht/emphytéose) and building rights (recht van opstal/droit de superficie) amount to 2% on the aggregate value of the (periodical) remuneration and charges.
The budget agreement proposes to increase this rate to 5%. No changes are anticipated with regard to the registration duties applicable to “normal” rental agreements (generally 0.2%).
No further details regarding the entry into force of this measure are currently available, although it is expected to apply to deeds notarised on or after 1 January 2024. The 2% rate is expected to remain available for deeds notarised prior to 1 January 2024, even if the deed is subject to condition precedent(s) to be fulfilled after 1 January 2024.
Reduced 6% VAT rate on demolition and reconstruction no longer available to real estate developers as from 1 January 2024
As already announced, the existing VAT arrangements for demolition and reconstruction would be significantly restricted as from 1 January 2024.
The temporary 6% rate for the sale of dwellings would not be extended and would end on 31 December 2023, so that the sale of rebuilt dwellings as from 1 January 2024 would be subject to VAT at the standard rate.
Update: The draft explanatory memorandum shared with Deloitte Belgium contains some unexpected provisions. It states that the reconstruction should follow the demolition within a “reasonable time” to maintain the link between the demolition and reconstruction so that it constitutes one project. This requirement is not included in the current legislation nor in the draft legislation and the reason for the additional condition is unclear.
With reference to the “Wet Breyne” (the legislation regulating the sale of housing “off-plan” in Belgium), the memorandum also states that advanced billing would not be possible and therefore specific measures to bill works not yet carried out are not considered as useful. The current legislation includes a specific rule that advance billing of up to 25% is allowed. It is unclear and open to debate whether any advanced billing, even below 25%, would be considered as prohibited under the proposed new rules.
Key contacts
Astrid Peeters
Astrid is a Partner in the Tax advisory team. She has more than 12 years of experience working in the field of corporate international tax, M&A and Real Estate Tax. She has extensive experience in advising Belgian and multinational clients on tax matters in the context of M&A and Real Estate transactions. Astrid combines her tax and legal background with relevant real estate industry experience.
Danny Stas
Danny is head of the tax advisory practice. He is a tax lawyer specialised in VAT, in particular with respect to real estate and financial transactions, as well as eco taxes and contributions. As partner in the firm, Danny focuses on VAT consulting for Belgian clients in the private and public sectors and the broad corporate market at national and international level. In the real estate industry, Danny focuses on VAT consulting for clients in the private (e.g. real estate developers, REITs, hospitals, senior housing, etc.) and public sectors and the broad corporate market at national and international level. Besides the specific VAT topics (e.g. reduced VAT rates, VAT exemptions), he has also good knowledge of alternative financing of real estate and transfer duties. Danny is a recommended lawyer in the Chambers Europe and Legal 500 directories.
