Back to EU Member states Belgium Contents 1.Introduction – why buy real estate? 2.Contact details 3.Forms of property ownership 4.Taxes and other costs on property acquisitions 5.Issues during Ownership 6.Disposal of property 7.Non resident owners of property 8.Sundry issues

Back to EU Member states 1. Introduction - Belgium Acquiring real estate is often seen as a solid investment as the value fluctuations are fairly limited compared to movable property (especially shares) Moreover, Belgium provides for a fairly beneficial taxation regime for physical persons on residential real estate. First of all, taxation on effective rental income is avoided and secondly future capital gains are generally exempt. For companies and professional users, real estate is not regarded any different from other business assets. However, real estate leases may offer tax planning opportunities. Belgian real estate taxation is however becoming increasingly complicated due to the fact that the 3 regions (i.e. Brussels, Flanders and the Walloon Region, have acquired increasing taxation power Only the income tax (strictu sensu) and VAT have remained federal taxes. Registration duties and the property tax are now regulated by the different regions. As a result thereof, tax rates, tax reliefs, … vary across the country. Specifically for the property tax, it is important to note that also the provinces and communities are allowed to place important surcharges. It follows that the effective real estate tax burden can vary substantially across the country. Specific and detailed advice has become inevitable.

Back to EU Member states 2. Contact Details Edwin Vervoort Tax Partner VGD Accountants en Belastingconsulenten Schaliënstraat 5 Bus Antwerpen Tel.: + 32 (0) Direct: + 32 (0) Fax: + 32 (0) Filip Viaene VGD Accountants en Belastingconsulenten Kortrijksestraat Kuurne Tel + 32 (056) Direct + 32 (056) Fax +32 (056)

Back to EU Member states 3. Form of property ownership Besides full ownership, Belgian civil law (applicable to the 3 regions) provides for a number of “partial ownerships”. The most common are: - usufruct or “vruchtgebruik” being the legal right to use and derive benefit from a property that belongs to another person - long lease or “erfpacht”, implying full ownership over the land and the buildings for a limited period of time - building and planting right or “opstalrecht”, allowing to build on someone elses land and becoming full owner of the building for a limited period of time The last 2 “partial ownerships” are governed by civil law principles that are older than the Belgian State itself. Nevertheless, they have remain popular as they are often used within the framework of a real estate leasing for industrial premises, offices, storage spaces, etc. Real estate leasing works in exactly the same way as movables leasing. Upon instruction of the company, a leasing company will buy an existing building or construct a new one. The lessor hereby takes out a long-term lease on the building in question (usually 15 to 20 years). At the end of the lease, the lessor can acquire ownership of the building by exercising the purchase option. Real estate leasing offers a number of advantages, amongst others the 100% financing, transfer option of the contract, no collateral demanded … For new buildings (cfr. point 4 hereafter), the lease can be subject to VAT. For existing buildings, a 0,2% registration duty will be applicable on the cumulative lease payments. Depending on whether or not the periodically payments allow to reconstruct the initial investment capital with interest (the so-called full pay out), the lease can be an on or off balance operation.

Back to EU Member states 4. Taxes and other costs on property acquisition Registration tax is generally applicable to sales or exchanges of Belgian real estate. Since registration tax is a regional tax, the rates vary. In Flanders, the rate is generally 10% whereas in Brussels and the Wallon Region a 12,5% rate applies. Houses with a limited notional rental value can be acquired at a reduced rate of 5% in Flanders or 6% in the other regions provided certain conditions are met. “New” buildings can be sold under 21% VAT, and thus with exemption of registration tax provided certain formalities are met. A building is considered as “new” for VAT until December 31 of the second year following the [year of occupation] of putting into use. Up until now, VAT could only apply to buildings but never to land itself. The sale of land always remained taxable with registration duties. Recently, the EU has ordered Belgium to alter its legislation. Belgium will be obliged to allow that soil which is sold together with a “new” building is sold under VAT (and thus with exemption of registration tax). So far, it is uncertain how the federal state and the regions will alter their legislation. It is equally unclear whether they will impose 21% VAT or a reduced rate. Mortgages on Belgian real estate trigger a 1% registration tax. In Flanders, a draft bill is pending to abolish this 1% tax as of January 1, So far, Brussels and the Walloon Region will not abolish the 1% right. Apart from registration tax and/or VAT, also notary fees will become due. These fees depend on the transaction amount involved and on the file costs implemented by the public notary.

Back to EU Member states 5. Issues during ownership Property tax All the real estate is listed in the national land registry and an annual net rental income is assigned to it, the so-called cadastral income. This value corresponds to the deemed net rental income of the property and is yearly “indexed” to adjust for today’s prices. The cadastral income is revised if the characteristics of the property change (i.e. extension, rebuild,...). The property tax is equal to a percentage of the aforementioned indexed cadastral income. To calculate it, you need to know the regional tax rate plus the provincial and community additions, as there is is no harmonization at the federal level. The quality of the [owner] landlord (i.e. physical person or company) is irrelevant in determining the amount of property tax. The property tax can form a deductible expense for income tax purposes for a company or a professional user, but it is not to be considered an advance payment, withholding tax or alike.

Back to EU Member states 5. Issues during ownership….(cont’d Income tax – physical persons The own family home is in principle fully tax exempt. Moreover, anyone deciding to take the plunge and acquire a property can benefit from a substantial tax cut. Since 2005, the law permits a new overall deduction of interest, capital redemption and life insurance premiums paid by the taxpayer who buys, builds or converts his own and only home. When the owner does not rent out a property (other than his own family home), he is charged on the basis of his cadastral income multiplied by an coefficient (1,40). In case the owner of a property rents out his property to a person that uses it for professional purposes or to a company, the owner will be taxed on the effective rental income. If the hirer does not use the property for professional purposes, the owner is taxed like in the first situation. Certain cost deductions are allowed, but these fall outside the scope of this text. Income tax – companies Companies are always taxable on the effectively received rental income minus the proven costs, regardless of the capacity of the tenant (i.e. professional use or not, company or physical person).

Back to EU Member states 6. Disposal of property Physical persons If the real estate was a professionally used asset, any capital gain will be considered as taxable profit under the ordinary progressive tax rates. Capital gains realized on the disposal of other real estate (being part of ones private patrimonium), are in principle tax exempt. However, when a building is sold off within 5 years after the date of acquisition, the capital gain will be taxed at a flat rate of 16,5%. When land is sold off within 5 years after the date of acquisition, the capital gain is taxed at 33%. If the land is sold off between the fifth and eight year after acquisition, the rate is reduced to 16,5%. The calculation of the taxable capital gain is specifically described in the income tax code. For specific cases, please contact one of the persons mentioned before. Companies Companies are always taxable on the realised capital gain (i.e. sales price minus net book value). There is no separate taxation rate provided for (it is possible to spread out the payment of capital gain tax in case of reinvestment of the selling price). Realised capital losses on the sale of real estate are tax deductible (assuming that the transaction prices were set at arm’s length).

Back to EU Member states 7. Non resident owners of property a withholding tax on the sales proceeds of real estate is due in case of non- resident sellers. To the extent the foreign owner has no permanent establishment or permanent basis in Belgium, the withholding tax is liberatory. In case the Belgian real estate was part of a Belgian permanent establishment of permanent basis, the withholding tax will be settled with the overall tax due in Belgium. for non-resident physical persons, the real estate tax can be liberatory if they do not obtain other taxable income in Belgium and to the extent a certain threshold is not exceeded. Belgian law contains no limitations on the acquisition or sale of real estate for foreign companies or foreign physical persons. There are however a few tax regulations that specifically apply to non-residents, the most important being:

Back to EU Member states 8. Sundry issues Like registration tax and property tax, environmental legislation also rests with the regions. In Flanders for instance, it is impossible to sell off real estate without obtaining a soil certificate. Such a soil certificate normally indicates that the government has no indication of soil contamination. Under certain circumstances however, a soil investigation will be imposed and/or soil decontamination will need to be processed before the real estate can be sold off. In the Walloon region, no such stringent legislation applies. Nevertheless, taking into account the overall trend in western Europe, it is likely that at some moment in time, the Walloon region will implement similar legislation. In 2004 a regional Walloon decree was launched, but it has not (yet?) entered into force. Apart form environmental legislation, also building regulations are fairly stringent. All new building activity and nearly all adaptation works to an existing building need a formal permit. If not, the building site can be sealed and, next to paying fines, the landlord may be forced to restore the building into its original state. For advice about these specific regulations, public notaries and architect agencies may be an important source of information, next to your accounting firm.