Real Estate Quarterly
28 October 2016
Real Estate Quarterly
We produce a quarterly newsletter to keep you updated on legal developments and important trends in the real estate sector. In this issue, we address the following topics:
Real Estate Investment and Taxation B-REITs: modifications enacted and to come VAT taxation of services connected with immovable property at the place where the property is located New regulation
Real Estate Management Operating permits : publication of the new Flemish Decree on commercial establishments New Flemish Decree on tourist accommodation Cohousing: a relatively recent phenomenon on the Belgian real estate market Commercial lease reform in Flanders Update
Real Estate Development New CoDT formally approved by the Walloon Parliament ... and new reform of the CoBAT also quickly approaching
We hope this will be useful to you.
Real Estate Investment and Taxation
B-REITs: modifications enacted and to come
Many changes have been decided and announced that will positively impact the B-REITs (socits immobilires rglementes SIR / gereglementeerde vastgoedvennootschappen GVV) in the coming months, by enlarging their investment possibilities and improving their tax status. These changes are summarised below, as well as their current status.
Tax status: "exit tax", tax transparency and withholding taxes
In a nutshell, the transfer of a real estate asset into the estate of a B-REIT is subject to the "exit tax", being the taxation of the latent gain at half of the statutory corporate income tax rate.
With respect to this "exit tax", the following changes have been enacted by the Program Law II of 3 August 2016, with entry-into-force on 1 July 2016.
Conversion of a regular company into a B-REIT: although the existence of a deemed dividend for the shareholder is disputable, the law now provides that there is no withholding tax on such deemed dividend in order to avoid any discussion in this respect.
Merger, de-merger (or assimilated) of a regular company (in)to a B-REIT: the tax neutrality is the rule in case all participants to the operation are B-REITs (or the new real estate institutional funds). This type of restructuring between B-REITs (or the new real estate institutional funds) can now be performed without adverse tax consequences for the shareholders.
Contribution of a line of business or universality: this operation, defined by reference to the Income Tax Code, is now (clearly) defined as an event of "exit tax".
Contribution of a real estate asset: the contribution of a real estate asset to the share capital of a B-REIT is now subject to the exit tax in the hands of the contributor and not anymore to the ordinary tax regime.
When the latent gain upon contribution is subject to the exit tax, it is not possible anymore for the contributor to apply the roll-over tax regime.
In the hands of the Belgian corporate shareholders of B-REIT, the Program Law II of 3 August 2016 provides for a (full) tax transparency regime in the sense that the interposition of a B-REIT cannot lead to an increase of taxation. Dividends distributed by B-REIT to these Belgian corporate shareholders remain excluded from the participation exemption except in case of redistribution of:
real estate income deriving from foreign real estate assets located in EEA or in a treaty country (with an exchange of information clause) subject to this income being subject to tax without enjoying a derogatory tax regime; and
dividends and capital gain that would have qualified for the participation exemption in case of direct holding.
This exception is subject to an appropriate break-down of the income at stake. This change applies to dividends attributed as from 1 July 2016. Please note that this tax transparency is also granted to similar foreign companies.
In terms of withholding taxes, it is envisaged to exempt from withholding tax the dividends distributed by a B-REIT deriving from foreign-source income, without any condition of taxation of this income. The Royal Decree in this respect is not yet published. A draft bill also provides for a reduced withholding tax rate of 15% on dividends distributed by B-REIT investing for at least 60% in real estate dedicated solely or mainly to healthcare, located in the EEA.
This draft bill has been deposited at the Parliament and must still be approved before year-end, and the concept of "healthcare" should be further defined by Royal Decree.
that these revaluation surplus would have been allocated to the shareholders and then contributed into the share capital of the ex-B-REIT).
Loss of tax status
A (institutional) B-REIT must draw its financial statements in accordance with IFRS and enjoys a (nearly) tax exempt status. This regulatory and tax status can however be lost as a result of a (voluntary) de-listing or a sale. The B-REIT then return to a status of regular company, subject to corporate income tax and obliged to draw-up its financial statements in BGAAP.
That being said, it does not give much information about the accounting and tax consequences of this loss of B-REIT status. A recent ruling, which has to be largely approved in our view, has clarified these consequences.
One can however regret that this ruling refers to a "revaluation surplus" (that is to be considered a taxed reserve) and does not rule about the tax value of the underlying real estate asset.
Let's take the following example:
Former B-GAAP value Fair value upon conversion to B-REIT Fair value upon loss of B-REIT status
500 1,000 1,200
In our view, the taxed reserve (available reserve) amounts to 500 (1,000 500) and the revaluation surplus (unavailable reserve) amounts to 200 (1,200 1,000).
With respect to the results of the year concerned, they will be On the asset-side, the real estate asset is recorded for 1,200
subject to the B-REIT tax regime until loss of the regime and as material fixed asset under BGAAP and depreciated on this
to the ordinary corporate income tax as from this date.
amount subject to valuation rules decided by the board. The
depreciation taken on 1,000 should be tax deductible while the
The share capital of the B-REIT, in the sense of the corporate depreciation taken on the 200 is not.
law legislation, shall be considered fiscal capital for the
purposes of corporate income tax and withholding tax.
Investing in joint venture
The retained earnings, not yet distributed, of the B-REIT, built-up under the B-REIT status, shall be considered taxed reserves for the purposes of corporate income tax and withholding tax; these retained earnings have indeed been subject to their own tax regime.
The revaluation surplus corresponding to the latent gain that has been subject to the exit tax, shall be considered a taxed reserve for the purposes of corporate income tax and withholding tax; this revaluation surplus has indeed been subject to its own tax regime.
What is not clearly mentioned in this ruling ? The return to the status of regular company should not be considered as a liquidation for tax purposes. Indirectly, the Ruling Commission confirmed this position by assimilating the revaluation surplus to taxed reserve and not to fiscal capital (as a result of a fiction
The possibilities for a B-REIT to invest in joint venture is restricted since the B-REIT is obliged to control, exclusively or jointly, the joint venture company. Moreover,
in a case of exclusive control, the fair value of the minority interest cannot exceed 30% of the B-REIT's consolidated net assets, and the B-REIT must hold, directly or indirectly, at least 50% of the issued capital of the subsidiary concerned;
in a case of joint control, the fair value of the participations or of the assets (depending on the consolidation method applied) cannot represent more than 20% of the B-REIT's consolidated assets, and the B-REIT must control, directly or indirectly (in this case, only one intermediary exclusively controlled holding is allowed), at least 50% of the issued capital of the subsidiary concerned; and
the articles of association (or other relevant document) of a jointly controlled subsidiary must provide for put and call options in favour of the B-REIT, allowing it either to sell its participation or to buy the other shareholder(s)'s participation in case of deadlock situation, with the sale/purchase price being determined by experts.
Finally, the institutional B-REIT status is available only to companies controlled exclusively or jointly by a B-REIT.
Investing in infrastructure
The list of the activities of the B-REIT should be extended to the execution, as the case maybe indirectly and/or in a joint venture, with a public partner, of DBF agreements (at the exclusion of promotion tenders in the sense of the public procurement legislation), DB(F)M agreements, DBF(M)O agreements or agreements for the concession of public works. These agreements must relate to buildings or infrastructures for which:
The government intends to ease these regulations.
The institutional B-REIT status should in the future be available to companies whose share capital is owned for at least 25%, directly or indirectly, by a B-REIT.
The B-REIT should also be able to invest in regular real estate companies provided it owns, directly or indirectly, at least 25% of the share capital.
The fair value of the participations held by the B-REIT in companies it does not exclusively or jointly control, or it does not own directly or indirectly 50% of the share capital, should not represent more than 50% of the B-REIT's consolidated assets.
With respect to investments in infrastructure (see below), the B-REIT should be allowed to take initially a participation of less than 25% in the share capital of the company concerned, provided that this percentage is increased within a given period of time and after the construction phase, in order to comply with the aforementioned requirements for investing in joint venture.
The entry-into-force is expected on 1 January 2017.
the B-REIT is liable for the putting at disposal and maintaining or operating, for a public entity or the citizen as final user, in order to answer a social need or to provide for a public service; and
the B-REIT can assume, in whole or in part, the financing risk, the availability risk, the demand risk or the operation risk, and the construction risk.
The B-REIT should also be allowed to take care, in the long term, of the development, establishment, management and operation, as the case maybe in joint venture and through sub-contracting, of:
installations and warehouses for the production, transport, distribution or stocking of energy in the broad sense;
installations for the transport, distribution, stocking and purification of water; and
incinerators and waste installations.
The risk diversification requirement and limit of 20% of the B-REIT's assets should also be eased when the tenant, user or beneficiary of such infrastructure is a EEA Member State.
The entry-into-force is expected on 1 January 2017.
VAT taxation of services connected with immovable property at the place where the property is located New regulation
Entry into force of a VAT Regulation as of 1 January 2017 and guidance of the European Commission
The European VAT Directive states, as a specific localization rule, that the place of supply of services connected with immovable property shall be where the immovable property is located. Except in the case where the reverse charge mechanism applies, when a party supplies such services, the supplier will be liable for the payment of the VAT due to the tax authorities of the Member State where the immovable property is located. Consequently, the supplier normally will have to register for VAT purposes and fulfil all related obligations in that Member State.
The Council Implementing Regulation N1042/2013, which defines the concepts of "immovable property", will become effective in all Member States on 1 January 2017. The regulation contains a list of services which are "sufficiently connected" with an immovable property, and a list of services which are excluded from the scope of the localization rule. The regulation also details specific scenarios (e.g. the provision of legal services referring to immovable property, the provision of package services comprising stand location at fairs and exhibitions).
The European Commission has published a guidance regarding the Regulation, that provides clarifications on the application and scope of this specific localization rule, and especially on the question which services fall within the scope or not. Most of the clarifications have already been implemented in Belgium.
Concept of "services connected with immovable property"
To be considered as connected with immovable property, a service must have a sufficiently direct connection with the immovable property to which it relates. Therefore, the guidance of the European Commission first provides clarification on the concept "immovable property". Furthermore, the guidance helps to determine whether a service will be considered having a sufficiently direct connection with the immovable property.
For example, the VAT Implementing Regulation states that should be considered as connected with immovable property "the drawing up of plans for a building or parts of a building designated for a particular plot of land regardless of whether or not the building is erected". In this respect, the guidance clarifies that when the drawing-up of plans are not followed up by construction works and no building is erected, these services should be considered as connected with immovable property provided that they were supplied with respect to a clearly identified location.
Since each individual case cannot be envisaged, different situations and circumstances may occur in practice which are not examined by the VAT Implementing Regulation and the guidance. Therefore, some particular cases still may give rise to doubts. The guidance however helps to assess the criteria allowing to determine whether a service is connected or not with immovable property.
Moreover, the European Commission insists on the fact that the explanatory notes are not legally binding and that they do not prevent national Tax Authorities from adopting their national guidance.
Real Estate Management
Operating permits : publication of the new Flemish Decree on commercial establishments
Sophie Van Berkel
The main principles set out by the Decree have already been outlined in our previous Quarterly. The provisions related to operating permits are integrated in the new "omgevingsvergunning" regulation and a new environmental
permit for retail activities will now be required.
The Flemish Region has finally adopted its new regulation on
commercial establishments, which aims to replace the federal
Whereas a large part of the Decree entered into force on the date
provisions related to operating permits contained in the Ikea
of its publication, the provisions related to operating permits will
law. The Flemish Decree on general regulation of commercial
enter into force on 1 January 2018.
establishments has been adopted on 15 July 2016 by the Flemish
Parliament. It has been published in the Belgian Official Gazette
on 29 July 2016.
New Flemish Decree on tourist accommodation
As a consequence, also intermediary networks such as Airbnb or rental agencies are envisaged by the Decree;
o In this context, it must be highlighted that
article 11 of the Decree provides that intermediaries who
On 27 January 2016, the Flemish Parliament adopted a new
mediate in or promote tourist accommodation located in
Flemish Decree on tourist accommodation, which was published
the Flemish Region can be obliged to share their data
in the Belgian Official Gazette on 8 March 2016 (the Decree).
regarding the operators for whom they act and the tourist
accommodation that they offer with agents of the local
The Decree intends to simplify the actual rules on tourist
and Federal police. The agents can use these data to
accommodation (i.e., the Decree dated 10 July 2008) and to adapt
verify whether or not the operators respect the provisions
them to new types of tourist accommodation such as glamping
of the Decree;
(i.e., luxury camping) or online networks through which people
can list or rent short-term lodging in residential properties.
the Decree expressly provides that all tourist accommodation
The main principles set out by the Decree can be summarised as
must be in a sufficiently good and well-kept condition ("voldoende staat van properheid en onderhoud") and comply
with the fire safety standards and operational conditions to be
set out by the Flemish Government;
the scope of the applicable rules is extended: the Decree
does not only apply to operators of tourist accommodation,
all operators of tourist accommodation (or their agents) must
but also to intermediaries who mediate in or promote tourist accommodation or provide services by means of which
notify "Toerisme Vlaanderen" (i.e., an internal independent agency ("intern verzelfstandigd agentschap") with legal
operators and tourists can come into contact with each other.
personality, incorporated by virtue of the Decree dated 19
March 2004) about their intention to offer tourist
accommodation. There is no ex ante control whether or not the operators comply with the provisions of the Decree;
operators of tourist accommodation are no longer obliged, but still have the opportunity, to apply for recognition. Recognition will be granted if the tourist accommodation complies with all the fire safety and other standards set out by the Decree. Operators of recognised tourist accommodation can subsequently apply for a "comfort
classification" ("comfortclassificatie"). Such "comfort classification" will be granted if the tourist accommodation complies with the so-called "comfort classification norms" ("comfortclassificatienormen") to be set out by the Flemish government.
The Decree has not yet entered into force. It is however expected that the entry into force will take place at the beginning of 2017.
Cohousing: a relatively recent phenomenon on the Belgian real estate market
Cohousing is a type of collaborative housing that includes private homes and shared spaces. It is characterised by private dwellings with their own kitchen, living and dining room, bedroom, etc., but also many common facilities such as a garden, a children's playroom, a guest room, a laundry room, etc. Residents own (i) individual dwellings in which they have their private residence as well as (ii) a share in the land and the common facilities. Unlike students, residents of cohousing projects intend to live together for a more considerable period of time.
Cohousing emerged in Denmark more than 50 years ago. The concept emanated to other countries such as (North) America, England, Canada, etc. and has been growing in popularity ever since. In Belgium, we see that real estate companies are increasingly active in cohousing projects.
Cohousing has many advantages.
not otherwise be able to afford. But also for the society in general, cohousing has many benefits. It stimulates social cohesion and maximises the limited available space for private accommodation.
Nevertheless, Belgian real estate law still does not contain any legal definition of the term "cohousing" nowadays. Let alone there is any special legal regime. Consequently, cohousing projects are currently structured on the basis of Belgian lease law and/or Belgian rules on co-ownership.
These rules are however not adapted to (all types of) cohousing and contain many mandatory provisions from which the parties cannot derogate. Moreover, article 4.2.1, 7 of the Flemish Urban Planning Code ("Vlaamse codex ruimtelijke ordening/Code flamand de l'amnagement du territoire") provides that buildings may not be divided into multiple private dwellings without obtaining the necessary building permit(s). An exception is made for dwellings which are intended to take care of elderly or dependent persons ("zorgwonen/appartement supervis") as defined in article 4.1.1, 18 of the Flemish Urban Planning Code. In such case, the creation of an additional private dwelling in a building does not require any building permit(s), but is only subject to mandatory reporting.
For the residents themselves, it offers great opportunities for socialisation and there is a lot of social control. Additionally, cohousing entails important responsibilities and has the economic advantage of sharing resources with other community members. Sharing tasks and chores such as cooking, laundry and driving can offer savings in both time and money. Residents can share items (e.g., domestic appliances) as well as divide the cost of expensive facilities like swimming pools or a large garden that they might
The Flemish Coalition Agreement 2014-2019 explicitly refers to new concepts of living, such as cohabitation or cohousing. It is the first time that the Flemish Coalition Agreement refers to such types of alternative housing since it was only made competent for commercial lease, residential lease and agricultural lease matters pursuant to the special law of 6 January 2014 regarding the 6th State Reform.
On 15 October 2015, the Flemish Parliament adopted a resolution in which it requested the Flemish Government to facilitate new patterns of living by, among others, (i) defining the term "cohousing" and other types of property sharing, (ii) modernising all statutory rules which may prevent or restrict property sharing, (iii) mapping all problems which may arise at the different levels of government in the context of property sharing, etc.
On 18 July 2016, the Flemish Minister for Local and Provincial Government, Civic Orientation, Housing, Equal Opportunities
and Poverty Reduction presented her concept note regarding the (composition of and developments on the) private rental market in Flanders. The concept note emphasises the legal competences of the Flemish Region to adopt new regulations regarding cohousing.
However, since the concept note does not further elaborate on any future cohousing legislative initiatives, it remains to be seen whether the Flemish Region will actually make use of its competences and will create a new legal framework on cohousing.
Commercial lease reform in Flanders - Update
In March and April 2016, two concept notes regarding the reform of the Commercial Lease Act were introduced in the Flemish Parliament by some of its members. As explained in our Quarterly dated 1 July 2016, the concept notes aim to modify various provisions of the Commercial Lease Act, which are often experienced as too strict or unclear.
On 20 September 2016, various stakeholders were granted a hearing about the planned commercial lease reform by the Commission for Economics, Work, Social Economy, Innovation and Research Policy in the Flemish Parliament, such as Comeos (i.e. an organisation which represents commerce and services in Belgium), the Association of the Real Estate Sector ("Beroepsvereniging van de Vastgoedsector/Union Profesionnelle
du Secteur Immobilier"), the Confederation of the Real Estate Professions Flanders ("Confederatie Immobilinberoepen Vlaanderen") and the Retail Forum Belgium (i.e. a discussion forum for retailers). Generally speaking, the stakeholders requested the Commission to elaborate a clear, uniform, less formalistic and legally secure legislative framework, which is coherent with the regulations in the other Regions and avoids unfair competition.
On 6 October 2016, a second hearing took place with representatives of the following organisations: Unizo (i.e. the Organisation for the Self-Employed and SMEs), the Organisation for United Owners ("Verenigde Eigenaars"; "Propritaires Runis") and the Belgian Luxembourg Council of Shopping Centers. On 20 October 2016, various lawyers/legal experts have been heard as well.
Real Estate Development
New CoDT formally approved by the Walloon Parliament
Sophie Van Berkel
Ongoing for several years, the reform of the Walloon legislation related to zoning and planning has just taken a decisive turn. Indeed, on 20 July 2016, the Walloon Parliament formally approved the text of the new decree, containing the said "Code de Dveloppement Territorial", abbreviated CoDT, and aiming to replace the provisions currently embodied in the CWATUP.
The execution decrees are being negotiated since September, without being in final form yet, but information sessions intended for Walloon officials and sector professionals are already organised since October. The entry-into-force of the new Walloon legislative framework should take place in spring 2017. In the meantime, the CWATUP remains fully applicable.
a placard for 3 weeks and to notify by mail all owners and occupiers of properties built within a radius of 50 m. Henceforth, if the project impacts the sole neighbours, notification by mail is no longer required.
In this context, land use plan review processes will be faster and better supervised. Accelerated procedures are created for reasons of effectiveness, but also to counter urban sprawl.
The possibility to rely on joint procedures has been introduced, aiming to shorten the processes.
The content of zoning permits requests has been simplified. Indeed, because of burdensome procedures, the number of applications had drastically decreased. Permits exemptions are widened as well.
What are the main modifications ?
The prior planning declaration (dclaration urbanistique pralable), required for minor adjustments, has been
The procedures related to mandatory terms have been
cancelled, its usefulness being strongly debated.
reviewed in order to ensure applicants a decision to be
rendered within a controlled timeframe.
The content of the schemes has been revised to transform
them into efficient guidance tools, ensuring more flexible
New tools aiming to facilitate the rehabilitation of
procedures and legal certainty of decisions.
brownfield sites have been provided.
A multi-municipal development scheme has been created,
Adjustments have been made to ensure the articulation
aiming to foster synergies between the municipalities and
of the new text with the existing regulations (Walloon
leaving them the opportunity to carry out projects together.
Heritage Code - Code wallon du patrimoine, Decree on
municipal roadways - Dcret sur les voiries communales,
Two new areas have been included in the regional land use
Decree on environmental permits - Dcret relatif au permis
plan: the municipal key issue area (zone d'enjeu communal)
d'environnement), in order to avoid administrative blocking of
and the regional key issue area (zone d'enjeu rgional). The
latter replaces the regional key issue perimeter (primtre
d'enjeu rgional). This modification aims to increase the legal
A simplified public inquiry has been created. According
certainty of the investments made in these areas.
to the current procedure, the permit applicant has to place
... and new reform of the CoBAT also quickly approaching
Sophie Van Berkel
As announced in the regional policy statement of 2014, the Brussels government is willing to reform of its Town Planning Act (Code Bruxellois de l'Amnagement du Territoire Brussels Wetboek van Ruimtelijke Ordening), in short CoBAT - BWRO, in order to achieve ambitious objectives in terms of zoning and planning.
The different types of permits and investigation procedures have been clarified and reorganised. Impact studies have been simplified and shortened. A new type of permit has been created : the management permit, aiming to authorise acts and works with a certain recurrence.
A procedure of joint deposit has been put in place for both building and environmental permit applications.
The new reform is based on two main principles: simplification and rationalisation of the applicable rules. You find below an overview of the key developments that the Brussels government proposes to adopt.
The "master plan" (schma directeur richtschema) is a tool used by the Brussels Government to provide a preliminary overview to other development plans and to define an operational framework for actions. It has been directly integrated into the CoBAT - BWRO and certain of its provisions might henceforth be made mandatory.
The drafting procedure of the zoning plans and local land use plans (Plans Particuliers d'Affectation du Sol Bijzonder Bestemmingsplan) as well as their contents have been simplified and made more flexible.
The terms in which the authorities are required to render their decision to deliver or not the requested permits become binding strict deadlines.
The provisions related to infringements and planning information have been modified as well, in order to meet the difficulties encountered in practice.
A draft ordinance was adopted by the Brussels government on 17 December 2015 at first reading, and more recently, on 30 June 2016, at second reading. The text was sent for opinion to the State Council, expected imminently. The final approval by the Brussels Parliament of the text of the new reform is expected before the end of 2016 and should enter into force in spring 2017.
Christophe Laurent - Partner T +32 2 743 43 05 E email@example.com
Sophie Van Berkel - Professional Support Lawyer T +32 2 773 23 41 E firstname.lastname@example.org
Ariane Brohez - Counsel T +32 2 743 43 21 E email@example.com
Contributors to this issue
Lien Bellinck - Associate T +32 2 773 23 36 E firstname.lastname@example.org
Hlne Bourleau - Associate T +32 2 773 23 83 E email@example.com
Although this publication has been compiled with great care, Loyens & Loeff CVBA/SCRL and all other entities, partnerships, persons and practices trading under the name "Loyens & Loeff", cannot accept any liability for the consequences of making use of this issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice.