Structuring the investment
A very common structure to invest in real property is a direct purchase (asset deal). Many transactions, however, are conducted through company acquisition (share deal) because of, among others, tax considerations. Split sale was another commonly used structure in real estate transactions prior to the introduction of the anti-abuse tax provision introduced in Belgium by the Law of 29 March 2012.
A share deal (sale of shares of a company owning real estate) remains a common way to structure the investment. As a rule, except in cases of simulation (for instance, if the property is contributed to a new company after agreement has been reached on the object of the sale), no registration tax is due on the sale of shares. A share deal may produce a substantial saving on transfer tax for the purchaser, as the transfer tax due in the case of an asset deal is usually borne by the purchaser.
From a direct tax point of view, a transferred company continues to depreciate the real estate during the remaining depreciation period on the remaining depreciation basis because the property is not considered to have changed hands. A taxable capital gain is usually realised when the real estate is subsequently sold. The capital gain is equal to the difference between the sale price and the tax value of the real estate on the company's books, meaning the historical cost less depreciation (the sale price is usually higher than the tax value of the real estate on the books); hence, the parties usually take into account the tax latency for the valuation of the shares. The burden of said tax latency is usually shared between seller and buyer.
Corporate income tax is levied in Belgium at a rate of 29.58 per cent for the tax years 2019 and 2020, and 25 per cent as from tax year 2021. The tax on capital gains on fixed assets held for at least five years can be deferred subject to reinvestment of the full proceeds of the sale price in depreciable assets. The tax is then recovered over the duration of the new depreciation.
As of 2018, the use of certain tax assets, such as tax losses carried forward, is limited for any taxable year to €1 million plus 70 per cent of the taxable income above €1 million, leading to a 'minimum' taxation of the remaining 30 per cent. In any case, tax losses can be carried forward indefinitely; however, tax losses are barred in the case of a change of control that is not justified by legitimate financial or economic needs. An advance ruling can be applied for with respect to the existence of legitimate financial or economic needs. The ruling commission, however, often considers that a change of control of a real estate company is not justified by legitimate financial or economic needs; hence, carried-forward tax losses are generally not taken into account for the calculation of the sale price of the shares.
As stated above, split sales structures are no longer an option for many investors; however, the granting of a 99-year emphyteotic right (long-term lease) can still be considered and is subject to a transfer tax of 2 per cent.
There are generally no legal restrictions on ownership or occupation by foreign entities. Neither are there, in principle, any restrictions on obtaining loans from either Belgian or foreign banks, it being understood that the source country of finance is important from a tax point of view (as the tax treaty, if any, may determine to what extent withholding tax is charged on interest payments).
As regards security rights, no restrictions exist except for the general pledge over the business, which can only be in favour of an EU-licensed credit institution. In this respect, 2018 has brought some new developments with the entry into force on 1 January 2018 of the new legislation regarding securities on movable property. Among other things, this new legislation removes the restriction that the general pledge over the business can only be granted in favour of an EU-licensed credit institution.