Key tax measures in the 2024 budget agreement affecting the real estate sector

On 9 October 2023, Belgian’s federal government reached an agreement on the 2024 Budget. The budget agreement contains a number of measures which will have a direct impact on the real estate sector, including: an increase in registration duties for long lease and building rights; the introduction of a minimum five-year holding period for Belgian real estate investment funds (BE-REIFs); the nondeductibility of subscription tax; and the removal of the reduced 6% VAT rate on demolition and reconstruction for real estate developers. These measures are summarized below and the VAT change is addressed in more detail in a separate article. The measures are expected to enter into force as from 1 January 2024, although this is not explicitly stated in all cases.

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.

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%.

A rate increase would affect the attractiveness of so-called “reunification” sales of formerly split acquisition structures (“bare property” versus “long leasehold” structures) and would also significantly increase the registration duty cost for long leaseholds granted to commercial care home operators (organized through a commercial company) where historically long leaseholds have often been used.

No changes are anticipated with regard to the registration duties applicable to “normal” rental agreements (generally 0.2%).

Introduction of a minimum five-year holding period for BE-REIFs

A minimum five-year “standstill” would be introduced in relation to BE-REIFs (gespecialiseerde vastgoedbeleggingsfondsen (GVBF)/fonds d'investissement immobiliers spécialisés (FIIS)) implying that entities which enter into the BE-REIF regime would be required to remain in the regime for a minimum period of five years.

When an existing real estate company enters the BE-REIF regime, exit tax is imposed at 15% on latent capital gains and tax-free reserves. Under the proposed measures, if the five-year standstill condition were not satisfied, an additional 10% corporate income tax would be imposed, increasing the initial exit tax rate from 15% to 25%.

A five-year standstill also would apply in respect of the ownership of shares obtained in a BE-REIF in return for a contribution of an asset (or assets) into the BE-REIF.

The full scope of this last rule remains somewhat is unclear. It is currently not certain whether the rule would apply only in relation to contributions in kind in return for shares, or whether contributions in kind without the issuance of shares and/or (de)mergers would also be within scope.

Furthermore, it is not clear whether the rule would be extended to include contributions (in kind) to (institutional) Belgian regulated real estate investment trusts (BE-REITs) (gereglementeerde vastgoedvennootschappen (GVV)/sociétés immobilières réglementées (SIR)).

A further uncertainty arises over whether the standstill condition would apply only to BE-REIFs established or contributions in kind into BE-REIFs as from 1 January 2024 or also for 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.

This rule has the potential to be detrimental to the BE-REIF/BE-REIT community. It would significantly reduce the “liquidity” of BE-REIFs (as a future buyer within the five-year window would be restricted if it wished to “deconvert” the BE-REIF, which may be required, for example, in view of its own structure and/or envisaged development activities). Also the restriction with regard to the shares issued as a result of a contribution into a BE-REIF raises other issues, such as making it harder to place a new BE-REIF with investors. If the rule were to be extended to BE-REITs, this would restrict the frequently used technique whereby assets are acquired against the issuance of shares (subsequently placed on the stock market).

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 (Dutch | French) limits the tax deductibility of the subscription tax to 80% (applicable to taxes which are due as from 1 January 2023). Further to the Budget 2024 agreement, the subscription tax would become fully nondeductible.

Corporate income taxes paid on the nondeductible subscription tax are themselves also part of the taxable base of a BE-REIT or BE-REIF, leading to further corporate income taxes becoming due (the so-called “tax-on-tax snowball effect”). 

Reduced 6% VAT rate on demolition and reconstruction no longer available to real estate developers as from 1 January 2024

One of the most prominent measures affecting the real estate sector is the change to the existing VAT arrangements for demolition and reconstruction. The temporary measure which made it possible to sell homes with a 6% rate of VAT and the permanent system of reduced rates in urban areas would both be subject to significant changes.

For more info in this respect, reference is made to our VAT alert of 11 October 2023.