Investment vehicles in real estate
The most used unregulated corporate vehicles for real estate investments are the public limited liability company (SA or NV), the limited liability company (SRL or BV) and the limited partnership (SComm or CommV). The limited partnership is the most flexible vehicle from a corporate law standpoint and is not subject to capital protection rules. It also facilitates the setting up of the collateral in the context of acquisitions (share deals) financed by bank loans. Regulated vehicles are the Belgian specialised real estate investment fund (SREIF) (FIIS or GVBF), which is an institutional fund, and the Belgian real estate investment trust (REIT) (BE-REIT) (SIR or GVV), which is a listed vehicle. For an institutional investor, the choice between an unregulated vehicle or a BE-REIT depends on its own status and on the characteristics of the transaction.
Acquisition and disposal
Share deals are not subject to transfer tax, stamp duty or VAT, unless the tax administration demonstrates an abuse (to have the transaction subject to the same tax regime as for an asset deal).
Asset deals are subject to either transfer tax or VAT. When the real estate qualifies as a new building for VAT purposes, the transfer of a property right may (when the owner is not a professional developer and opts for a VAT taxable transaction) or must (when the owner is a professional developer) be subject to 21 per cent VAT. A building is deemed new for VAT purposes until 31 December of the second year following its first use or occupancy. Heavy
refurbishment allows for qualification as a new building when either:
- a drastic modification of essential elements, being the nature, structure or destination, whatever the costs of the works might be, is executed; or
- modifications are executed for which the cost of the works (excluding VAT) is equal to at least 60 per cent of the market value of the building (excluding ground) at the end of the works.
When VAT does not apply, the purchase of an asset or the granting of usufruct is subject to 12 per cent (in Flanders) or 12.5 per cent (in Brussels and Wallonia) transfer tax computed on the higher of the agreed price or the market value. Long-term lease rights and rights to build are subject to 2 per cent transfer tax computed on the total of the fees paid to the owner over the full duration of the right increased by the charges contractually borne by the beneficiary.
Unregulated vehicles, as well as Belgian establishments of foreign investors in the case of direct acquisition of real estate assets, are subject to corporate income tax (CIT). The net revenues, after depreciations and tax-deductible expenses, are subject to 25 per cent CIT. In the case of a direct acquisition by a foreign investor, no profit branch tax applies. Capital gains realised upon disposal are subject to 25 per cent CIT, subject to a rollover regime in the case of reinvestment of the price in qualifying assets.
The tax burden differs for regulated vehicles. Entering into such a vehicle (e.g., by conversion of a regulated vehicle) triggers exit tax – the taxation of the latent gain on the asset at a rate of 15 per cent. Going forward, investment proceeds will not be subject to CIT, but taxation will be shifted to the investors via a compulsory yearly dividend distribution, which will trigger withholding tax based on the applicable tax treaty.
Read more on the website of The Law Review.