Federal Government Agreement

After almost eight months of negotiations, Belgium’s new Federal Government has introduced a coalition agreement featuring significant changes to tax and labour law policies that could impact businesses across the country.

This alert provides a brief overview of those tax measures which are expected to be relevant to the real estate sector.

Visit the Deloitte Academy website for upcoming events on these measures and their potential impact on your business.

This article has been prepared based on the recently released federal government agreement, and it is possible that there may be amendments to the proposed measures once the government works towards implementation.

Furthermore, many topics are only outlined in the agreement on a high-level basis, implying that there remains uncertainty at this time as to the exact scope and impact of the contemplated tax measures.

Corporate income tax measures

Group contribution regime

The current Belgian tax consolidation regime under the form of the “group contribution” is often applied between Belgian companies of a real estate group (knowing these companies are often in a recurring loss position due to depreciations and interest expenses).

Today’s conditions to apply this regime are quite restrictive. In particular, a 5-year uninterrupted affiliation as well as a 90% direct ownership relation is required between Belgian companies willing to apply the regime.

The new government agreement announces the intention to open up regime to indirect participations, as well as for new companies (it being unclear whether reference is made only to newly incorporated entities or also to as newly acquired entities). Furthermore, holding companies would going forward be able to combine exemption on dividends from subsidiaries, with receiving group contributions from its subsidiaries, which under today’s rules still lead to additional tax costs.

Energy transition

The Government recently published the list of investments that can benefit from the so-called thematic investment deduction, comprising a.o. investments in energy efficient solutions, which may also be relevant in the context of the energy transition of the real estate sector in Belgium. For a list of the specific selected types of investments, please refer to our tax alert dd. 23 December 2024. 

The latter investment deduction would be harmonized into a rate of 40% for both SME’s and large enterprises.

In addition, an accelerated depreciation of certain investments in energy transition is foreseen. For large enterprises, it would consist in a temporary regime with a depreciation at 40% of the acquisition value during the first year. For SME’s, degressive depreciations would become possible again. It should be noted that such accelerated depreciation regime may come with additional restrictions, such as a possible prohibition to rent out the assets (like under the previous regime).

Tax audit cash out rule and relationship with the tax authorities

Under current legislation, it is not possible for a company to offset current year or carried forward tax attributes – except for current year dividends received deduction – against any part of the taxable base which is the result of a tax audit adjustment, provided that a penalty of minimum 10% is applied by the tax authorities.

As a result of these rules it became common practice for the tax authorities to apply a 10% penalty in case of a tax audit adjustment. 

The new government aims to revise the sanction policy during tax audits, both in direct and indirect tax matters: 

• The cash for tax rule will only apply to repeated violations triggering at least a 10% tax increase and will not apply to violations in good faith or administrative oversights. Furthermore, compensation with the current year loss will become possible (but not with tax losses carried forward from previous years).

• Revision of tax penalty policies in income tax and VAT. The VAT sanction policy will be modernized and will e.g. consider the absence of financial damage for the treasury as an attenuating circumstance.

• Absence of sanction in the event of a first infraction in good faith.

• The principle of the protection of legitimate expectations would be formalized in law, implying that no penalization occurs when a taxpayer takes a filing position that was already subject of a tax audit without adjustment.

Form 270 MLH

The reporting obligation with the yearly income tax return filing (on the so-called Form 270 MLH) in relation to rental fees or remunerations for rights in rem will be abolished again.

A less burdensome alternative will be developed considering information readily available to tax authorities.

Measures affecting shareholders-investors

Dividend income taxation

Under the current ‘Dividend Received Deduction’ (‘Definitief Belaste Inkomsten / Revenus Définitivement Taxés’) companies currently benefit from an exemption on dividend income received, provided that (i) the recipient of the dividend holds a minimum participation of 10% or a participation with an acquisition value of at least EUR 2.5m; (ii) such participation is / will be held for at least 12 months; and (iii) the dividend distributing company meets to so-called ‘subject to tax condition’. The same conditions apply to benefit from an exemption of capital gains on shares realized.

It is proposed to transform the regime from a deduction to an exemption mechanism. This should allow a holding to combine receiving qualifying dividend income, and a group contribution, in the same taxable period. 

Furthermore, the participation condition for DRD and capital gains tax exemption will become more restrictive. Where the 10% threshold will remain unchanged, the alternative threshold of EUR 2,5m acquisition value would increase to EUR 4m. 

Finally/additionally, the Agreement indicates that where the taxpayer would rely on the EUR 4m threshold (not the 10%), such participation should have the nature of financial fixed asset. Such qualification in principle requires a long lasting / sustainable investment in the company in which the participation is held.

In the Agreement it is indicated that this restriction would however only apply between large enterprises, so not SME’s. It is based on the text of the Agreement not clear whether this exclusion for SME’s only applies to the financial fixed asset condition or whether it also includes the revised €4m threshold.

Fortunately for real estate investment funds, no adjustments are announced in relation to shares in so-called “investment companies”. As a result, dividends from or capital gains realized on participations held in or by such investment companies are expected to continue to benefit from an exemption even if the participation condition and 1-year holding period would not be met.

To be noted, that the Government Agreement refers to a separate taxation at 5% for capital gains realized at the moment of exit from so-called DRD-SICAVs (“DBI-BEVEKs”). Based on a strict reading, however, the application of this separate taxation seems limited to this specific investment company only and would thus not be extended to all types of investment companies.

Solidarity contribution (‘Capital gains taxation on shares’) 

At present, private individuals may benefit from a full exemption in relation to capital gains on shares within the personal income tax regime, provided that the capital gain is realized within the ‘normal management of the private estate’. 

Under the government agreement it is proposed to introduce a general tax of 10% on future capital gains realized on financial assets built up as of the entry into force of the new (still future) legislation. Historical capital gains are hence exempt. 

Capital losses of the year will be tax-deductible, without possibility of carry forward of any excess.

An exemption of EUR 10.000 is foreseen to keep small investors out of the scope of the new tax. This amount will be indexed yearly.

In the event of a substantial participation of at least 20%, EUR 1m will always be exempt. Furthermore, the following tax rates will apply: 

• A capital gain between EUR 1m and EUR 2,5m will be taxed at 1.25%.

• A capital gain between EUR 2,5m and EUR 5m will be taxed at 2.5%.

• A capital gain between EUR 5m and EUR 10m will be taxed at 5%.

• A capital gain as of EUR 10m: will be taxed at 10%.

Our current understanding is that the above brackets should be understood as a progressive / stepped taxation mechanism. However, this is admittedly not fully clear from the wording of the Agreement. 

Per today, it remains unclear how this solidarity charge would interact with the taxation of capitals gains on shares as miscellaneous income (taxed at 33% federal rate) - in case not realized in the context of normal management of private estate - or as professional income (taxed at progressive rates).

For the Belgian real estate funds having the form of a private privak, the question arises whether the solidary charge would impact the withholding tax regime for dividends distributed by private privaks. Per today, such dividends are exempt from withholding tax to the extent that they are stemming from underlying capital gains on shares. Although nothing is foreseen in this respect in the Agreement, it may well be that such dividends would also become subject to a similar 10% charge as above, although such would somewhat contradict the Government’s intention to restore the attractivity of the private privak.

VAT

Demolition and reconstruction

Expansion of the scope of the existing VAT regime for demolition and reconstruction (6% VAT rate) to deliveries (by developers), existing social benefits being maintained. The surface criterion will be limited to 175 m2 for deliveries.  The government will elaborate a clear definition of renovation works and will investigate how to introduce of a sustainability condition in the future European VAT legislation, without additional administrative burden.

Rate changes

Reduction of VAT rate for heat pumps from 21% to 6% for the upcoming 5 years.

VAT for the installation of a boiler using fossil fuels will be increased from 6% to 21% in the event of a renovation (for dwellings older than 10 years).

Near real time reporting

As of 2028, near real-time invoice reporting will be introduced for transactions between VAT taxpayers and transactions for which a registered cash register is used. Extra support will be provided for small businesses and the self-employed, and attention will be given to respect the professional confidentiality.  

VAT sanction policy

The VAT sanction policy will be modernized and will consider the absence of financial damage to the treasury as an attenuating circumstance.

Registration duties

Share deal for real estate SPV’s

Finally, the Government Agreement stipulates in very general terms and without any further specification that the federal government will support the regions that are willing to tackle share deals with respect to real estate companies.

It is to be seen whether this initiative might result in the fact that regions would introduce a real estate transfer tax on the sale of shares in a real estate company (as is the case in some neighbouring countries).