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Recent direct tax developments relevant to the Belgian real estate sector

Real Estate Alert | Business Tax

In October 2022, various Belgian state bodies adopted bills or announced proposals containing tax measures that will be relevant for taxpayers active in the real estate sector in Belgium. 

This alert focuses on direct tax matters and summarises key elements from the Federal Budget 2023, the expected adoption of a broader tax reform, and the proposed bill amending the assessment and investigation periods for tax purposes.

On 11 October 2022, the Belgian government reached an agreement on the 2023 and 2024 budgets.

Items that may be of significant interest for taxpayers in the real estate sector include:

  • “Basket limitation” rule: The current “basket limitation” rule stipulates that tax losses carried forward (TLCF), and certain other tax attributes, can be used to offset taxable profits up to a limit of EUR 1 million. Only 70% of the taxable profits above this threshold can be offset by TLCF (and certain other tax deductions). As from tax year 2024 (financial year ending 31 December 2023), and for a currently undefined temporary period pending the entry into force of Pillar Two in Belgium, a maximum of 40% of taxable profits in excess of EUR 1 million would be available for offsetting. This development would be of importance for any taxpayer currently using this mechanism to offset their taxable income in excess of EUR 1 million.
  • Notional interest deduction (NID) regime: The NID regime would be abolished for financial years ending after 30 December 2022. This proposal is not unexpected, given the interest rate applied for this deduction has been reducing in previous years, and for tax years 2021 and 2022 the basic rates for companies other than small and medium-sized enterprises (SMEs) were negative, resulting in non-SME Belgian taxpayers being unable to claim any NID.

The government has charged the minister of finance to work on a “broader tax reform,” with the concrete elements to be discussed within the government before the end of 2022. The main goal is to bring forward a tax reform which reduces the tax burden on labour.

The key elements of the reform under discussion that may be of interest for the real estate sector include:

Dividends received deduction (DRD): The DRD regime would reportedly be transformed into a genuine “exemption” (i.e., with DRD carryforward no longer permitted). In addition, the alternative rule to benefit from the exemption when the parent company has a participation of less than 10% in the subsidiary, but with an acquisition value of at least EUR 2.5 million, would be linked to the condition that the participation is treated in the parent company’s accounts as a “financial fixed asset,” as defined in the royal decree implementing the Code of Companies and Associations. A similar amendment would take place for withholding tax purposes, although it is not clear what form this would take, as currently there is no general withholding tax exemption in these situations other than for nonresident investors in exceptional cases. This will make it more difficult to claim the dividend exemption for smaller shareholdings.

The DBI-BEVEK/RDT-SICAV regime would be abolished. This exclusion from the DRD regime would concern only companies using the DBI-BEVEK/RDTSICAV regime, not other qualifying investment companies that may benefit from the DRD regime under specific conditions, such as EU investment companies. 

Once adopted, taxpayers will need to verify whether dividends received from Belgian regulated real estate companies would still give entitlement to the DRD regime to the extent that the dividends can be attributed to foreign-source income received by the real estate company from foreign operations.

Costs related to equity investments: It is understood that costs relating to the acquisition, holding, and disposal of shares would become nondeductible, although no further details are currently available.

On 25 October 2022, the final bill containing procedural tax measures was adopted. The primary aim of the bill is to extend tax investigation, assessment, objection, and retention periods, aligning them more closely with international standards, as well as simplifying tax procedures, and increasing enforceability. New penalties for obstructing a tax investigation are also introduced.

Extension of assessment periods

As from tax year 2023, the following assessment periods apply:

  • The three-year standard assessment period is retained for situations where the tax administration wishes to amend a tax return which was filed on time.
  • A four-year assessment period applies where a taxpayer either fails to file, or files a late tax return.
  • A six-year period applies when the tax return includes certain international elements (e.g., transfer pricing documentation, payments to tax havens, or relief for foreign tax), referred to as “semi-complex” tax returns
  • A 10-year period applies for “complex” tax returns. A return is deemed complex when it involves the use of legal constructions, hybrid mismatches, or controlled foreign companies. The impact of the extension of the assessment period for complex returns is reduced by not allowing certain “easily auditable” disallowed expenses to be taxed within this new period (e.g., nondeductible car expenses, nondeductible regional taxes, or nondeductible reception expenses). However, various equally easily auditable elements remain liable to taxation in the new extended period (e.g., depreciation expenses and general professional expenses).
  • The assessment period for tax fraud is extended from seven to 10 years. 

In all cases, the assessment period starts from the end of the relevant financial year.

Extension of investigation and retention periods, and simplified notification of income tax fraud investigation

The bill also amends the investigation periods, aligning them with each new assessment period. The tax administration will be able to conduct an investigation for four years when a tax return is either not filed or filed late; for six or 10 years when the tax return is semi-complex or complex, respectively; and for 10 years in the case of tax fraud. The tax administration will be able to apply the extended investigation periods to semi-complex or complex returns without notifying the taxpayer in advance.

In addition, there is a key change related to the fraud notification that must be made to extend the investigation period for tax fraud:

  • Under the current regime, before the extension of the investigation period, the tax administration must notify the taxpayer accurately of any “indications of tax fraud.”
  • As from tax year 2023, it will be sufficient for the tax administration to give notice of the suspicion of fraud, and of its intention to apply this extended period. The simplified prior notification would be obligatory for the assessment issued following the investigation to be valid.

The retention period for which taxpayers are required to retain documentation is also extended to 10 years to ensure that a taxpayer still has all relevant documentation when potentially subject to a 10-year period of investigation and assessment.

Extension of objection period against a tax assessment

As from 1 January 2023, to mitigate the extension of assessment and investigation periods, the taxpayer has one year (extended from six months) to file an objection against a tax assessment (“tax claim”). In practice, the significance of this extension is likely to be limited, as the payment period has not been correspondingly extended. Taxpayers wishing to file a tax claim could therefore be forced by the tax authorities to do so earlier than the permitted period, in order to suspend the collection of the tax.

Penalty for obstruction of a tax investigation

A new penalty (astreinte/dwangsom) will potentially apply when a taxpayer, or a third party, obstructs a tax investigation in the broad sense. The tax administration is, however, required to obtain approval from the court to impose this penalty.

Entry into force of the procedural amendments

The amendments to the investigation, assessment, objection, and retention periods enter into force as from tax year 2023 and the provisions regarding the objection period apply as from 1 January 2023.

There is no specific date of entry into force for the penalty payment provisions. Therefore, the effective date of these rules is the 10th day after the law’s publication in the Belgian official journal.

Previous tax years remain subject to the provisions applicable before the entry into force of this law, and the new or amended terms will not be applied to tax years prior to tax year 2023, even if the relevant statute of limitations period has not yet expired. For example, the assessment period for tax year 2022 in the case of tax fraud would still be a maximum of seven years, even though the previous statute of limitations period would not have expired at the time the new legislation entered into force.

The changes indicate that taxpayers should be prepared for increased tax audits and penalties in the coming years. It may also be necessary to consider the long-term implications of the proposed changes, especially with regards to vendor or purchaser due diligence work.