Real Estate Tax Services Newsalert

21 January 2010

Welcome to the first issue in 2010 of our PwC Real Estate Tax Services Newsalert Belgium.

In this issue, we discuss amongst others some recent changes to the Belgian dividends received and notional interest deduction rules, new reporting rules for payments to tax havens and new VAT rules in respect of the supply of land together with a new building, which are of importance for the real estate industry.

In addition, this tax newsalert highlights key new rules for non-French investors in French real estate.

 

Several important changes to Belgian corporate tax law enacted in December

Several important changes to Belgian corporate tax law came into effect further to the passing of the Program Act of December 23, 2009, and three Tax and Miscellaneous Provisions Acts of December 21 and 22, 2009. Below we have summarized the changes to the dividends received deduction, the rate of the notional interest deduction regime, the new anti-avoidance rules for payments made to tax haven companies and the definition of SMEs in the Income Tax Code.

From a VAT point of view, we have summarized the changes to the application of VAT on the transfer of land, the extension of reduced VAT rates in the construction sector, the new Circular on no-supplies and the changes to VAT on concessions.

Dividends received deduction

Belgian tax-resident companies (or Belgian branches) can deduct 95% of dividends received from qualifying holdings from their net taxable income (this is the so-called dividends received deduction, hereafter ‘DRD’). The old conditions were that the company (or branch) had to have held or committed to maintaining a shareholding of at least 10% or having a minimum acquisition value of EUR 1,200,000 in the subsidiary for at least one year. Credit institutions, insurance companies and broker-dealers companies did not have to meet this condition.

As of January 1, 2010, the minimum acquisition value has been raised from EUR 1,200,000 to EUR 2,500,000.

In addition, the exemption provided for credit institutions, insurance companies and broker-dealers companies, has been abolished. As from tax year 2010, the minimum threshold requirement also applies to these companies.

Under Belgian tax law, any ‘excess’ DRD in a given tax year (i.e. that could not be used in the year in which it arose due to a lack of net taxable income to offset it against) could in principle not be carried forward and was thus forfeit. Pursuant to judgments against Belgium by the ECJ for breach of the EU Parent-Subsidiary Directive (C-138/07, C-439/07 and C-499/07), the Belgian tax administration issued two practice notes in June and October 2009 in which it acknowledged that excess DRD for European Economic Area (‘EEA’) dividends and certain non-EEA dividends (subject to conditions) can be carried forward to future tax years.

Belgian tax law has now been changed so that any unused portion of the DRD from dividends received from an EU subsidiary as defined in the Parent-Subsidiary Directive can be carried forward to future tax years. The possibility of carrying forward the unused portion of DRD from qualifying non-EU dividends has not been codified, but should continue to apply based on the October 2009 practice note. The same is also true for dividends from Belgian subsidiaries.

Finally, repeal of the condition that the shares should be booked as financial assets for accounting purposes (requested by the European Commission on November 20, 2009) has not been addressed by the Acts.

Notional interest deduction

Belgian companies (and Belgian branches) can claim tax relief for their cost of capital by deducting notional (deemed) interest, which is calculated on their adjusted accounting net equity.

The NID rate for a given tax year depends on the 10-year government bond interest rate of the calendar year two years prior to the tax year (e.g. for tax year 2011 reference is made to 2009 government bonds). In principle the NID rate is capped at 6.5% (7% for SMEs).

For budgetary purposes, the NID rate for tax years 2011 and 2012 (i.e., financial years ending respectively as from December 31, 2010 and 2011) has been capped at 3.8% (4.3% for SMEs).

A provision has been included in Belgium’s non-resident (corporate) tax rules for the tax credit for research and development and NID to be transferable to the acquiring company in the case of a tax-exempt reorganization, as if the reorganization had not taken place. A similar provision has already previously been included in the resident (corporate) tax rules. It applies on and after January 12, 2009.

Payments made to tax havens

Starting January 1, 2010, companies subject to Belgian corporate income tax or Belgian non-resident corporate income tax that make direct or indirect payments to recipients established in tax havens are obliged to declare them if they exceed EUR 100,000 during the tax year. The reporting has to be made on a special form to be enclosed to the (non-resident) corporate tax return.

A tax haven is defined as: (i) a jurisdiction regarded by the OECD as not being cooperative concerning transparency and international exchange of information or (ii) a jurisdiction where the nominal corporate tax rate is less than 10%. A royal decree containing the list of countries where the nominal corporate tax rate is lower than 10% is to be published.

In the event of non-reporting, the payments will be disallowed for corporate income tax purposes. Where the payments have been duly reported in time, their tax deductibility will be subject to the ability of the taxpayer to prove that (i) said payments were made as part of genuine, proper transactions and (ii) they were not made to an entity under an artificial construction.

It is to be noted that reporting obligations on forms 281.50 remain unchanged.

Definition of SME in the Income Tax Code

Changes have been made to several provisions of the Income Tax Code where reference was made to article 15, § 1 of the Companies Code in order for a company to qualify as a SME.  Reference is now made to the whole article 15 of the Companies Code, so that the possibility for a company to qualify as a SME will have to be appreciated on a consolidated basis. This was already the position of the tax authorities.

 

Recap of recent VAT changes bundled for you

VAT on land

As from 1 January 2011, the supply of land that belongs to a new building or part of a new building will be submitted to VAT in so far as the supply of the building itself is subject to VAT. 

Hereby, the Belgian VAT Code has been aligned with EU VAT jurisprudence. The 2011 date should allow those Regions in Belgium that have not yet anticipated to this change or jurisprudence to adapt their transfer tax legislation to avoid a double taxation (both transfer tax and VAT on one and the same portion of land). Evidently, the submission to VAT of such land has been and remains the centre of debate in Belgium, especially in the residential / private housing sector.

Extension of reduced VAT rates in the construction sector

In December 2009, the lifetime of the temporary measures allowing the application of the reduced VAT rate of 6% to certain construction activities in 2009 was extended till 31 December 2010. 

The application of the reduced VAT rate is subordinate to a number of conditions (e.g. building permit to be submitted before 1 April 2010) and is valid for:

  1. the demolition and reconstruction of private houses throughout the Belgian territory;
  2. the construction and supply of private houses on instalment of maximum EUR 50,000;
  3. certain supplies and works on immovable property done in relation to social housing projects.

New Circular on no-supplies issued

In September 2009, the Belgian VAT authorities issued the long awaited circular on so-called no-supplies or transfers of going concern / line of business. 

The circular takes a more economic approach towards no-supplies and aligns with EU jurisprudence in the sense that the existence of a no-supply should be assessed in the hands of the transferee (and no more in the hands of the transferor). 

Moreover, the circular is of particular relevance to real estate transactions and to the real estate sector. For instance, the option to 'tax' a new building when real estate is disposed of in the framework of a no-supply, no longer is available. Also, transferor should be aware that, depending on the 'exit-scenario' chosen, he may (still) face the obligation to remit part of the VAT previously recovered on his real estate. 

Quite some (other) food for thought to be found in the circular.

Concessions

Per 16 August 2009, a new article has been implemented in the Belgian VAT Code according to which the putting at the disposal of goods immovable by nature in the framework of the operation of ports, navigable waterways and airports is subject to VAT. 

 

Recent tax changes in France with key impact on non-French investors of French real estate

France has introduced a 5% transfer duty on the disposal of non-listed shares in non-French companies holding directly or indirectly mainly French real estate. The French withholding tax on the realization of French real estate by non-French investors established in non-cooperative countries will be increased to 50%. Also, the conditions for the French SIIC regime have been relaxed.

View the France real estate tax services Newsalert

Previous non-Belgian Real Estate Tax Services Newsalerts

View our previous non-Belgian real estate tax alerts:

 

Best regards,

Maarten Tas
Director
PwC Belgium
+32 (0)2 710 7402
maarten.tas@pwc.be