Real Estate Sector: Relevant (adverse) tax measures from the draft program act

As the Program Act is still subject to approval by Parliament, it should be noted that amendments can still be adopted.

Scope of reduced VAT rate for demolition and reconstruction works is being narrowed

Currently, regarding “demolition and reconstruction” projects, a permanent and a temporary 6% VAT regime coexist.

The permanent regime applies to builders who demolish an existing building, located in one of 32 central cities, and rebuild it with a view on providing (private) housing. This regime applies to the demolition and reconstruction works (not to the subsequent sale of such reconstructed buildings) without any restrictions regarding self-occupancy, the surface of the building or the qualification as the builder's only home.

The temporary regime, applicable until 31 December 2023 to abuildings located anywhere in Belgium, applies to three situations, i.e.:

(i) the demolition and reconstruction by an individual builder, of a sole and own home, with a habitable surface not exceeding 200 m2;

(ii) the sale (or establishment of a right in rem) by a third-party developer, of a real estate property, again with a habitable surface not exceeding 200 m2, to a private individual using it as his sole and own home; and 

(iii) the demolition and reconstruction of a building (without surface restriction) that is leased to a social housing agency or is, through such agency, offered on the social housing market. 

As of 1 January 2024, a new permanent regime will replace the two existing regimes, according to which the 6% VAT rate will only apply to individual/private owners who carry out themselves, or through contractors, demolition and reconstruction works relating to buildings located in Belgium and having a habitable surface that does not exceed 200 m², to construct a property that is used as their own and only home. The 6% VAT rate for social housing, as included under scenario (iii) above remains applicable under the new regime. Finally, a transitional regime will apply in certain cases so that the old regime can still be applied until the end of 2024.

Under this new regime, developers who sell reconstructed homes to private individuals, turnkey real estate companies and private investors will be excluded from the reduced VAT rate. Hence, this measure will inevitably have a negative effect on the purchase prices of new houses and the (growing) need for modernisation of the Belgian property portfolio.

Reduced VAT rate for solar panels and heat pumps

Today, the installation of solar panels and heat pumps is subject to the standard VAT rate of 21%, except in two situations where the 6% VAT rate applies, i.e.  for installations concerning (i) buildings that are older than 10 years and (ii) buildings younger than 10 years but only for the period between 1 April 2022 and 31 December 2023.

According to the Program Act, the latter temporary exception will be extended until 31 December 2024 for heat pumps only, in order to boost the transition from fossil heat sources towards electricity. Consequently, as of 1 January 2024, the installation of solar panels on buildings younger than 10 years will be subject to the standard 21%-rate again.

Increase of real estate transfer tax on long-term lease rights and building rights

Under the current tax regime, the establishment and the transfer of long-term lease rights ("erfpacht"/“emphytéose”) and building rights ("opstalrecht"/“droit de superficie) are subject to real estate transfer taxes at the rate of 2%, calculated on the aggregate value of the periodical remuneration and charges. As of 1 January 2024, this rate will be increased to 5%.

The new rate will apply to (i) authentic deeds of establishment and transfer of long-term lease rights or building rights signed on or after 1 January 2024, unless they were preceded by a private deed signed before that date, and (ii) private deeds entailing the same rights signed on or after 1 January 2024.

Stricter conditions for Belgian real estate investment funds

As regards Belgian real estate investment funds ("BE-REIF") (“gespecialiseerde vastgoedbeleggingsfondsen”/”fonds d'investissement immobiliers spécialisées”), the Program Act contains some restrictive changes regarding the exit tax of 15% (on latent capital gains and tax-free reserves) when a company is registered as a BE-REIF or when a company’s real estate property is (de)merged/contributed (exclusively remunerated with shares) into a BE-REIF.

To avoid that companies withdraw their BE-REIF registration or liquidate shortly after having benefited from said 15% taxation, the Program Act introduces a 5-year standstill period.

According to this rule, an additional corporate income tax of 10% will be levied in case a BE-REIF does not remain registered for at least 5 years or in case the shares acquired following a contribution transaction are not maintained for 5 years. In addition, (de)mergers into a BE-REIF are subject to the additional tax if the REIF does not retain its status for 5 years as from its registration.

Non-deductibility of subscription tax

Belgian investment vehicles, such as BE-REIF and BE-REIT (“gereglementeerde vastgoedvennootschappen”/”sociétés immobilières reglementées”) are subject to an annual 0,01% or 0,0925% subscription tax, respectively, on the net amounts invested in Belgium. Following the Program Act of 26 December 2022, the deductibility of this tax was limited to 20% since 1 January 2023. This deduction limitation is now replaced by the full non-deductibility of the subscription tax under the Program Act. This measure will apply to the taxes that are due as from 1 January 2024.

New obligations for the construction sector

Finally, the draft Program Act contains two new obligations relating to the construction sector.

Firstly, it expands the current withholding obligation of principal contractors to pay a certain percentage of the invoice amount to the competent public authorities if the relevant (sub)contractor has debts towards the FPS Finance or the Belgian social security office. According to the proposed changes, this withholding obligation will be extended to social security debts due by (sub)contractors under a self-employed status.

Secondly, companies operating in this sector will have to register and update, within a specific period of time, in the Belgian Crossroads Bank for Enterprises, the exact information regarding their active partners, i.e. persons holding at least one share in the company and carrying out a real activity in Belgium without being declared in the salaried persons system for that activity. The same obligation will apply to self-employed individuals regarding their helpers.

In case of questions, please do not hesitate to reach out to your regular contact within the Fieldfisher Belgium tax team.