If you used a corporation in the past to buy a business or investment property and have the intention now to take the property out of the company, it is important to understand the tax consequences before moving forward.
In general, the acquisition of new buildings in Belgium is subject to 21% VAT. A building is ‘new’ until 31 December of the second year following the year the building was first occupied. The land on which the property is located will also be subject to VAT if sold simultaneously by the same owner. If this is not the case, the land price is subject to a transfer tax instead.
If the company initially paid VAT on the purchase price and fully deducted the VAT if the property was put to business use, it should be noted that sometimes the VAT deduction needs to be revised. For real estate this revision period is 15 years. For example, if the property is transferred to private ownership 7 years after purchase, the company will need to reimburse 8/15 of the initially deducted VAT.
While depreciation of land is not possible, the company will be able to deduct the costs of buying and improving the property and thus lower its taxable income in the process. The depreciation rate for office and residential buildings is 3% and for industrial buildings 5%. This is based on the normal economic life expectancy of the asset. Additionally, SMEs are also entitled to a deduction of an extra depreciation in the year of acquisition of the new building (so-called ‘investment tax deduction’). Until 2022, this extra depreciation amounted to 25%. For investments done after 1 January 2023, the standard rate is back to its initial 8%.
Due to the depreciation, the accounting value of the property will be lower than the market value after a few years. If the building is then sold or transferred to private ownership, the company will have to pay capital gains tax on the difference. For example, if the property was acquired for €500,000 and has been depreciated for €100,000, the accounting value will be €400,000. If the market value has in the meantime increased to €600,000, the company will be taxed on a capital gain of €200,000 in total.
For any profit distribution to the company owners upon liquidation, the total amount minus the initial share capital contribution will be subject to a 30% withholding tax rate. SMEs can benefit from a more favourable tax treatment via the so-called ‘liquidation reserve’. Under certain conditions, the 30% tax rate is then reduced to 10% instead.
Finally, any change in ownership afterwards triggers a 10% (Flemish Region) or 12.5% (Brussels and Walloon Region) transfer tax. This also applies to business owners taking property out of their own company. Only for certain company types, like a BV/SRL, the transfer tax is €50 instead, and only if you were already a shareholder at the time of purchase of the property.
TAXPATRIA® can assist you with your real estate structuring and business accounting.