Belgium

1. Parties and Ownership – Who can own real estate and what types of ownership are there?

Parties

Any legal person can own real estate.

As to legal capacity, Belgian law distinguishes between individuals, legal entities and foundations.

Legal entities may either be private law entities (such as non-profit making associations, commercial companies or organisations of economic interest), or public law entities (such as the State, communities, regions, public establishments or public autonomous companies).

Foundations are patrimonies allocated to one or several individuals or legal entities. They can be of public or private use.

Owners of real estate therefore include private developers, insurance companies, banks and other financial institutions, private or public companies, government and local authorities, etc.

There is no restriction on real estate ownership based on the citizenship of the owner.

Ownership

Ownership is either private or public, depending upon whether the person with title to the property is a legal person under private law or a legal entity in public law (State, regions, communities, provinces, municipalities, etc.).

Private ownership can also be either individual or plural, according to whether the legal person with title is an individual or a group of individuals, e.g. co-ownership. Co-ownership describes the situation where two or more people each have a portion of legal ownership of the same thing. The co-owner can encumber its portion of the rights in rem (e.g. mortgage).

The Belgian law of 30 June 1994 governs the regime for mandatory co-ownership, in particular the mandatory co-ownership of buildings such as apartment blocks.

It is to be noted that Belgian law draws a distinction between ownership and possession. Possession is where a person behaves as owner regardless of the question of whether or not the possessor is the owner. Belgian law, in the field of real estate, offers protection to a person in possession, granting him possessory actions permitting him to defend himself quickly, at little cost, against each person interfering with his possession.

A person in possession for a certain period can, subject to compliance with certain conditions, become the owner. This mechanism is known as adverse possession. In this regard, article 2262 of the Civil Code stipulates that a real property is “adversely possessed” after 30 years, meaning that the ownership of a property will only be acquired by adverse possession after 30 years have elapsed.

2. Interests – What types of real estate are sold?

In Belgian law, patrimonial rights are divided into two categories: real rights (rights in rem) and personal rights (rights in personam).

In property law, rights in personam essentially originate from the relationship between landlord and tenant pursuant to a lease agreement.

There are four types of property lease under Belgian law: the standard (civil) lease, the retail lease (often misleadingly called “commercial lease”), the residential lease and the agricultural lease. Office leases are governed by the rules applicable to standard (civil) leases.

In contrast to rights in personam, there are a limited number of rights in rem. Under Belgian law, the following are considered real rights:

  • Ownership
  • Usufruct
  • Rights of usage
  • Rights of residence
  • Emphyteotic lease
  • Right of superficies (also referred to as building right)

The most absolute right in rem is the right of ownership.

Real estate ownership entails all the rights and privileges afforded to the owner, which includes the right to use the property, the right to receive all revenues flowing from the property and the right to abuse the property (including its destruction), subject to restrictions imposed by any applicable laws and regulations and subject to sanctions arising pursuant to the rules of civil liability when the owner is either causing damage to others through his/her fault or, through no fault, is causing abnormal damage to neighbouring properties.

Pursuant to the principle of accession, ownership of land automatically brings with it ownership of all that is erected on it. Accession is therefore a method of acquiring ownership whereby the owner of a principal asset becomes the owner of all that is incorporated therein.

According to this principle, the owner of a plot of land automatically becomes the owner of any construction erected on the land, regardless of the identity of the person who erected the building and/or the ownership of the building materials, unless otherwise agreed with that person. It is possible for the owner to waive its right of accession. Such waiver results in the builder becoming owner of the building and is generally construed as giving rise to a right of superficies or an emphyteotic right (long lease) which, by law, are limited to 50 years (superficies) or 99 years (emphyteotic).

Rights in rem (other than the right of ownership) over property are from time to time created to grant a right of use over property. Usufruct, emphyteotic lease and the right of superficies are all examples of this. For the “lessee” they usually offer more stability than a mere lease. For the “lessor” they usually guarantee income over a long period of time.

Moreover, in certain circumstances, the acquisition of rights in rem can be considered as an alternative to a purchase. Rights in rem are usually granted for a very long period (up to 99 years), and procure extensive rights for their holder.

Transactions having the effect of transferring title to a real estate property or of creating a right in rem encumbering such a property may be recorded at the Mortgage Registrar Office. Registration is required in order to have a title enforceable against all third parties, who may take precedence in the absence registration (see section 12).

3. Employees – What employment issues affect real estate acquisitions?

Employment issues are not common in relation to the acquisition of real estate. Those which may be relevant to real estate transactions typically concern the transfer of undertakings and redundancies.

Transfer of undertakings – TUPE

TUPE is likely to have significant consequences on employment issues. TUPE applies when there is a change of employer. There is no change of employer when the operation only consists in the change of shareholder. It may apply when there is the sale or transfer of a business or, for example, the outsourcing of the management of a property to a third party. This might occur in the sale of a shopping centre having its own management and security staff. The broad effects of TUPE are that:

  • the employment contracts are automatically transferred from the transferor to the transferee
  • the working conditions (seniority, salary, responsibilities, working time, etc.) and collective bargaining agreements (working hours, thirteenth month, salary, etc.) existing with the transferor have to be maintained, except in principle for the old-age, invalidity and pension benefits payable under schemes supplementing the official social security system
  • transferor and transferee are in principle jointly liable for the debts resulting from the employment contracts existing at the time of the transfer
  • dismissal for a reason connected to the transfer is automatically unlawful – unless for an “economic, technical or organisational reason entailing changes in the workforce” and
  • employees’ representatives must be informed and consulted about the transfer prior to the transfer (if there are no employees’ representatives, the employees concerned by the transfer have to be informed).

Although the legal effects of TUPE cannot be avoided, it is possible to apportion TUPE liabilities by agreement between the transferor and the transferee. Normally the transferor will agree to be responsible for all claims and liabilities relating to employees up to the date of transfer, and the transferee will take on all post-transfer employment liabilities. Such an agreement concluded between the transferor and transferee has no effect as against third parties.

Redundancies

Redundancies may arise on the closure of a business or part of a business or where there is a reduction in the number of employees required, for example on the merger of two businesses or a TUPE transfer. Care should be taken to ensure that the redundancies are carried out according to a strict procedure which entails information and consultation of the employees or their representatives, before any decision is taken.

4. Procedure – What are the steps in a sale and purchase transaction?

The direct acquisition of a property is made by the seller and the buyer entering into a contract of sale. The contract of sale is concluded when there is an agreement between them on the property being sold, on the price and on the essential elements of the contract.

The contract of sale is documented in writing. This written contract may be drafted privately, i.e. without the intervention of a public notary. It is then commonly called a compromis de vente/verkoopscompromis.

The compromis de vente/verkoopscompromis is only enforceable between the seller and the buyer.

For the purpose of making the transfer of title enforceable against third parties, the sale must be recorded on the land register called Mortgage Registrar. This formality is called the transcription/overschrijving.

For the purpose of recording the sale in the Mortgage Registrar, the seller and the buyer must normally sign a notarial deed with a public notary.

The public notary takes care of recording the deed on the Mortgage Registrar.

In practice, the compromis de vente/verkoopscompromis is signed in a first phase. The signature of the notarial deed takes place in a second phase, not exceeding four months. The transfer tax (see section 12) is due prior to recording the deed in the Mortgage Registrar and latest four months after the signature of the compromis de vente/verkoopscompromis.

The public notary must notify the tax authorities of the sale transaction at least 12 business days prior to the execution of the notarial deed. If taxes are due by the seller, they will be deducted by the notary public from the purchase price.

Certain formalities which may include an environmental survey and/or the delivery of information in relation to the energy performance of the building, must be carried out in order to validly complete the sale of the property.

5. Contract terms – What provisions does a real estate contract contain and what is implied by law?

Provisions of the contract

A contract of sale, as mentioned in section 4, is at the outset an agreement between the seller and the buyer, and is called a compromis de vente/verkoopscompromis.

This contract is made in writing and contains agreement on the property sold, on the price and on the essential elements of the contract.

By the signature of the compromis de vente/verkoopscompromis, the sale is perfected between the seller and the buyer. It is definitive. The seller is under the obligation to transfer the property to the buyer and the buyer must pay the price to the seller. The agreement must provide for the timing of the transfer of title. Normally, such transfer is deferred until the signing of the notary deed.

However, parties can postpone the definitive character of the compromis de vente/verkoopscompromis and defer its effects by way of conditions precedent.

A real estate sale agreement commonly contains, whatever the nature of the property sold, provisions concerning the identification of the parties, the property being sold and the state of the property. Since the buyer buys the property in its current condition at the moment of the transfer of title and such transfer is usually deferred until the signature of the notarial deed, if damage occurs between the compromis de vente/verkoopscompromis and the signature of the notarial deed, the seller will be responsible for the repair. The parties do, however, have the ability to provide for other arrangements.

Every easement on the property being sold and known by the seller or which appears on the title deeds of the property will be mentioned in the agreement.

As the price is an essential element of the contract of sale, it has to be established with certainty. In the majority of the cases, the price will be paid on the day of execution of the notarial deed. Usually, a deposit of 10% of the total sale price is paid upon the signature of the compromis de vente/verkoopscompromis.

The compromis de vente/verkoopscompromis and the notarial deed usually contain a clause discharging the seller of all its obligations due to any hidden flaws (but only those the seller was not aware at that time).

It is usual that the seller declares that the property is insured against fire and other connected risks until the notarial deed is signed. By law, this cover extends for a period of three months following the sale.

The agreement contains a discharge for the property concerning charges and mortgages and the notary will carry out the necessary steps to that effect.

The contract of sale will provide for some general clauses concerning the conformity of the property sold with the town planning legislation. Similarly, the contract of sale will also contain clauses dealing with compliance with environmental legislation, including soil pollution (see section 10).

Terms implied by law

The Civil Code provides for two guarantees: a guarantee in respect of hidden defects affecting the property and a guarantee in respect of the title to the property.

The guarantee in respect of hidden defects is generally waived by the buyer. Such waiver however does not cover defects of which the seller was aware at the time of the sale.

6. Due Diligence – What investigations does the buyer normally make?

Before signing the compromis de vente/verkoopscompromis

The prudent buyer is likely to commission a survey of the building and in appropriate cases, soil and geological investigations, plant and machinery tests, and environmental investigations.

In the context of the pre-acquisition due diligence, the buyer’s lawyers will investigate the title to the property. The buyer’s lawyers will consider the entries in the Mortgage Registrar and all relevant historic title documents.

In practice, the buyer’s lawyers will order a mortgage certificate from the Mortgage Registrar. The certificate will confirm whether or not the title is registered. Additional details of all other registered interests of the seller need also to be obtained from the Mortgage Registrar.

Where the property is leasehold, or subject to leasehold or other occupational interests, the terms of the relevant occupational documents need to be considered carefully to ensure they are not contrary to the buyer’s intentions for the property. The buyer’s lawyers will also need to check whether these documents require the consent of any third party to the transaction.

The buyer’s lawyers will also conduct various searches to check the position regarding municipal and zoning consents, environmental matters, easements, works carried out, etc. Where the seller is a company and the sale bears on its business or activities, the buyer’s lawyers will also conduct searches regarding all properties owned or occupied by the company in relation to its business or activities. A search will also be done to ascertain whether the company is solvent and may dispose of its assets freely.

The buyer’s lawyers will then raise any particular matter of concern with the seller.

The seller generally gives representations, which may be actionable if wrong or misleading.

Reporting to the client

Before the execution of the agreement the buyer’s lawyers usually report their due diligence findings to their client, raising any matter of particular importance or concern. As the case may, this may lead to the negotiation of specific indemnity clauses.

Pre-completion

Before completion (which materialises in the execution of the notarial deed), the buyer’s lawyers will normally ask the seller to divulge any further information that has arisen since the signature of the compromis de vente/verkoopscompromis.

7. Registration and Notarisation of real estate – What are the basic requirements?

In Belgium, the land register is called the Mortgage Registrar (Bureau de la Conservation des Hypothèques/Kantoor van Bewaring der Hypotheken).

Belgium has a Mortgage Registrar for each judicial district.

Registration of title with the Mortgage Registrar is required in order to have enforceable title vis-à-vis third parties who are entitled to rely on the absence of public registration in the register. Only persons legally succeeding to the owner and persons acting mala fide are deemed to have knowledge relating to the title of the owner even if the transaction relating to the transfer of title has not been recorded with the Mortgage Registrar.

Transactions having the effect of transferring title to a property, or of creating a right in rem encumbering such a property, such as a right of superficies, may be recorded with the Mortgage Registrar but only if they occur pursuant to a contract between living persons. Transfer of title occurring following the death of a person or pursuant to the law (such as by way of accession) may not be recorded with the Mortgage Registrar.

Recording the relevant transactions must occur as soon as possible in order to render the transfer of title enforceable vis-à-vis third parties.

The costs of registration consist of the notarial fees and the fees of the Mortgage Registrar. These fees are fixed by royal decree and depend on the type of transaction and the amount involved. They are usually based on a scale or on a percentage of the amount involved in the transaction.

8. Permits – What permits are required for the use and occupation of real estate and are they personal?

Planning/Zoning permit

In general, a building permit will be required for the construction of a new property or for the re-building (i.e. refurbishment of an existing building or for the change of use of a building).

The Flemish, Brussels and Walloon Regions are mainly responsible for developing and setting up the town planning policy. In the Flemish and Walloon Regions, the municipal authorities (Collège des bourgmestres et échevins/College van Burgemeester en Schepenen or Council of the Mayor and his Aides) are competent to deliver building permits. In Brussels, the regional public servant (fonctionnaire-délégué/gemachtigd ambtenaar) is competent to deliver building permits that require an environmental impact assessment, or that impact on works that are considered of general interest (e.g. utilities, public buildings, …) or which are located in specific areas.

When deciding on the issue of a building permit, the relevant authorities will first examine whether the intended construction or re-construction complies with any applicable zoning plans that have been adopted at the regional and/or municipal levels. The relevant authorities will also consider the general interest of the public and the interest of the so-called good town planning.

Moreover, for most building projects, a prior evaluation of the building project’s effect on the environment is to be provided by the applicant at the time of application. For specific projects, a study of such impact must be performed by agreed bodies and will give rise to a public inquiry. Account must also be taken of the specific regional legislation implementing the Energy Performance of Buildings Directive.

If the building permit application requires derogation from an applicable zoning plan or if no zoning plan applies to the construction in question, the prior advice of the regional public servant is required. However, this advisory system does not exist in the Flemish Region (except for a few municipalities as a transitory measure).

After construction, the competent authority will verify whether the construction was made in accordance with the provisions of the permit granted.

A different type of specific permit is required for construction works relating to historically or architecturally important buildings or landscapes. The Flemish, Brussels and Walloon Regions have adopted Decrees which set up an inventory of protected monuments or landscapes. In the Brussels and Flemish Regions, the specific permit is integrated in the building permit, but in the of case construction works that would not otherwise require a building permit, the specific permit must be obtained separately.

Commercial establishment permit

Since 1 June 2014, permits for commercial establishments are regulated by the Regions and no longer by the Federal state.

In the Flemish Region, the Act of 13 August 2004 on permits for commercial establishments, the so-called “Ikea Act”, requires municipal authorities to issue a socio-economic permit for stores of a “net commercial area” exceeding 400 sqm. If the net commercial area exceeds 1,000 sqm, an advisory opinion of the regional Committee is required. Decisions taken by a relevant municipal authority can be challenged, in the first instance, before the Government and then before the Council of State and/or courts.

The delivery of the permit requires assessment of the following four criteria:

  1. spatial location of the commercial site;
  2. consumer protection;
  3. compliance with social and employment law;
  4. protection of the urban environment.

The Walloon Region has adopted a new Decree on permits for commercial establishments. A permit is required for stores having a “net commercial area” of between 400 sqm and 2,000 sqm. Such permits are issued by the municipal authorities.

If the net commercial area exceeds 2,000 sqm, the permit is issued by the Regional civil servant (Fonctionnaire des implantations commerciales). In assessing “the net commercial area”, different advisory opinions may be required. The decision taken by a relevant authority can be challenged, in the first instance, before the Government and then before the Council of State and/or courts.

The delivery of the permit requires assessment of the following four criteria:

  1. spatial location of the commercial site;
  2. consumer protection;
  3. compliance with social and employment law;
  4. protection of the urban environment.

In the Brussels Region, the commercial establishment permit is been included in the building permit (please see above).

Environmental permit

In relation to environmental issues, the municipal authorities are responsible for issuing low level environmental permits.

High level environmental permits have to be issued by the provincial authorities in the Flemish Region or, in the Brussels Region, by a special body: the Brussels Institute for Environmental Management (IBGE/BIM).

In the Flemish Region, environmental permits are governed by the Decree of 28 June 1985 regarding environmental permits (“Environmental Permit Decree”). The Environmental Permit Decree has introduced a comprehensive environmental consent system for listed facilities in this region. The Environmental Permit Decree was implemented by the Flemish governmental Decree of 6 February 1991 (commonly referred to as VLAREM I). The Environmental Permit Decree applies to so-called installations and/or activities, which are considered to be harmful to human beings or the environment. The Decree distinguishes between three classes of installations: Class 1 and 2 installations require a prior environmental permit whilst Class 3 installations only need to be notified to the municipal executive board. An application must be filed with the municipal executive board (Class 1 installations) or the provincial executive board (Class 2 installations). The holder of the permit granted under the Environmental Permit Decree must comply with any applicable environmental regulations, such as, but not limited to, those contained in the Flemish governmental Decree of 1  June 1995 (commonly referred to as VLAREM II).

In the Brussels Region, environmental permits are governed by the Regional Act of 5 June 1997 on environmental Permits (BRAEP). The BRAEP introduces a comprehensive environmental permitting system for listed facilities in the Brussels Region. The BRAEP applies to installations and/or activities that are deemed to be harmful to human beings or the environment. Listed installations are classified into four categories: class IA, class IB, class II and class III. Class IA and class IB installations require a prior environmental permit to be obtained from the Brussels Institute for Environmental Management (IBGE/BIM). Class II installations require a permit from the municipal executive board. Those permits require an assessment of the effects on the environment and a public inquiry. For class IA, this assessment has to be done by a licensed consultancy and engineering company. Class III installations need only to be notified to the municipal executive board. The holder of the permit granted under the BRAEP must comply with any applicable environmental regulations.

In the Walloon Region, environmental permits are governed by the Regional Act of 11 March 1999 on Environmental Permits (WRAEP). The WRAEP has introduced a comprehensive environmental permitting system for listed facilities in this region. The WRAEP was implemented by the Walloon governmental decrees of 4 July 2002. The WRAEP applies to so-called installations and/or activities that are considered to be harmful to human beings or the environment. The WRAEP distinguishes between three classes of installations: Class 1 and 2 installations require a prior environmental permit whilst Class 3 installations need only to be notified to the municipal executive board. An application must be filed with the municipal executive board (Class 1 and 2 installations). Those permits require an assessment of the effects on the environment and a public inquiry. For class 1, this assessment has to be done by a licensed consultancy and engineering company. The holder of the permit granted under the WRAEP must comply with any applicable environmental regulations.

Environmental permits related to risk activities are issued in compliance with the IPPC regulation, which from January 2014 is replaced by the directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on industrial emissions.

In the Brussels and the Flemish Regions, the building permit will only become effective once an environmental permit has been obtained and vice versa.

The Walloon Region has merged the building and the environmental permit into one single authorization called “permis unique”.

9. Insurance and Risk – What insurance will the parties effect and when does the insurance risk pass at the time of sale?

The owner of a property will in most cases be responsible for the insurance of the property prior to a contemplated sale.

However, where the property is subject to a lease, the terms of the lease will determine which party has the responsibility to insure the property. Often, commercial or residential lease agreements provide that the tenant is held liable for insuring the contents of the leased property, whereas the lessor remains responsible for the outside of the building and for construction-related damage.

With regard to buildings which are under construction, it is important that parties arrange clearly for the changeover of the insurance responsibility from the constructor to the buyer. During the construction of the property, the contractor (unless the parties agree otherwise) remains liable for all risks related to and damage caused by or in the process of construction. As from the delivery of the buildings to the buyer (or tenant), the construction policy will no longer apply and the buyer (or tenant) will need to take out other insurance.

Insurance policies are contracts intuitu personae, implying that their conclusion and existence depend on the personal qualities or capacities of the contracting party. Insurance policies are therefore not transferable on the sale of a real estate property. In larger real estate transactions it is often contractually provided that the seller of the property undertakes, during a certain time after the closing of the sale, to maintain and hold the insurance policies applicable to the property. This allows the buyer some time to arrange for the required insurance transition.

10. Environmental – What are the common environmental issues?

Note: Besides soil contamination, the presence of all required and valid environmental permits/socio-economic permits (see section 14) is also an important issue in real estate transactions, as well as PEB regulations.

Soil contamination

Following the Flemish Soil Decree of 27 October 2006 (replacing an earlier decree), every owner of land located on Flemish territory must, prior to any transfer of land, request a soil certificate from the Flemish Waste Administration (OVAM) and inform the prospective acquirer of the land about the content of this certificate. The content of the soil certificate must also be copied into the private and notarial transfer deed.

“Transfer” is broadly defined in the Decree. It includes the transfer of ownership as such, the establishment of any rights in rem on land, mergers, etc. Share transactions do not, however, qualify as a transfer under the legislation. Transfers of properties that fall under the regime of co-ownership are also excluded under some circumstances.

Failure of the owner to comply with the obligation set out above carries fines. Moreover, the purchaser and/or OVAM may request the courts to nullify the transaction.

The soil certificate does not constitute a guarantee that there is no pollution on the transferred land. It only reflects the data available in OVAM’s registers of contaminated land as to the state of contamination of the land.

In addition to this general transferor’s duty, a strict procedure must be followed for land on which an installation/activity is or was established/performed, and which is listed as a risk installation/activity in the schedules to the VLAREM I Decree (see section 14). This list specifies activities and installations which require an environmental permit, normally industrial activities/installations involving dangerous and/or hazardous substances.

Land on which such risk activity or installation is or has been located can only be transferred after the owner complies with a specific procedure as provided by the Decree of 27 October 2006.

In the Brussels Region, a Decree on soil pollution was adopted on 5 March 2009 (replacing an earlier decree). The Decree came into force on 1 January 2010. The procedural rules provided by this Decree in respect of property transfers do not substantially differ from those of the Flemish Decree of 27 October 2006. The Decree provides for the creation of an inventory of contaminated soils and soils where there is a strong presumption of pollution. In this inventory, the name of the owner is recorded. This inventory is public and constitutes a source of information for a prospective buyer. To remove the site from the inventory, clean up may be required.

In the Walloon Region, a Decree on soil pollution was adopted on 5 December 2008 (also replacing an earlier decree). The Decree came into force on 16 June 2009, with the exception of its provisions on transfers of properties which will enter into force at a later date (to be determined by the government).

11. Pricing/Valuation – What sets the price/valuation of real estate?

The price must be certain, be it determined or determinable (specified by the square metre or according to expert opinion.) Furthermore, the price must be real, i.e. not simply nominal. It may be that a nominal price is an attempt to disguise a gift. A gift will be upheld at law.

The determination of the price cannot turn on the will of one of the parties or upon the conclusion of an agreement post-sale.

Pursuant to article 1591 of the Civil Code, the price is, in principle, fixed by the parties.

Article 1592, however, envisages that the price can be determined by a third party expert. The third party may play either an ancillary or a principal role. In the former case, the parties decide on the basic sum, and the exact price is calculated by an expert. The contract governs the actions of the expert. Alternatively, the determination of the price could be left to the discretion of the expert, through an express clause in the contract. In these circumstances, the sale will only complete and the property transferred once the expert has fixed the price.

12. Taxes and Costs – What are they and who pays them?

Generally, please refer to our CMS transaction costs guide as to the nature and amount of taxes and costs.

Transfer tax

The transfer or exchange of real estate located in Belgium is as a rule subject to a 12.5% or 10% (depending upon whether the property is located in Brussels/Wallonia or Flanders) transfer tax (droit d’enregistrement/registratierecht) calculated on the higher of the sale price and the market value of the property. The market value of a property is defined as the selling price that could be obtained in the open market from a potential purchaser fully aware of all the circumstances. The transfer tax is normally payable by the buyer unless otherwise agreed between the parties.

Reduced rates are applicable in some cases. For example, the transfer tax rate is reduced to 5% when the buyer is a property dealer whose business activities involve the buying and selling of properties, provided that the property is resold within ten years from the date of purchase. In order to benefit from the property dealer status, the buyer will have to provide a guarantee to the tax authorities. In order to maintain such status, the dealer must sell at least three properties within a period of five years following the acquisition of the status.

Where the selling price is proven to be lower than the market value, the tax authorities are empowered to impose a penalty on the purchaser and on the seller equal to the amount of the tax evaded. (see below)

Under certain conditions, the transfer tax can be partially recovered when a property is resold within two years of its acquisition.

VAT

The transfer of buildings is, under certain conditions, subject to value added tax (VAT) at a rate of 21%. In such a case, no transfer tax will be due.

The VAT regime applies to sales of buildings where (i) the seller is either a real estate contractor or has opted to sell the building with VAT and (ii) the building is “new” within the meaning of the VAT legislation. A building is considered new for VAT purposes until 31 December of the second year following the year in which the building was occupied for the first time.

Since 1 January 2011, the transfer of land (taking place together with a “new” building – see above) is, under certain conditions, subject to VAT and exempt from transfer tax.

If the acquisition is made under the VAT regime, the purchaser will be entitled to deduct in whole or in part the input VAT insofar as it uses the building for economic activities that are subject to VAT.

According to the Belgian VAT Code, the letting of immovable property is in principle a VAT-exempt transaction. If buildings that have been constructed or have been acquired with VAT are rented, the input VAT paid will not be recoverable.

If a real estate finance leasing agreement which meets the conditions of Royal Decree n°30 of 29 December 1992 is entered into for a newly constructed building, the rent payable by the lessee will be subject to VAT and therefore the input VAT on the buildings will be recoverable.

Income tax and annual property tax

For income tax purposes, a deemed income (the so-called revenu cadastral/kadastraal inkomst) is calculated for all properties located in Belgium. This income is determined by reference to the “normal” net annual rental income of the property, or of the equipment which is regarded as immovable property.

Based on this deemed income, the annual property tax (précompte immobilier/onroerende voorheffing) is levied each year by way of assessment against the owner, emphyteotic lessee or the holder of a right of usufruct. The rate varies depending on where the property is situated.

The annual property tax is always assessed in the hands of the person who owns the property, or of the holder of a right in rem thereon, on 1 January of the year in question. If the property is transferred after that date, the purchaser will not have to bear that charge for the first year, unless otherwise agreed between the parties.

The annual property tax is to be considered as a once-and-for-all tax, as it will not be refunded and cannot be credited against corporate tax. It is, however, deductible from a company’s taxable income as a business expense.

Corporate income tax

A real estate company is subject to normal corporate income tax at the current rate of 33.99%. The taxable income is determined on the basis of the company’s annual accounts subject to certain tax adjustments, such as the disallowance of certain expenses and the taxation of certain provisions for future charges or for bad debts.

The company’s net income will therefore be calculated by deducting from the gross income the expenses connected with the property, such as depreciation of buildings, repairs, maintenance, renovation and similar costs, interest on loans taken out to finance the acquisition of real estate, annual property tax, etc. Office buildings may be depreciated at the rate of 3%, industrial buildings at the rate of 5%. Depreciation of land is in principle not possible. The transfer tax or the non-recoverable part of input VAT on a property acquired can either be deducted in the year of acquisition or can be depreciated over the depreciation period of the building or over a shorter period of time (e.g. three or five years).

Foreign companies may be subject to a special withholding tax on the sale of Belgian properties. This withholding tax, which constitutes a pre-payment that may be offset against the final corporate tax bill, is collected by the civil law notary when the deed of sale is signed. This special withholding tax (33.99%) is calculated on the amount of the capital gain realised by the foreign company, without any deduction of losses carried forward.

Fees

All costs associated with the sale of a property are met by the purchaser on the date the notarial deed of sale is signed.

The main costs include the transfer tax, VAT, the Mortgage Registrar fees and the notary fees.