The draft Program Act of 28 June 2016 contains several tax rules applicable to the existing Belgian Regulated Real Estate Company (RREC*) and the new Belgian Real Estate Investment Fund (FIIS**) and creates the legal basis for the Belgian government to issue decrees implementing the FIIS regime. Final legislation is expected to be published during the summer.
New Belgian Real Estate Investment Fund (FIIS)
The FIIS is a Belgian special real estate fund regime dedicated to institutional investors. The fund is not listed on a stock exchange. The FIIS proves to be attractive from a tax perspective, in particular for non-Belgian investors and/or for investing in non-Belgian real estate. From a regulatory perspective, this regime is highly flexible as it benefits from a light registration procedure and a minimal number of restrictions.
A FIIS is subject to Belgian corporate income tax but with a minimal taxable basis, excluding rental income, capital gains, dividends or interest received by the FIIS in relation to Belgian and non-Belgian real estate (similar as is the case for existing RRECs).
An “exit tax” is triggered on Belgian real estate assets entering the FIIS regime via a conversion of an existing company, (de)merger or contribution. The tax is due on the unrealized capital gains (and untaxed reserves in the case of conversion/(de)merger) at a favourable tax rate of 16.995% (instead of the default rate of 33.99%) and can be offset with available tax attributes (e.g. tax losses and notional interest deduction).
Provisions modifying the existing RREC’s tax regime
The draft Program Act also contains some important changes to the current tax regime applicable to the RREC (these proposed changes will be equally applicable to the FIIS):
- The favourable exit tax rate would also become applicable if a company contributes Belgian real estate assets into the RREC (previously this was taxable at the default tax rate);
- Dividend WHT exemption on the part of income stemming from foreign real estate would apply;
- Effective taxation would be limited to 1.7% on dividends distributed by the RREC to Belgian corporate investors to the extent that it relates to the part of the income stemming from foreign real estate or from dividends for which the “subject-to-tax” condition is fulfilled.
Entry into force
The tax provision in the draft Program Act will be applicable as from assessment year 2016 on transactions and income attributed as from 1 July 2016. For the FIIS, the Implementing Decree should be published first before any FIIS can be formed, which is expected for the summer.
* In French: société immobilière réglementée (SIR); in Dutch: gereglementeerde vastgoedvennootschap (GVV)
** In French: fonds d’investissement immobilier spécialisé (FIIS); in Dutch: gespecialiseerd vastgoedbeleggingsfonds (GVBF)