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Belgians have had a solid relationship with real estate for decades. Not only natural persons but also companies like brick and mortar buildings. We also look outside the Belgian real estate market but are increasingly looking for opportunities abroad. After all, the benefits can be many. A place to relax, an investment opportunity, ... The fact that the costs can be offset fiscally is a nice bonus. But unfortunately, this fiscal offsetting is now being nipped in the bud!
The infamous summer agreement has created many phased changes in the fiscal landscape. One of these many legislative changes has always remained under the radar but has an important impact on companies that invest in foreign real estate. Companies are no longer able to deduct losses incurred in foreign establishments or foreign assets from Belgian profits for financial years commencing on or after 1 January 2020.
Double tax treaties
Belgian companies have to pay taxes on their global income. However, in order to prevent double taxation, Belgium has concluded a double taxation convention with many countries, to determine which country is allowed to levy taxes. For real estate, this is always the country where it is located. This means that all costs and revenues must always be processed according to the rules of that country. In Belgium, they are then in principle not included in the company's tax return, unless the costs of this property exceed the proceeds.
The situation in the past
Your company was doing well, and you could use some extra costs. You were already considering buying a nice second home in Spain to relax in for a few weeks every year. An ideal combination because the costs of maintaining this property (registration duties, depreciation, interest, maintenance and repairs, etc.) can be deducted from your Belgian profits.
From a practical point of view, you had to keep a 'separate' set of accounts for all costs and income relating to this property. If you made a profit according to these accounts, you could exempt this in the corporate income tax return. If you made a loss (which is the situation in most cases), you could simply deduct it from the Belgian profits.
It gets better once you sell this property again, as the capital gain is exempt in Belgium. The costs deducted in previous years can be maintained and they do not need to be added to Belgian profits retroactively. Apart from any rent to be charged or the benefit in kind, having such a property abroad only had (tax) advantages.
The situation now
However, as mentioned above, the introduction of phase three of the summer agreement brings about an important change regarding the tax deduction of costs linked to this foreign property. After all, the new law provides that, from 1 January 2020, losses from foreign assets can no longer be deducted from Belgian profits. Consequently, if the separate accounts for the Spanish property show that the costs exceed the income, these costs will no longer be deductible from Belgian profits.
There is only one exception for deducting these foreign losses. When you sell your Spanish property and the separate accounts still show a loss, this loss becomes final and can be deducted from any Belgian profits.
Is this the end now?
The last phase of the summer agreement thus creates a little discussed but important fiscal change. Does this now mean that investing in foreign real estate is no longer interesting? Of course not! You will still need to unwind from time to time.
However, the choice to invest in foreign real estate will no longer be inspired by tax reasons. There is an advantage: the tax authorities will not look back: any costs that have been deducted in the past therefore will not need to be retroactively adjusted.