Belgians and real estate, it has been a good marriage for decades. This applies not only to natural persons but also to companies. We are not limiting ourselves to the Belgian real estate market alone, but are increasingly looking abroad for opportunities. The advantages can therefore be numerous. A place to relax, an investment opportunity, ... The fact that the costs can be offset against tax is a nice bonus. But the latter is now unfortunately nipped in the bud!
The famous summer agreement has gradually brought about many changes in the tax landscape. One of these many legislative changes has remained under the radar, but it does have a significant impact on companies that invest in foreign real estate. For companies, it is no longer possible to deduct losses incurred in foreign establishments or foreign assets from Belgian profits for financial years starting as of January 1, 2020.
Operation of double tax treaties
Belgian companies are taxable on their worldwide income. To avoid double taxation, however, Belgium has concluded a double taxation treaty with many countries to determine which country may levy tax. 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 declaration, unless the costs of this property are greater than the income.
How it was
Your company had good results and you could still use some expenses. You also had your eye on a nice second home in Spain for a few weeks in the year to de-stress. An ideal combination since the costs of maintaining this property (registration fees, depreciation, interest, maintenance and repairs, etc.) are deductible from your Belgian profits.
In practical terms, you always had to keep a 'separate' bookkeeping extracurricular of all costs and income relating to this property. If according to these accounts you made a profit, then you could exempt this in your corporate tax return. If you made a loss (which is the situation in most cases), then you simply deducted this from the Belgian profits.
It is even better if you sell this property back, since the capital gain is exempt in Belgium. The costs deducted in previous years can be kept and do not have to be added back to the Belgian profits. Apart from a chargeable rent or benefit of any kind, there are therefore only (tax) benefits to such a foreign home.
How it is now
However, as mentioned above, the introduction of phase three of the summer agreement will bring about a major change as regards the tax deduction of the costs linked to this foreign residence. Indeed, the new law stipulates that as of 1 January 2020, losses from foreign assets are no longer deductible from Belgian profits. Consequently, if the off-balance sheet accounts of the Spanish home show that more expenses were incurred than income received, these will no longer be deductible from Belgian profits.
There is only one exception to still deduct these foreign losses. If you sell your Spanish property and the off-balance sheet accounts still show a loss, this becomes final and can be deducted from the Belgian profits.
Is this now the end?
The final phase of the summer agreement thus provides a little-discussed but important tax impact. Does this mean that investing in foreign real estate is no longer appropriate? Of course not! You will still need to de-stress from time to time.
However, the choice to invest in foreign real estate will no longer be inspired by tax reasons. There is one advantage, however: the tax authorities leave the past behind. Costs that were deducted in the past therefore do not have to be corrected.