New tax measures for 2024: what do they mean for the real estate market?
As the real estate market struggles, the Belgian federal government made things more challenging with additional tax measures affecting the real estate market, announced on 9 October 2023 as part of the 2024 budget. These measures affect the VAT regime for demolition and reconstruction of residential assets, the registration duties for long leases and building rights, and the exit tax for specialised real estate investment funds.
Here are the key takeaways:
- Increase of VAT for demolition and reconstruction of private residential assets. The reduced VAT rate of 6% for demolition and reconstruction will become permanent, but only for private persons who use the newly constructed home as their sole and own residence with a maximum habitable space of 200 m². Property developers will be excluded, as well as investors since rental properties will not qualify for the reduced rate, unless they are rented to a social housing agency. For the current temporary regime, there is a transitional measure for projects that applied for a building permit before 1 July 2023. For the specific regime that applies in the 32 specific cities, the building permit should be applied for no later than 31 December 2023.
- Increase of registration duties on long lease and building rights. The registration duty for the creation and the transfer of these rights will increase from 2% to 5%. This will have an impact on the structuring of transactions involving these rights, but also on financing techniques such as lease-and-leaseback operations.
- Additional tax for early exit of specialised real estate investment funds (FIIS/GVBF) regime. An additional tax of 10% will be imposed if a property leaves the FIIS/GVBF tax regime less than five years after paying the exit tax of 15% on the capital gain. This is to prevent that the FIIS/GVBF regime would be abused to create a step-up in value at a low exit tax rate, allowing for tax-deductible depreciations based on the market value of the property once it returns to an ordinary corporate income tax environment.
The recent tax reforms will significantly impact the real estate sector and especially the ongoing residential (forward) deals, where the higher VAT rate will further reduce the tight margins developers currently operate on. If you want to know more about how they will affect your situation and how to optimize your tax position, please contact our real estate and tax experts. We are happy to assist you with any questions or concerns you may have.
