Buying a home in Belgium can cost more than you think, but it can also offer great tax benefits. Bart Smets and Caroline Zelderloo of Deloitte & Touche explain.

During your stay in Belgium, you might consider purchasing real estate in here. Rental charges are often high and the potential tax benefits resulting from a mortgage loan for the acquisition of Belgian real estate encourages some expats to invest in Belgian real estate.

When doing so, many tax considerations should be taken into account. Below is a short overview of what you should keep in mind.

Expenses related to the purchase of real estate

When weighing the cost of purchasing real estate in Belgium, more than the purchase price of the house or apartment should be considered. The purchase of real estate always includes a visit to the notary, registration of the mortgage (if any) and registration of the real estate.

In particular, with regard to registering the real estate with the Belgian tax authorities, a significant additional tax cost arises. Up to 31 December 2001, this additional tax cost was equal to 12.5 percent of the purchase price of the real estate. For “small” real estate, the percentage was reduced to 6 percent.

The Flemish Regional Government has since introduced new legislation, which resulted in the percentages being reduced to 10 percent and 5 percent respectively, with regard to real estate in Flanders and acquired as of 1 January 2002.

The Regional Government of Brussels followed this example and introduced a kind of tax rebate as a result of which —when certain conditions are met — EUR 45,000 of the purchase price of real estate in the Brussels region is exempt from registration tax. Note however that the registration tax rates remain unchanged. This regime entered into effect on 1 January 2003.

To date, the Walloon Regional Government has not introduced new legislative initiatives over to real estate registration costs.

The impact of investment in Belgian real estate on the continued application of the special tax regime

If you are benefiting from the special tax regime for foreign executives who are temporarily employed in Belgium you should consider whether you will continue to meet the conditions to benefit from the special tax regime after the purchase of Belgian real estate.

The purchase of Belgian real estate is an important investment which strengthens your economic links with Belgium: in addition to the investment itself, you often sign for a mortgage as well as Belgian life insurance to cover the mortgage repayments.

As the special tax regime requires your stay in Belgium to be of a temporary nature, it is advisable to investigate whether the centre of economic interests can still be claimed to be outside Belgium when real estate is purchased within Belgium.

General principles with regard to the Belgian income tax treatment of Belgian real estate

Besides the real estate withholding taxes (onroerende voorheffing/précompte immobilier) that are levied on an annual basis, owners of Belgian real estate should, as a general rule, report their real estate income on their Belgian personal income tax return.

In case of real estate property which has been built upon (this could be a house or commercial property for example), which is not rented to individuals or companies for their professional use, the notional rental value of the real estate property (kadastraal inkomen/revenue cadastral) should be reported in the Belgian income tax return.

If the real estate property is occupied by the owner (and his family), the reporting of the real estate income in the Belgian personal income tax return will most likely not result in additional income taxes payable, as the Belgian tax system provides for a housing deduction equal to at least EUR 3,953 (income 2002) but can be increased depending on the size of the family.

Furthermore, the Belgian tax system allows interest payments to be deducted from the taxable value of the real estate income reported in the Belgian personal income tax return.

In the case of an owner-inhabited home, the interest deduction also gives rise to a tax reduction of 12.5 percent of interest payments deducted from the taxable value of that dwelling.

Interest payments related to mortgage loans concluded to build or renew Belgian real estate can – within certain limits – even lead to an additional interest deduction from the professional income of the owner when certain conditions are met.

Capital reimbursements with regard to mortgage loans can, within certain limits and when certain conditions are met, also lead to a tax benefit that can vary from 30 percent to 50 percent of the capital reimbursement. The same goes for the premiums paid with regard to life insurance.

As detailed above therefore, it is clear that the purchase of real estate in Belgium can – within certain limits and provided certain conditions are met – reduce the overall tax burden.

Transfer of Belgian real estate ownership rights via sales agreement

Capital gains realised upon the sale of Belgian real estate are non-taxable if it has been occupied during a period starting on 1 January of the year preceding the one in which the real estate was sold, and up to the moment of sale.

Capital gains realised with regard to Belgian real estate that does not fulfil the above condition for tax-exemption are taxable if they relate to real estate that has been sold within five years following acquisition. The capital gain will then be taxed at a rate of 16.5 percent.

Return to the home country

Belgian real estate owned by Belgian non-resident taxpayers is often rented out. In such cases, Belgian net real estate income not exceeding a limit of EUR 2,500 does not need to be reported in a Belgian non-resident income tax return, provided that the real estate income is your only Belgian source income. This limit is often not reached when the real estate property is let to individuals who use it for private purposes.

March 2003

Caroline Zelderloo is a tax consultant in the International Assignment Services practice of Deloitte & Touche in Diegem (Brussels).

Bart Smets began his career with the Belgian Ministry of Finance as a tax inspector, and also has experience with another accounting firm as a senior tax consultant in the Human Capital department.