Investing in real estate beyond Belgium
A growing number of Belgians are purchasing real estate abroad, either as a holiday home or a safe investment. Whilst in the past, the property transactions were mostly undertaken in the neighbouring countries such as Spain and France, the Belgians have recently shown increasing interest in other exotic destinations such as South Africa and Dubai. However, the opposite movement has also been popular as more and more foreign investors are interested in Belgian real estate.
Purchasing real estate in a foreign country can be a daunting process if you are not familiar with the local legislation, custom and procedures. Apart from issues related to taxation, an investor should be aware of the legal and financial implications in respect of, specifically, international private law, inheritance law and matrimonial property law. One of the most frequently asked questions from our clients is whether it is best to purchase the property in private name, or by a Belgian and/or foreign company. Unfortunately, there is no short answer to this question as each case is fact sensitive. It is necessary to analyse each case individually by taking into consideration the background facts, as well as the client's goal and specific wishes.
In general, the following factors are relevant to our assessment:
- Where is the property located?
- Is it situated in an exclusive holiday destination?
- Is it intended to be an investment which will be rented out and/or for further sale?
- Is the house in perfect condition or should any repairment or renovation work need to be done?
- What are the possibilities of funding?
- Is the buyer married? If yes, is there any marriage contract signed between the couple?
- Does he/she have any children? If yes, how old are the buyer and his/her children? How is the parent-child relationship?
101 questions to keep in mind!
Purchasing real estate in belgium
Compared to other countries, real estate in Belgium is relatively inexpensive. Brussels ranks #23 on Mercer’s 20167 Quality of Life Index, ahead of London at #39 and New York at #44. Better still, Brussels only ranks #86 on the Cost of Living Index, as compared to London at #17 and New York at #11, which gives you more bang for the buck!
1. Legal formalities
As a general rule, Belgium does not limit foreign ownership of Belgian property.
To enhance the efficiency of finding your dream property, the conventional and yet safe way is to seek guidance from a relocation office or a real estate agent to assist you throughout your search. You can, of course, conduct research online and arrange for visit of prospective properties by yourself. After successfully locating your future home, several steps have to be taken to acquire the legal and beneficiary titles of the property.
Legally speaking, the sale of property is established as soon as the seller offers to sell, and the buyer accepts to purchase, the subject property at a mutually agreed price. Such agreement will be recorded in a formal document signed by both parties creating legally binding effect. At any stage before signing the written agreement, we recommend that you seek advice from a lawyer:
- to conduct due diligence on the subject property to ensure that it is a sound transaction without any latent defect and that you are purchasing at a fair market value; and
- to prepare the sale and purchase agreement which contains all the essential terms and conditions so as to avoid any unpleasant surprise or potential dispute in the future. Notwithstanding the above, the signed agreement usually does not yet transfer the property ownership to the buyer which requires a further step - to instruct a notary public to prepare a notarial deed which will be registered at the competent mortgage office. Upon registration, the tax authorities will be notified of the change in ownership. The notary fees for drafting the notarial deed are stipulated by law, currently calculated on a sliding scale based on the value of the transaction. Additional costs to take into account are the cost of the registration, reimbursements of the time required by the notary office to conduct certain investigations (differs from notary to notary) and, if applicable, costs related to the mortgage credit.
2.1 Upon acquisition of the property
When buying real estate in Belgium, it is obligatory to register the sale and purchase agreement, or the notarial deed, at the registration office with competence over the location of the property. Following the registration of the agreement, a registration tax is due. The tax rate differs depending on the region in which the property is located, i.e. 10% in Flanders, 12.5% in Brussels and the Walloon Region.
With regard to properties that are "new", being less than two years old, VAT at a rate of, in principle, 21% shall be due on the sale of the house instead of the registration fee.
2.2 When in possession of the property
Every year, the owner of the real estate in Belgium is required to pay real estate tax. Real estate tax is due by every property owner on the 1st of January of the relevant tax year. The tax rate amounts to 2.5% (Flanders) or 1.25% (Brussels and Walloon Region) of the cadastral value (indexed) of the building. It is important to note, however, that the cadastral value is in most cases significantly lower than the market value.
2.3 When renting out the property
Perhaps you have purchased the Belgian real estate for the purpose of investment. Should it be the case, it is important to know that Belgium has a favorable tax regime for income generated from real estate.
2.4 Inheritance tax
All real estate that is located in Belgium is subject to the Belgian inheritance tax from 3% to a maximum of 27% (Flanders) or 30% (Brussels and Walloon Region) in case of death.
3. Structuring your purchase because it matters
In addition to the legal formalities discussed above, it is sometimes advisable to structure your purchase by buying the real estate through a company rather than in your own name for tax optimisation purpose. Moreover, it may be necessary to consider the length of your future stay in Belgium in order to plan an easy exit with limited tax implications. Each region in Belgium applies different taxation rules and rates, which often attracts the comment that a certain region is more favourable than the others. The good news is: we can walk you through the legal jungle to reach your financial goal at a cost-efficient manner which normally includes diligently structuring the proposed transaction.