Flemish tax authority changes position on in-kind distributions of real estate by private companies

The Flemish tax authority (Vlaamse Belastingdienst or Vlabel) has published an adjusted administrative position (SP 19078 dated 2 April 2024, available in Dutch only) in which it confirms that real estate transfer tax (RETT) (verkooprecht/droit de vente) of 12% does not apply to in-kind dividend distributions of real estate by a private company to its sole shareholder. This updated position is now realigned with the longstanding position of the Belgian Federal Public Service of Finance (FPS Finance).

For several years, Vlabel held that the distribution in kind of real estate located in the Flemish region by a private company to its sole shareholder by means of a capital decrease that is also partially imputed on reserves of the company (resulting in a partial dividend distribution), would immediately give rise to RETT. This position was contrary to that historically held by the FPS Finance, which considered that only a fixed registration duty of EUR 50 would apply to such a transaction.

Regional determination of RETT

RETT is a fully regionalised matter in the Flemish region, having been formalised by the integration of transfer taxes into the Flemish tax code (Vlaamse Codex Fiscaliteit or VCF).

According to article 2.9.1.0.4, 1st indent and article 2.9.1.0.5 of the VCF (cf. articles 129 and 130 of the Registration Duties Code (RDC) for the Brussels and Walloon regions), the transfer of real estate, other than by way of contribution, from a company to one or more of its shareholders, is in the Flemish region, in principle subject to RETT at a rate of 12% (whereas the rate is 12.5% in the Brussels and Walloon regions).

However, an exception to this rule is foreseen in article 2.9.1.0.4, 2nd indent of the VCF for real estate from “private companies” (i.e., a limited liability company/besloten vennootschap/société à responsabilité limitée, a limited partnership/commanditaire vennootschap/société en commandite, a cooperative company/coöperatieve vennootschap/société coopérative, and a general partnership/vennootschap onder firma/société en nom collectif). No such exemption exists for “capital companies” (e.g., limited companies/naamloze vennootschap/société anonyme), meaning that any transfer of real estate from a capital company to its shareholder(s) (whatever the nature of such transfer) would always give rise to RETT.

For private companies, article 2.9.1.0.4., 2nd indent of the VCF provides that RETT does not apply, and the operation is taxed according to its legal nature, if the property is transferred to a shareholder who:

• Originally contributed such property to the company (type 1 shareholder); or

• Was already a shareholder of the company when the company acquired the property involved (type 2 shareholder).

Moreover, if the property is undividedly transferred to multiple shareholders on the liquidation of the private company, the application of any proportional transfer taxes (and/or the application of the exception) will be deferred until the subsequent partition (verdeling/partage) of the property between those shareholders. The registration of the single undivided transfer to all shareholders only gives rise to the fixed registration duty, under the so-called “waiting regime” (wachtregeling/régime d’attente). The subsequent allocation of the property between the shareholders would, provided the exception for type 1 or 2 shareholders can be applied, only give rise to the partition right (verdeelrecht/droit de partage) as the transfer is considered, by its nature, as a partition. Otherwise, RETT would be due at the time of this allocation.

Furthermore, the 3rd and 4th indents of article 2.9.1.0.4 of the VCF provide that the waiting regime also applies in the case of a partial liquidation of a private company as well as on the transfer of real estate by the private company, without any compensation, to multiple shareholders by means of a repayment of available and/or unavailable contributions.

Although not explicitly stated in the RDC, the FPS Finance has always taken the position that the waiting regime also applies if the transfer of a property to multiple shareholders occurs during the company’s lifetime by means of a capital decrease (or repayment of available and/or unavailable contributions) or a dividend distribution.

In-kind distribution of real estate

Federal position (Brussels and Walloon regions)

Based on the above rules, a distribution in kind of real estate located in the Brussels or Walloon regions by a company to its shareholder(s) principally gives rise to RETT at 12.5%.

However, in the case of a distribution in kind of such real estate by a private company to a sole type 1 or 2 shareholder, the applicable transfer tax depends on the legal nature of the transfer. According to the established position of the FPS Finance, a distribution in kind of real estate, whether via the repayment of contribution or via a dividend distribution, cannot be considered as a transfer under an agreement but should be considered as a transfer pursuant to a fact, and therefore only the fixed registration duty applies (which is considered the final transfer tax if the transaction is performed for the benefit of the sole type 1 or 2 shareholder).

However, if the transfer is performed on the liquidation of the private company, or following a capital decrease/dividend distribution by the private company to multiple shareholders as a whole, the waiting regime applies. As a result, only the future allocation of the property between the private company’s shareholders could give rise to a proportional transfer tax. If the shareholders qualify as type 1 or 2 shareholders (and therefore eligible for the exemption) only the partition right of 1% (in the Brussels and Walloon regions) could become due. RETT would therefore only apply on the future allocation between the company’s shareholders if they do not qualify as a type 1 or type 2 shareholder.

Vlabel’s position

In 2019, Vlabel published a different position on its website in relation to the distribution in kind of a property by a private company to its shareholders. 

Contrary to the FPS Finance, Vlabel made a distinction between a distribution in kind that is charged on the portion of the equity that qualifies as “available and/or unavailable contribution” and on the portion treated as “available reserves.”

If a distribution in kind of real estate by a private company to the sole type 1 or 2 shareholder would be imputed on the available and/or unavailable contribution of the company, Vlabel was willing to agree with the position of the FPS Finance in relation to a capital decrease in kind, i.e., such a transfer could only be subject to a (final) fixed registration duty of EUR 50. However, if the distribution in kind was (partially) imputed on the company’s available reserves (and thus partially equivalent to a dividend distribution in kind), RETT at 12% would apply. Vlabel did not clarify why it treated a dividend distribution in kind differently from a repayment in kind of available and/or unavailable contribution, other than the fact that such a dividend was considered as a transfer for consideration. Vlabel may have wrongly considered it as a payment in kind of an existing debt from the company to its shareholder (onroerende inbetalinggeving/paiement immobilier) as such an operation would give rise to RETT. However, a payment in kind of an existing debt should only be at considered in a situation where the company initially intended to carry out a normal dividend distribution, but later decided to pay off the debt in kind by means of the transfer of a property (and thus not in a situation where a company has initially decided to perform a dividend distribution in kind).

Belgium’s Deloitte Legal team was able to discuss this reasoning with Vlabel, resulting in the adjusted position being issued, in which it is now explicitly stated that a distribution in kind of a property that is partially imputed on the “available reserves” of the private company should be considered a dividend distribution in kind and cannot be considered a transfer for consideration. RETT would therefore not apply, as a matter of principle.

Furthermore, Vlabel has clarified that the same treatment applies if there is joint ownership (onverdeeldheid/indivision). With this addition, Deloitte Belgium believes that Vlabel is referring to the fact that if a private company and its sole shareholder hold a property undividedly, the transfer of the undivided part by the company to its shareholder by means of a dividend distribution in kind would not give rise to the partition right (of 2.5% in Flanders) as there is no transfer for consideration.

Although Vlabel’s adjusted position is welcome, some uncertainties remain, and it seems that only the treatment in case of a dividend distribution in kind to the sole shareholder (type 1 or 2) of the private company is explicitly confirmed. If a dividend distribution in kind is performed to multiple shareholders (type 1 or 2), the literal reading of this position, together with the relevant provisions in the VCF, might result in the conclusion that the waiting regime would not apply, and that such distribution would immediately give rise to RETT. Deloitte Belgium is of the opinion that it is probably not Vlabel’s intention to create a different tax treatment depending on whether the dividend distribution in kind is performed vis-à-vis the sole shareholder or to multiple shareholders, but further clarification on this point would be useful.