Tax consequences of volume ownership
Background
As of 1 September 2021, Book 3 of the new Civil Code has entered into force, implementing the long awaited reform of Belgian property law. One of the most interesting new opportunities is offered by the new concept of volume property, or the possibility to have a perpetual right to build on a property resulting in a perpetual ownership right on distinct volumes. Indeed, a right to build is now defined as a right in rem that creates the right of ownership on volumes, whether built or not, in whole or in part, on, over or under someone else's land to erect constructions. The new concept of “volumes” refers to a geometric space of three dimensions, geographically located at a well-defined place.
The right to build is in principle limited to a maximum of 99 years but can under certain conditions be perpetual. A perpetual right to build is, for example, possible to allow the division into volumes of a complex and heterogeneous real estate property that includes several volumes that qualify for independent and distinct use and do not have any common parts between them. Hence, such a perpetual right to build basically entails the division of the ownership of a building into distinct fractions, horizontally and vertically at different levels, which can be located above or below the natural ground without establishing any common parts between these different fractions or volumes.
It goes without saying that the perpetual right to build on a property and therefore the perpetual ownership on volumes offers interesting structuring opportunities with respect to a large building complex used for various purposes, for example for both retail and residential projects. The possible tax impact and attention points are described briefly below.
Tax consequences of volume ownership
If the property that is the subject matter of the right to build already includes constructions, the new rules state that the grant of a right to build entails the transfer of the ownership of these existing constructions to the holder of the right to build (unless agreed otherwise by the parties). As a consequence, such transfer could be subject to either (i) VAT - in case it involves the supply of a (part of) a building which qualifies as “new” for VAT purposes; the “seller” qualifies as a professional constructor; or by way of option – or (ii) registration duties (RETT) of 10% in Flanders or 12.5% in Brussels and the Walloon Region. The most optimal structure taxwise will depend, among other things, on whether the holder of the right to build will be able to recover the input VAT and the availability of reduced VAT rates.
Close attention should be paid to the tax consequences upon the termination of the right to build. The default rule (be it of a supplementary nature) is that the grantor of the right to build should compensate the holder for the acquisition of any buildings by way of accession on grounds of unjust enrichment. If the right to build agreement excludes any indemnification, there will typically be no transfer taxes or VAT but this will raise income tax questions. Conversely, if the right to build agreement provides for an indemnification, transfer taxes or VAT will typically apply. This is, however, subject to exceptions. Considering the aforementioned, it is important to assess the VAT or RETT impact of the transfer of the building upon accession on a case-by-case basis. We would be happy to assist you in this respect.
