The past few years have proven fruitful for investors diversifying their property portfolios with commercial real estate. These investments offer better financial returns than residential properties and are typically good hedges against inflation.
In Belgium, logistics property investments dominate the real estate market. The demand for warehouse space in the country grew by 17.5% in 2021 despite limited availability.
In addition, land scarcity and high construction costs are driving up the prices of monthly rentals.
Would you like to take advantage of this boom by buying commercial real estate in Belgium? Are you aware of the country's transfer costs, taxes, and exemption requirements?
Read on for our guide to buying and selling commercial properties in Belgium. We'll answer these questions and more, so you can make informed decisions on how to grow your capital.
2022 REAL ESTATE MARKET TRENDS IN BELGIUM
The Belgian real estate market has recovered to pre-pandemic levels, with the number of transactions increasing by 17% in 2021, according to Deloitte. Despite long-term uncertainty, industry leaders predict robust growth for 2022.
The prices of residential properties rose by 7% in 2021, double the growth of 2020.
These increasing prices and the high demand for housing are pushing more properties into the country's rental market. As most of these dwellings are outdated, investors are responding by developing build-to-rent projects to supply higher-quality products.
Despite rising inflation, retail letting activity was high in the second quarter of 2022. However, activity in the sector's investment market is subdued.
The most visible trend in the Belgian commercial sector is the increasing number of large developments in the logistics industry. The need for storage space is increasing due to e-commerce and the country's location in the heart of Europe. This trend is forecast to continue in the coming years.
The industrial property segment has already recorded 2022 as its best year for investment volumes. Backers poured €747 million into semi-industrial and logistics properties during the year's second quarter. The increased interest in Belgian logistical properties among international occupiers has attracted more investors.
It's clear that the commercial real estate market in Belgium may begin to play a vital role in European logistics. Let's take a look at what's involved in buying one of these properties.
BUYING COMMERCIAL PROPERTY IN BELGIUM
Belgium doesn't impose restrictions on foreign investors buying or financing property. However, Belgian tax residency plays a role as non-residents (for tax purposes) are subject to different tax implications.
While Belgian property prices are lower than many of its European neighbors, purchasers must consider the country's high transaction costs.
Once you've found a suitable commercial property, the following steps typically take place:
- Send a formal, written offer to the seller. It's customary to negotiate before reaching a final price, which could be up to 15% lower than asking.
- Both parties sign a contract of sale, after which you must complete the purchase. You must pay 10% of the agreed selling price into a trust, which you'll lose if you cancel the agreement.
- Notaries representing buyer and seller draw up the relevant deed transferring property ownership.
- Once both parties sign the deed, you get the keys to your property.
- You must register the sale at the official office within four months and pay the transfer tax.
It takes around 62 days to successfully transfer a property into a new owner's name in Belgium. It's also important to note that according to Belgian law, all contracts must be in French or Dutch. You'll have to hire an interpreter if your notary or estate agent can't assist you with translations.
While the buyer and seller usually split the costs of the sale, the purchaser pays most of the fees. Depending on your property, charges could be as high as 21%.
These are the fees payable by the buyer when purchasing a commercial property in Belgium:
- Registration/Transfer tax: The registration tax only applies to properties older than two years and varies according to location. A transfer fee of 12.5% of the purchase price applies to Brussels and Wallonia, while 10% applies to Flanders.
- VAT: Properties less than two years old are considered new and qualify for VAT rather than transfer taxes. The buyer of a new building pays a tax of 21% of the purchase price.
- Notary fees: The state fixes the costs of notarial services depending on the property. Expect to pay an average of 1.6% of your purchase price.
- Valuation fees: A survey of your property costs €200 plus VAT. These evaluations are usually compulsory when purchasing with a mortgage.
A Note on Registration Tax Exemptions
Each of Belgium's three main regions offers the following reductions in registration taxes when buyers meet specific criteria:
- Brussels: An exemption on the first €175,000.
- Wallonia: An exemption on the first €20,000.
- Flanders: A reduction of €5,600 on registration fees if the purchase price doesn't exceed €200,000. This limit rises to €220,000 in some urban centers.
However, these exemptions, or abatements, are geared toward helping families purchase homes. The property concerned must be used for housing, automatically disqualifying commercial buildings.
THE ANNUAL COSTS OF OWNING BELGIAN COMMERCIAL PROPERTY
Some Belgian taxes are charged at the regional level, while individual municipalities levy their own additional charges.
Expect the following annual taxes when owning a Belgian commercial property:
Property Tax (Immovable Withholding Tax)
Non-residents renting out their Belgian property pay tax if their rental income exceeds €2,500. Any amount under the limit doesn't need to be reported, provided it's the owner's only income source in the country.
Officials calculate your annual property taxes based on your real estate's presumed annual rental (cadastral income). This amount is the potential net rental income of your building for one year, whether leased or not. The value is determined using rents from 1975 and then indexed for the tax year, with maintenance and repair costs deducted.
A 20-50% tax rate applies to the cadastral income. These levies are usually lower than if calculated using actual collected rent.
Some municipalities charge additional annual levies at varying rates. For tax residents, these range from 3-9%.
Non-residents receiving more than €2,500 of income from immovable property pay a fixed municipal rate of 7%.
SELLING COMMERCIAL PROPERTY IN BELGIUM
Once you sell your commercial property in Belgium, the taxes due depend on the specific circumstances of the transaction.
Belgium typically doesn't levy capital gains taxes on non-residents. However, withholding taxes apply if the taxpayer realized the gain on immovable property in Belgium. The authorities base taxation rates on whether or not the transaction was within the "normal management" of private assets.
"Normal management" isn't clearly defined under Belgian tax law. The benchmark is obviously being a person who takes careful actions to grow and retain their personal wealth.
There are also a few guidelines on the concept:
- Assets are limited to real estate, financial investments, stocks, and movable goods.
- The owner acquired the assets through inheritance, gifts, or personal savings (in a normal way).
Should your sale fall under "normal management" of your estate within five years of acquisition, 16.5% withholding tax applies. Adding local taxes raises the amount to approximately 18%. A sale after this period would be tax-free.
Circumstances that could be considered "outside the scope of normal management" of assets may include selling multiple properties at once. In this case, the withholding tax rate increases to 30.28%.
MAKE THE MOST OF BELGIUM'S COMMERCIAL BOOM
The demand for space in Belgium's commercial market, especially logistical properties, seems set to increase over the foreseeable future. As land values and rents are likely to grow at faster rates over the remainder of the year, investor outlook is positive.
There's no better time to grow your wealth through acquiring Belgian commercial properties. An international wealth management team can help you navigate the nuances of placing your capital in offshore properties. You can learn more here.
Sources: Chambers and Partners, Ceusters, KBC Brussels, Expatica, Global Property Guide, Knight Frank, Anglo Info, Expat, Commissioner Brussels, Finances Belgium, Notaire, Notaire, Notaire, Notaire, Taxpatria, Finanzen Belgium, Finance Belgium
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.