The prospect of Brexit has instigated a great deal of uncertainty in a number of market sectors, but one country is attempting to capitalize upon the possibility that London will no longer be the leading European financial center. The Belgian legislature has created a new real estate investment vehicle that is intended to provide a model platform for asset managers serving investors with real estate investments throughout Europe. The new investment vehicle's hallmarks include a flexible "light touch" regulatory framework and a competitive tax regime inviting international investment in physical and liquid real estate assets. Ultimately, it affords institutional and professional investors access to a real estate investment platform unburdened by stringent regulatory requirements, intended to promote portfolio risk-return customization.


The new FIIS/GVBF ("Fonds D'Investissement Immobilier Spécialisé"/"Gespecialiseerd Vastgoedbeleggingsfonds") is outlined in the Royal Decree of November 9, 2016 in relation to specialized real estate investment funds, published in the Belgian Official Gazette on November 18, 2016 ("Royal Decree").  As of December 2016, investors became eligible to register a FIIS/GVBF.

Generally, the FIIS/GVBF provides a closed-end, non-publicly traded fund, without prohibiting investor redemption prior to the end of the fund's duration or liquidation, or upon transfer of shares to other qualifying investors. The FIIS/GVBF is subject to Alternative Investment Fund Managers Directive ("AIFMD") regulations; however, it may qualify for an AIFMD exemption (i.e., if its assets are lower than either €100 MM, or €500 MM unlevered).


Agility and Asset Specific Investing. The FIIS/GVBF affords institutional and professional investors a real estate investment platform for transnational investments that the legislation's sponsors expect to be conducive to asset-specific risk and return considerations, with a favorable tax regime. The FIIS/GVBF's characteristics also remove practical constraints typically found in other institutional investment vehicles and many REITs, such as unfixed or lengthy hold periods prohibiting active or frequent "trading" in assets, mandatory listing on a public exchange, asset and income tests requiring investment diversification and prohibiting certain business activities, minimum or maximum debt ratios and higher distribution percentages.

"Passporting" and AIF Managers.  Brexit has cast uncertainty over the European Union's (EU) fund industry, in particular, the custom of "passporting." "Passporting" is the practice of permitting managers of asset investment funds ("AIF") who are recognized in one EU Member State to manage AIFs established in one or more other Member States. If AIF managers based in the UK are no longer recognized by a Member State, the question is whether they will lose access to management of AIFs across the EU. Without knowing whether "passporting" for U.K.-based AIF managers will survive Brexit, several other Member States (e.g., Belgium, Netherlands, Luxemburg, and Ireland) are competing to be the new hub for AIF managers with investments across continental Europe. With the backdrop of Brexit uncertainty, the FIIS/GVBF may be a competitive edge to draw AIF managers, and funds, to Belgium as a means to retain "passporting" access to real estate investments (and investors) throughout Europe.

Transnational Collective Investments. Transnational investors may find the FIIS/GVBF a compelling option for collective investments in real estate, given that rental income generated by a FIIS/GVBF is not taxed at the fund level, and foreign returns often remain tax-free upon repatriation, unburdened by Base Erosion and Profit Shifting (BEPS) issues. Beyond the registration of a new fund with FIIS/GVBF status, investors may also restructure existing real estate assets and portfolios in a newly registered FIIS/GVBF by contribution, consolidation, merger or demerger.

Belgian Real Estate Owners. Real estate owners with substantial Belgian assets may also find the FIIS/GVBF a desirable vehicle to multiply returns or attract capital into corporate structures through re-leveraging existing real estate assets in their portfolios. This is possible as the FIIS/GVBF enables such assets to be marked-to-market valuation under International Financial Reporting Standards, rather than Belgian GAAP.

Flexible Framework

The FIIS/GVBF distinguishes itself by being subject to few regulatory restrictions relative to alternative real estate investment vehicles available in the EU (including the U.K., which, for the time current, remains a Member State).

The FIIS/GVBF allows business entities formed under Belgian or foreign law to apply for FIIS/GVBF status so long as such entities are organized in conformity with the Royal Decree. Procedurally, an entity must register with the Belgian Ministry of Finance ("MF"). The MF does not wield discretionary powers; only incomplete submissions will be rejected. Likewise, there is not any ongoing prudential supervision by the Financial Services and Market Authority. The FIIS/GVBF is established upon receipt of a confirmation letter from the MF, typically delivered within 30 calendar days following receipt of an application.

Flexible Attributes

  • No minimum number of investors required (a single shareholder is permitted);
  • No listing requirement on a public exchange;
  • No diversification requirement (a single asset is allowed);
  • No limitation on debt leverage, freely determinable loan-to-value;
  • Easy registration process with the MF;
  • No approval or ongoing supervision by Financial Services and Market Authority;
  • Subject to International Financial Reporting Standards accounting, rather than GAAP, allowing assets to be marked-to-market value (to avoid cash-traps) and with standards familiar to foreign investors; and
  • An encompassing definition of real estate assets for investment, including Belgian and foreign real estate rights in rem, shares of real estate companies and REITs, options on real estate assets, real estate leasehold interests and others defined in the Royal Decree.

Requirements and Limitations

  • Institutional investors only, no individual investors;
  • Limited duration period of 10 years, but renewable for consecutive five-year periods, each subject to unanimous approval by shareholders;
  • Annual distribution equal to 80% of net income;
  • Annual fair-market valuation of portfolio by independent expert required;
  • Minimum asset value of €10 MM, after two accounting years;
  • Subject to AIFMD regulations, unless exempted;
  • Belgian real estate to be held directly by FIIS/GVBFs, but indirect investments through Belgian subsidiaries allowed for up to 24 months;
  • Foreign real estate may be held directly or indirectly FIIS/GVBFs; and
  • Restricted to investing in real estate, as defined in the Royal Decree (outlined above), and prohibiting development-related or operational services (e.g., property management services) to third parties.

Competitive and Appealing Tax Regime

The FIIS/GVBF's tax structure is the same as other indexed Belgian REITs (i.e., the SIR/GVV and SICAFI/ Vastgoedbevak) to make an investment's entry into the FIIS/GVBF as tax neutral as possible. Similar to "pass-through" vehicles familiar to US investors, the effect is a virtually transparent tax regime—shifting the taxation from the fund level to the shareholder—and benefiting from VAT exemption, withholding exemptions, double tax treaties and a minimized corporate tax on generated income and capital gains:

  • VAT Exemption: VAT exemption for particular management services benefitting the FIIS/GVBF;
  • Withholding Exceptions: Dividend withholding exemptions for:
    • Foreign pension funds;
    • Foreign origin/ sourced income or income from foreign real estate re-distributed to non-Belgian investors.
    • Note: Dividends from foreign origin/sourced income or income from foreign real estate re-distributed to Belgian investors may benefit from a participation exemption if subject to tax in the source county.
  • Double Taxation Exemptions: Access to double taxation treaty protection (i.e., the levying of tax by two or more jurisdictions on the same declared income);
  • Anti-Tax Avoidance Exemption: Exemption from interest deduction limitations under the Anti-Tax Avoidance Council Directive (EU) 2016/1164 (ATAD).
    • ATAD is a directive prescribed to EU members, adopted July 12, 2016 by the (EU) Economic and Financial Affairs Council (ECOFIN), that sets out EU-wide anti-abuse measures against tax avoidance, among which is restricting taxable interest and equivalents minus deductible borrowing costs to 30% of the taxpayer's earnings before interest, tax, depreciation and amortization (EBITDA). (Art. 4 ATAD). However, Member States, such as Belgium here, may forgo applying the limitation to standalone entities. (Art. 4, §7 ATAD);
  • Notional Corporate Tax Base: Subject to corporate tax on a limited basis, excluding capital gains and effective income on investments:
    • Income Tax: Only paid on, (i) received abnormal or gratuitous benefits (as defined in §26 of Belgian Income Tax Code 1992 (Code des Impôts sur les revenus 1992 or "CIR92" / Wetboek van Inkomstenbelastingen 1992 or "WIB92"), and (ii) certain disallowed expenses (art. 185bis § 1 CIR92/WIB92), but no income tax assessed upon rental income, capital gains, dividends or earned interest from real estate;
    • Exit Tax: A tax of 16.995% (about half the default Belgian statutory corporate tax of 33.99%), on latent capital gains and tax-free reserves at registration or transactions with the FIIS/GVBF (mergers, consolidations, contributions, restructurings, etc.), subject to offset;
  • No Stock Transaction Taxes: Exempt from stock-exchange-transaction taxes for acquisition and disposition of FIIS/GVBF shares; and
  • Subscription Tax: Subject to an annual "subscription tax" of 0.01% of the FIIS/GVBF's total net assets in the preceding year.

If you have any questions about this Alert, or for more information about this topic or your unique situation, please contact Sean P. Murphy, Daniel L. Mita or any of the attorneys in our Real Estate Practice Group.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.