s purchasing property through a company worthwhile or not? Property investors sometimes benefit from owning their buildings through a company rather than as a natural person. But not always. We review the essential criteria to decide.
The pros and cons of buying property through a company in five points:
Registration duties
When you buy a property as a natural person, you are liable for registration duties. You are therefore subject to a rate of 12.5% of the purchase price in Wallonia and the Brussels-Capital Region and 10% in Flanders, or (partially) to VAT of 21% if you buy a new property.
It is exactly the same if you make the purchase through a company. The only advantage is that the registration duties will be deductible from your company’s tax base.
Taxes
Companies are taxed at 25% on the real revenue collected through the buildings they own. This is a more attractive rate than that applicable to natural persons, who will be taxed at over 33.68% if the taxpayer receives (professional and property) revenue of at least € 25,000.
Use of the revenue
If you own property as a natural person and it generates rental revenue, you are of course totally free to dispose of your money as you wish once you have paid your taxes.
With a company, however, you will have to find the best way to ‘take out’ the net profit if it is not reinvested, for the benefit of the company shareholder or manager. Each method has a different tax impact:
- Distribution of dividend to shareholders: with a tax on income from investments of 30%.
- Capital reduction: capital reductions are exempt from tax on income from investments, unless the company in question has reserves.
- Shareholder loan: if the loan does not yield interest, it will cause tax friction for the shareholder taking out the loan if they are also the manager of the company (benefit in kind) or, in other cases, for the company itself (exceptional and gratuitous benefit). To avoid these tax frictions, it is advisable to include interest.
- Company manager remuneration or directors’ fees: taxed as personal income at the progressive rate.
Resale
There are several ways for a company to sell buildings to a third party, each of which has a different tax impact:
You sell your company
The company keeps the building and sells its shares. In this case, the capital gain is not taxable for the natural person who has sold their shares. That said, the share buyer is sure to request that tax relief is applied to the latent capital gain when the share price is calculated. According to customary market practices, this tax relief is calculated between the parties by multiplying the latent capital gain by half the corporate income tax rate.
The company sells the building
In this case, it is liable for corporate income tax on the capital gain realised, that is the difference between the selling price and the book value of the building.
You liquidate the company
This is no longer an attractive option given that the withholding tax on liquidation surpluses has risen from 10 to 30%.
Donation
Real-estate donations are subject to registration duties at a progressive rate that may be as much as 27% or 30% when the beneficiary is a child or a spouse/cohabiting partner and as much as 50% in other cases.
A donation of company shares is considered to be a personal property donation. If you do not register it, no registration duties are levied. However, if the donor dies within three years, the amount of the donation will be subject to inheritance tax.