Distribution of real estate via dividend payment in kind has recently become possible without application of the sales tax!

Until recently, the Flemish Tax Administration argued that the distribution of real estate from a company was subject to the sales tax (12%) when this distribution was charged to the available reserves. Indeed, it argued that this distribution constituted a distribution of dividends in kind and therefore a transfer for consideration. Recently, the Flemish Tax Administration has completely changed its approach, allowing this distribution to be made in certain cases in a much more tax-efficient way, i.e. without application of the sales tax.

In general

The distribution of real estate from a company is in principle subject to the sales tax of 12%. However, on the principle levy of the sales tax, there are some exceptions to some companies (private limited company, cooperative society, general partnership and limited partnership), such as the rule in case of allocation to a ‘historical partner’.

The following situations involve a ‘historical partner’:

• the shareholder to whom a real estate was allocated, who was already a shareholder at the time the company acquired that real estate with payment of the sales tax;  and

• the shareholder to whom a real estate was allocated, who  contributed the real estate to the company himself at the time.

In these aforementioned situations, the acquisition of the real estate by a ‘historical partner’ will be taxed according to its common law nature. This means verifying the nature of the legal transaction underlying this acquisition.

If it concerns a sale of the real estate to a ‘historical partner’, the sales tax (12%) is due on this.  It is also possible that the real estate was bought by the company together with the shareholder (‘historical partner’) at the time. It often happens that, for example, 1% of the real estate is purchased by this ‘historical partner’ and the remaining part (99%) by the company. In such a case, there is consequently an undivided interest between the two, as a result of which only the distribution right (2,5%) will apply to the distribution. Finally, the acquisition can also be established through a legal event, such as a reduction of equity (formerly called a capital decrease). This will only be subject to the general fixed right (50 EUR).

The adapted position of The Flemish Tax Administration

Until recently, the position of the Flemish Tax Administration made a distinction depending on whether the distribution of a real estate from the company  to a ‘historical partner’ was charged to (i) the liabilities section of equity ‘available and/or unavailable contributions’, (ii) or to the liabilities section of equity ‘available reserves’. 

To the extent that the distribution was charged on the contribution, the Flemish Tax Administration considered that only the general fixed right (50 EUR) was due.  On the other hand, if the distribution was charged to the available reserves, this dividend distribution in kind constituted, according to the Flemish Tax Administration, a transfer for valuable consideration which made the sales right (12%) payable.  This sales right could only be avoided if there was an undivided interest between the company and its ‘historical partner’.  In this case, only the distribution right (2,5%) was payable on the distribution, which was charged to the available reserves.   

However, this old position of the Flemish Tax Administration was much criticised in the legal literature, more specifically because the federal position, which applies to the distribution of real estate located in Brussels or Wallonia, deviated from it. Indeed, the latter position states that the general fixed duty (50 EUR) is always due when the distribution is charged on the contribution or available reserves.  

The Flemish Tax Administration has therefore recently changed its position where it is now completely changing its course. It states that the distribution of real estate to a “historical partner” charged on the available reserves is still equated to a dividend distribution in kind.  However, it now concludes that this does not in itself constitute a transfer for consideration so that the sales tax (12%) does not apply.  Specifically, only the general fixed duty (50 EUR) will be due.  Even if there is an undivided interest between the company and its ‘historical partner’, the general fixed duty will be applicable instead of the distribution right (2,5%).  This brings Flemish Tax Administration’s view in line with that of the FPS Finance.

Impact

The amended position of the Flemish Tax Administration therefore offers new opportunities to transfer real estate from a company to the private assets of a ‘historical partner’ at only 50 EUR, regardless of whether this is charged to the contribution or the available reserves.  We therefore believe that in the near future many companies will make use of this tax advantageous route. 

In addition, the amended position may also provide relief for distributions of real estate already realised in the past that were created under the old position of the Flemish Tax Administration.  ‘Historic partners’ who have acquired real estate since 2019 through a charge to the companies available reserves may be able to obtain a refund for the wrongly paid sales right.  Indeed, the changed position may be considered a new fact to which the ex officio tax relief applies.

Frank De Langhe – Eline Depaepe
De Langhe Attorneys