by Febe Louage and Hannelore Durieu
Belgium and France have recently negotiated a new double taxation agreement. Although the new agreement will not come into effect before 2023, we thought it would be useful to put together an overview of the key changes that will apply to Belgian residents who own property in France. We consider three categories separately: privately owned real estate, real estate held by a Belgian enterprise and real estate held by a French real estate enterprise (SCI).
For Belgians who rent out their second residence, there are no changes on the horizon. The income will continue to be taxable in France in accordance with French law. The cadastral income must be reported in Belgium. This income is exempted, maintaining progressivity: this means that the cadastral income is not taxed, but is taken into account when determining the average tax rate for the residual income, taxable in Belgium.
If you are a Belgian resident and do not rent out your second home, there is a major change on the horizon. The new double taxation agreement states that Belgium is only required to exempt French income if this income is effectively taxed in France. Belgians who do not rent out their French property are only required to pay taxe foncière and taxe d’habitation, but not income tax in France. This income is therefore not considered to be effectively taxed income.
What this means in practice is that Belgium is not required to exempt the French cadastral income. However, the Belgian law does reduce the Belgian taxation by half. In other words, the French income may be partly taxed in Belgium.
If you are a Belgian company and hold property in France, nothing will change as long as you still own the property. The income relating to the French real estate continues to be taxable in France. Likewise, when the company sells the property, the capital gain is still taxable in France, just as before.
However, there is one important “change” under the new taxation agreement. This applies when the shares of the Belgian company are sold. Under the new double taxation agreement, France has the explicit authority to tax the capital gain on the shares if over 50% of the assets of the company are comprised directly or indirectly of the French real estate. However, note that the French administration already considers this capital gain to be taxable in France in any case – a judgement which was endorsed by the French Conseil d’Etat (2020-02-24).
An SCI (Société Civile Immobilière) is a French legal form for enterprises that manages real estate in France. SCIs are often used by French residents. There are a number of important differences relating to taxation for Belgian residents, which make it less beneficial for them to use an SCI.
During the time that the SCI holds the French property, everything remains straightforward. However, problems can arise when the Belgian resident wishes to sell the residence and wants to claim the sale price on their personal account.
If the SCI sells the real estate and then issues the money to its shareholders (residents of Belgian), France has the authority to tax shareholders on the capital gain on the real estate. Belgium then has the right to tax the money paid to the shareholders a second time, this time as a dividend. The result is that the shareholders are taxed twice on the capital gain.
This problem does not arise if the shares in the SCI are sold. In that case, the new double taxation agreement explicitly gives France authority to tax the capital gain, but then no further taxation applies in Belgium. For Belgian residents, it may therefore seem to make more sense to sell the shares in the SCI. In practice, however, it can be very difficult to find a purchaser who will buy these shares.
In light of the above, it is important to give thorough consideration in advance to the best way of buying real estate in France.
Are you considering purchasing real estate in France? Or perhaps you already own real estate in France and are thinking of selling it? Our experts will be happy to advise you
In our opinions, we rely on current legislation, interpretations and legal doctrine. This does not prevent the administration from disputing them or from changing existing interpretations.
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