Belgium: Proposed tax exemption for landlords of commercial real estate (COVID-19)

Belgium: Proposed tax exemption for landlords

A legislative proposal would introduce an income tax exemption for landlords of commercial real estate that voluntarily waive amounts under a commercial lease for the period between 12 March 2020 and 31 December 2021 in an effort to provide relief to tenants-entrepreneurs affected by economic situation of the coronavirus (COVID-19) pandemic.

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The income tax exemption for qualifying landlords would apply from assessment year 2021.

The draft bill was introduced in an effort to support regional measures aimed at enhancing the liquidity of tenants-entrepreneurs, such as the Flemish guarantee scheme. The Flemish scheme was implemented in May 2020 to encourage landlords of commercial immovable property to voluntarily waive one or two months of lease payments for the benefit of tenants severely affected by the economic consequences of the COVID-19 pandemic. The draft bill is intended as an additional incentive for landlords to waive lease payments and to help tenants overcoming liquidity issues.  

If enacted, the new exemption would be introduced under the heading “economic exemptions” in the Belgian income tax law and would result in a reduction of the taxpayer’s gross income by the amount of the tax exemption. However, taxpayers not receiving and thus not realizing taxable income from such leases would not be able to benefit from the new exemption.
 

Conditions and limitations

The tax exemption would be subject to certain conditions and limitations:

  • The amount that could be tax exempt would be limited to two months of commercial lease per property.
  • There would need to be a voluntary waiver of the commercial lease by the taxpayer (landlord).
  • The “economic damage” attained by the tenant would have to satisfy certain requirements such as resulting from a partial or complete interruption of economic activity for at least seven consecutive calendar days, or a decrease in turnover of at least 60%.
  • The exemption would not apply with regard to leases between “affiliated parties.”

Similar to certain other support measures, the exemption would not be available for enterprises that were already experiencing financial difficulties as of 18 March 2020. Also, companies executing any form of reduction or distribution of equity (including a buy-back of their own shares) between 12 March 2020 and the last day of the tax period would be excluded from this exemption. Companies that have a direct participation in a company located in a tax haven jurisdiction, or that make payments to companies located in a tax haven jurisdiction so that the payment cannot be economically or financially justified, would also be excluded.


KPMG observation

Taxpayers that are a party to a commercial lease arrangement need to consider the implications of the proposed income tax exemption and also the potential implications for value added tax (VAT) and commercial law purposes.


Read a December 2020 report prepared by the KPMG member firm in Belgium

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