Powers of taxation of the Belgian Regions: what’s new in Flanders ?

In recent years and as a result of consecutive State reforms, a series of former “national” taxes have been devolved to the Regions, which have the power to determine the taxable base, the rate of tax and any exemptions. For those taxes, and until the relevant Region decides otherwise as authorised by law, the Federal State provides the “service” (e.g. collection).

Since 1 January 2015, the Flanders Region has taken over the service relating to registration and inheritance duties, which has consequences on the authority of the Ruling Commission. The Flemish Government has also enacted the Flemish Tax Code (FTC) that codifies all Flemish taxation.

Which taxes ?

The service relating to the following taxes, has been transferred to the Flemish Region, as far as Flanders is concerned. It does not, therefore, impact on the two other Regions, and those taxes have also been included in the FTC:

  • Sale of the full ownership or the freehold of real estate asset located in the Flemish Region, or the grant of a right of usufruct over such an asset;
  • Contribution of residential real estate, located in the Flemish Region, to the capital of a Belgian company by an individual;
  • Gifts made by residents of the Flemish Region, of real estate assets located in Belgium and gifts made by non-residents of real estate asset located in the Flemish Region ;
  • Registration of mortgages on real estate assets located in the Flemish Region; and
  • The partial or total division of formerly undivided real estate assets located in the Flemish Region, the transfer of formerly undivided parts between co-owners of real estate assets located in the Flemish Region and the conversion provided for by articles 745quater and 745quinquies of the Civil Code of real estate assets located in the Flemish Region.

Tax abuse in Flanders

Since 1 January 2015, the FTC contains a new general anti-abuse rule  which is similar to the current Federal one.

In a nutshell, the Flemish anti-abuse rule allows the tax administration to disregard a legal act (or a series of legal acts constituting, from an economic standpoint, the same transaction) and to consider it as a tax abuse, when the underlying intention of the taxpayer was to secure a tax advantage or a tax exemption in a way which is incompatible with the objectives of the tax law. The legal act (or the series of legal acts) may, however, be justified by other reasons than the desire to avoid taxes.

Like the Federal Tax Administration, the Flemish Region has published an official black list of supposed abusive transactions. The only real estate transaction officially blacklisted, is the so-called ‘split deal’ (i.e. the acquisition of a real estate asset through the simultaneous acquisition of the leasehold and the freehold by related companies or individuals).

Tax ruling in Flanders

In terms of taxation, the real estate sector must contend with taxing powers which are shared between the Federal State and the Regions: the Federal State is competent for real estate transfer tax on leases and assimilated transactions, such as leaseholds and rights to build, while the Regions are competent for sale in full ownership, sale of freehold and granting of usufruct.

This means that asset deals involving these different ‘rights in rem’, fall partially within the competence of the Federal State and partially within the competence of the Flemish Region.

The Ruling Commission, however, is only competent for those taxes for which the Federal State performs the ‘service’. Following the transfer of the service of real estate transfer tax to Flanders, the Ruling Commission has lost its competence in this matter. The current situation is a source of uncertainties and has led to much criticism.

To remedy the situation and answer these criticisms, a draft Decree has been laid before the Flemish Parliament in order to establish a ruling commission at regional level. This new authority would have the authority to issue Flemish rulings and binding opinions to the Ruling Commission where both the Federal State and the Flemish Region are competent for any given transaction.

In the meantime, rulings already issued, and concerning Flemish registration and inheritance duties, should remain binding for the tax administration during their initial term of validity.