Buying Real Estate Through a Company: When Does It Make Sense? (Source: Dewaele Invest)

The question of whether buying real estate through a company is wise is often asked of Thomas Verschaeve, head of investment property at Dewaele. This question comes from clients with an existing company, those starting to invest, or those simply considering real estate purchases. It raises important considerations such as tax advantages, legal implications, costs, and practical execution. But when exactly does it make sense to buy property through a company?

Who better to address these pressing questions than the experts from Titeca? We spoke with Maarten Vandamme and Aaron Vervaeke about the ins and outs of buying real estate through a company.

Dewaele: One of the most common questions is: "I want to invest in real estate; is it better to do so through a company or privately?"
Titeca: It might sound strange, but we first answer that question with more questions. Getting a clear picture of the investor's situation is essential. Therefore, we start with the following key questions:

What is the purpose of the real estate transaction? Is it for personal use, rental, or a commercial or industrial property? This determines both the tax treatment and the ideal company structure.

What is the family and financial situation? Is the investor married or cohabiting legally? Is the purchase made privately or through a company? Is there already property owned in either way?

How is the purchase financed? Are funds available privately or within the company?

Buying Real Estate After a Thorough Analysis

Dewaele: Is a thorough analysis always the first step?
Titeca: Exactly. Only when we fully understand the situation do we look at possible purchase structures: private, through a company, or a hybrid form (a combination of private and company). We then assess the advantages and disadvantages for the specific situation of the investor.

Next, we analyze the five financial and tax life phases involved in the purchase of real estate:

1. The financial or tax impact at purchase.
2. Financing the purchase.
3. The tax impact during use and rental.
4. The tax impact at sale.
5. Inheritance and registration duties.

Dewaele: Can you indicate whether buying real estate privately or through a company is generally more advantageous?
Titeca: It completely depends on the individual situation. There isn't a standard answer, but some important factors include:

Rental Income: Establishing and maintaining a company costs money; think of accounting costs and administration. Therefore, it only becomes interesting at a certain level of rental income.

Tax Advantages: A company allows for the deduction of expenses for maintenance and renovation, significantly lowering the tax burden in the early years. For a single residential property, private ownership is often more advantageous, with a tax burden around 10 to 12 percent, which can be lower than in a company.

Long-Term Strategy: A company is mainly interesting for larger investment plans or if you manage multiple properties. For a one-time purchase, private ownership often remains the simplest and cheapest option.

Dewaele: What's the main reason people ultimately choose a company?
Titeca: Often, succession planning is decisive. Those with significant private property risk high inheritance taxes, up to 27 percent, upon death. Additionally, donating property to children in a tax-advantageous way often takes years in a private structure. A company can offer an attractive alternative here.

Moreover, financing plays a crucial role. Those with substantial liquid assets in a company want to avoid the high taxes associated with transferring these assets to private. Then purchasing property within the company becomes a logical choice, especially for large amounts like a villa of €1.5 million or properties from €600,000.

Finally, there's the long-term vision. Building a stable property portfolio and reinvesting rental income may be better managed through a company from the start. This is one of the main reasons why people end up choosing this structure.

Dewaele: What are the fiscal effects at different stages of property ownership?
Titeca: It's important to consider the tax impact at every stage of the process: purchase, financing, ownership, sale, and ultimately succession. Different rules apply for both private and company purchases.

A rule of thumb for the short term: if you know you'll sell a property quickly, private ownership may be more attractive. The capital gain on real estate held privately for more than five years is tax-free in personal tax. In contrast, you do pay corporate tax on gains within a company.

In a long-term strategy, the fiscal benefits can be different, depending on how you want to use or pass on the property. We assess the situation with clients and apply the rules where possible. However, for every rule of thumb, there are exceptions, making customization essential.

Dewaele: If someone decides to establish a company, which company form is most suitable?
Titeca: The private limited company (bv) is the popular choice. A bv provides a good balance between flexibility and protection. Of course, costs and administrative obligations are involved, such as formation with a notary and accounting obligations.

Want a simpler structure? Other company forms with lower costs are available. However, bear in mind that fewer costs often mean less security. In some simpler company forms, personal liability is greater. Since liability plays an important role in real estate, a bv is generally the best choice.

Dewaele: Are there certain types of real estate you should keep private due to low rental income?
Titeca: Yes, certain real estate assets are less suitable for company purchase. A typical example is agricultural land. Such properties are often privately held due to low rental income and few fiscal advantages within a company. Moreover, there are usually few deductible costs associated with agricultural land.

Conversely, the broader context plays a role. If it involves family transfer or long-term planning, a company can still offer advantages. It remains a matter of strategic planning and making the right choices based on objectives and tax.

Dewaele: If you already have an extensive real estate portfolio and consider transferring property to a company for succession planning, what are the options?
Titeca: There are two key options when transferring property from private to a company:

1. Sale to the company: Here, you sell your property to the company and receive cash or a claim in return. Registration duties always apply, varying by region. In Flanders, the standard rate is 12%.
2. Contribution of property in exchange for shares: You contribute the property and receive shares. Tax rules vary depending on the type of property: Residential property is always taxed at 12% registration duties.

For non-residential goods like sheds, garages, and agricultural land, a fixed duty of only 50 euros applies.

In some cases, it might be fiscally advantageous to keep private purchases of residential property and acquire only specific objects through a company. This way, you avoid paying double registration duties.

Another possibility is splitting mixed real estate (e.g., a house and a shed on the same plot) into separate cadastral numbers. This allows you to contribute the shed at the general rate of €50 while possibly keeping the house private. This can significantly reduce the registration duties you need to pay.

It's important to think carefully about your goals and the type of property you're contributing. Strategic choices around sales, contributions, and fiscal benefits play a crucial role in minimizing costs and optimizing your long-term strategy.

Fiscal Benefits When Buying Real Estate

Dewaele: When is it fiscally beneficial to establish a company?
Titeca: The choice to buy real estate through a company is not always straightforward and depends heavily on the investor's specific situation.

When dealing with a significant amount of real estate or a complex structure, a company can offer benefits, such as more flexibility in sales and succession planning. Furthermore, a company makes it easier to optimize the tax burden on rental income. However, one must not overlook the initial costs of establishing and maintaining a company.

In summary: the choice to buy real estate through a company requires thorough analysis of the personal and financial situation of the investor. There is no clear answer, but by mapping out all factors – from tax burden to succession planning – the right choice can be made.

Dewaele: We often get the question ‘Would you like to look for a buyer for the real estate company?'. What we often encounter are companies with built-up tax losses. This often creates uncertainty. What happens to these tax losses when selling real estate companies? Can the buyer still use them?

Titeca: This is indeed a question without a clear-cut answer. Fiscally, the rule is that tax losses are lost in the event of a change of control unless the change is accompanied by economic or commercial reasons. A typical example is the so-called "empty boxes," companies with many tax losses but no real business activities anymore. Such companies can be sold for a symbolic amount, after which the buyer may use the tax losses.

The two most important questions in such a situation are:

Is there a change of control? If all shares are sold, there's certainly such a change.

Are there economic or commercial reasons for the transaction? Is normal activity continuing?

With real estate, it's often harder to answer these questions. For instance, if an operating company is making losses, but an investor comes in wanting to rebuild the business, keep staff, use machines, continue the activity, and make extra investments, this meets economic reality. In that case, tax losses may be used without debate.

With rented real estate, it's often less clear whether the activity continues. This depends on the amount of work and follow-up needed for the property. In practice, smaller portfolios are more likely to encounter issues. In larger portfolios, the tax office is less likely to intervene. It strongly depends on the situation and type of real estate.

Dewaele: How does this aspect impact the final pricing?

Titeca: Tax losses are often not included in the company's valuation. This can be strategically important for both buyer and seller. It plays a role in negotiations and can influence price pressure. It's not purely a fiscal issue, but part of negotiation strategy. The company's value is not solely determined by tax losses, but also by other factors, such as the real estate portfolio, market conditions, and the strategic plans of the buyer.

It remains a complex discussion, and there's no straightforward answer to whether losses can be used. It's often an important part of negotiations and can be crucial in determining the final price of the company.

Dewaele: Some real estate companies are less suitable for transfer due to their composition or history. In such cases, is there often no choice but to sell the property and liquidate the company. What steps must be taken?

Titeca: In liquidating a company, we usually start with selling the real estate. Once the cash comes in, capital gains tax is paid on the realized profit. The next step is drafting a statement of assets and liabilities, which must then be approved by an auditor or external accountant. This process must be completed within a specific timeframe, depending on the company form.

For a BV, the procedure is relatively standard: assets and liabilities are mapped, and after approval by the auditor, the liquidation can take place. It's important to know that the liquidation bonus - the distribution to shareholders - is often heavily dependent on the tax optimization built up, like through liquidation reserves.

Dewaele: Can you give an indication of how long it takes for shareholders to actually receive their funds?
Titeca: In the sale of real estate and subsequent liquidation of a BV, a statement of assets and liabilities must be drawn up. This process generally takes a few weeks. Once the balance sheet is complete, it must be reviewed by an auditor. Then comes the notarial decision, which can take up to three months.

If all goes smoothly, you can expect a timeline of about three months from the sale of the last real estate to the moment shareholders receive their funds.

Note that the turnover rate of real estate assets in the company strongly influences the timeline. Correct valuation of the property is essential for efficient process flow.

There are also situations where this can be quicker. For example, in a simple company with few assets or liabilities, like a company with only cash. In such cases, major delays may stem from administrative steps or legal complications. Loans that must be repaid first can also slow down the process.

Dewaele: If the real estate is first sold and the company liquidated afterward, it's crucial to do this in the most fiscally advantageous way possible. This is where the so-called liquidation bonus often comes up.

Titeca: The liquidation bonus is indeed a fiscally advantageous way to receive funds from a company. If you have built up liquidation reserves, you can distribute those funds to shareholders at a lower tax rate than the regular rate of 30%. However, following the correct order is vital: the liquidation bonus can only be paid out after liquidation is completed and a formal decision to terminate the company is made.

Regarding whether you can immediately receive your funds: the funds can only reach shareholders after the liquidation bonus. There's a gray area if you want to disburse the funds right after the sale. The tax office might see this as abuse unless there's an economic rationale for delayed distribution of liquidation reserves.