Europe vs USA Real estate
Once again at the top of the world's number one destination for the target group from the higher segment and with this knowledge we can confirm that the housing market has once again received a huge boost.
Graphs show us that English, Germans, French and Dutch still take the lead in investing on this beautiful island. With a price increase of 10% in 2015, we now see a small price increase in the beginning of 2016. With more luxury 5 * hotels coming to the island and the historic Hotel Montasol on the Vara del Rey which have been transformed into a 5 * Hotel, all of this is positive developments for the industry.
There are also a number of other major investment opportunities that will arise in areas such as Playa Den Bossa, Jesus, Talamanca, Cala Conta and Cala Vadella (Contact us for more information). This will have a positive effect on the housing market and the surrounding areas.
This year you will also find new asphalt roads on the island and a renewed harbor area in the old town. Air traffic to and from Ibiza also increased in 2015, during the months of July and August there were between 80 and 120 private jet flights to the island, in 2016 a new record will certainly be established.
The most favored areas for investment are the South, South-West side of the island, but the East is increasingly gaining a reputation for people who opt for permanent residence status. The North still continues to represent the authentic Ibiza, where one can get lost and feel completely free in nature. With the new road between Ibiza and San Juan, the north side of the island will attract more and more buyers and offers a great opportunity to invest in this as yet unknown paradise.
Flexible property holdings in France like USA
Many Belgians own real estate in France. Often these immovable properties are used as a second residence or are rented out to third parties.
Such real estate companies have the sole purpose of acquiring and / or holding and managing real estate. Maintaining real estate through a French SCI offers numerous possibilities, both in terms of policy and in the context of estate planning (such as, for example, the free distribution of the shares of the SCI whereby the control can be retained, favorable valuation in case of transfer).
In view of the legal personality of such French SCI, the SCI itself is the owner of the property, so that classical problems of joint ownership between different co-owners can be avoided.
On the fiscal level, however, this legal personality is overlooked. SCIs are subject to a system of so-called "translucidité" according to french tax law, according to which the company and its members are not deemed to have a distinct existence. The members are then treated as if they are direct owners of the property of the SCI and the result of the SCI is deemed to have been granted to the members regardless of whether any payments have actually been made to these members.
If a Belgian resident is a shareholder in a French SCI, he will be taxed in France on the SCI's income in the name of the French system of "translucidité". In view of the SCI's real estate activity, this income is classified as internal income from real estate under internal French law.
The question that arises, however, is whether the Belgian State, as the State of residence of the shareholder, also has some tax authority with respect to this income. There was legal uncertainty about this for years.
According to the Court of Cassation, Belgium could not, in other words, levy taxes on such income. Positive news for the Belgian taxpayer.
Notwithstanding this judgment with great praise in the Belgian case law and legal doctrine, the Minister of Finance and the Belgian tax authorities indicated from the outset that they would not just accept this judgment.
The Belgian tax authorities were always of the opinion that they would not be bound by the qualification that France gives to such income. According to the Belgian tax authorities, the income should be considered as dividends, which would make them taxable in Belgium.
The Court of Cassation returns to its previous case law
In its judgment of 29 September 2016, the Hof van Cassatie once again expressed its view on the tax treatment in Belgium of the income from a French SCI.
While the Court of Cassation in 2004 (followed by the majority of Belgian judges) still felt that Belgium should exempt this income from a French SCI from taxes, this same Court 12 years later unfortunately regrets this milestone arrest.
According to the Court there is therefore no reason to invoke Article 3 of the Double Tax Convention, which states that income from immovable property can only be taxed in the country where the property is located.
Given the income can not be qualified as dividends within the meaning of the Belgian-French Double Taxation Convention, the Court of Cassation states that the income would be taxable on the basis of the residual article of the Belgian-French Double Taxation Convention (Article 18). This article gives Belgium the exclusive authority to tax the income in accordance with its own internal law.
In view of the fact that according to Belgian internal law the income can be qualified as dividends, according to the Court of Cassation Belgium is indeed competent to tax the income again.
Double tax and legal uncertainty
With this recent judgment, the Court of Cassation reverts to its previous case law and the Belgian tax authorities are right after all these years. This is not a good news for many Belgian taxpayers who hold real estate through a French SCI (read: a French SCI with legal personality that is not subject to French corporation tax).
This recent standpoint of the Court of Cassation opens the door for double taxation. The moment the Belgian member actually receives income from this SCI (eg if a dividend is paid), the same income can be taxed twice: a first time in France as income from real estate and for a second time in Belgium where that same income can qualify as a dividend.
Negotiations are currently underway regarding a new double tax treaty between Belgium and France. In our opinion, it would therefore be very useful to take the opportunity, in the context of this new double taxation treaty, also to explicitly regulate the system of income from the SCI with legal personality so as to put an end to this legal uncertainty and possible double taxation. .