02 Introduction 03 Green Taxes Benelux Real Estate Insights 05 New EU VAT rules and reporting obligations 08 Impact of AIFMD on Luxembourg August 2010 real estate vehicles 11 The future of real estate financing in the Benelux Contents 13 Model for valuation of investment properties under construction 17 Will the proposed lease accounting rules affect your business? 19 Tax update: Belgium 20 Tax update – Luxembourg 21 Our Real Estate Insight series 22 Recent publications Benelux Real Estate Insights Introduction Following first signs of recovery German Open-ended funds have billions • The proposed AIFM directive has • Based recently changed IFRS in the second half of 2009, of Euros to spend and allocations by potential consequences to real estate accounting rules development investment volumes continue to institutional investors to non-listed real funds. In this issue we cover the properties need to be valued at estate is increasing. The latter triggering latest developments on the AIFMD fair value as per 1 January 2009. increase in 2010 in the Benelux new pan-European and single country and the potential consequences for In our article we describe various region. Private investors and fund initiatives of various fund managers. Luxembourg real estate vehicles. approaches on how to determine the German funds have dominated In this issue of Benelux Real Estate fair value of these projects. the Benelux markets. Investment Insights we ask your attention for a • Significant changes are expected number of developments relevant to the in lease accounting for lessees • Investors should be aware of the volumes are still far from the real estate industry in the Benelux region. following the publication of a revised VAT rules as per 2010 that peak in 2007. This is caused by Specifically on the regulatory side there discussion paper by the accounting impose new reporting obligation. the scarcity of income producing are important developments to report on bodies IASB and FASB. These In this issue we have summarised prime assets which is the main of which the following have been covered changes may impact tenant behaviour. the changes and provided points in this issue: of attention for existing real estate focus of investors and their investment structures. financers in today’s market. Despite general economic How green is the tax environment for real recovery supported by positive estate in Belgium and the Netherlands? In this article we discuss the effectiveness first quarter results of many of the Dutch and Belgian tax regimes in leading businesses, there is stimulating the reduction of the carbon still significant concern on the footprint of buildings. occupier market. The gap between Jeroen Elink Schuurman prime and non-prime is widening. Real Estate Industry Leader PricewaterhouseCoopers (Netherlands) 2 Benelux Real Estate Insights Green Taxes How green is the tax environment Reducing carbon emissions has become immobilier) for energy-efficient buildings There are also green incentives both for the real estate sector in a key priority for governments all over which are new or which have been built in Belgium and the Netherlands for Belgium and the Netherlands? the world as a result of international up again after complete demolition. A energy-saving investments in buildings. commitments and widespread consensus building’s energy-efficiency (E-level) is For Belgian corporate tax purposes, on the harmful consequences of global measured by an independent expert energy-saving investments (mentioned warming. Buildings are considered to appointed by the Flemish Region. in a limitative list) such as insulation, be responsible for not less than 40% solar cells and high efficiency boilers of total carbon emissions and not For buildings with an E-level of E70 give entitlement to a so-called increased surprisingly regulators have started or lower, the property tax reduction is investment deduction (subject to a imposing disclosure of a building’s currently 20% of the property tax due number of formalities such as a tax energy performance as well as minimum and applies for 10 consecutive years. certificate). This deduction from the standards. Tax regulations may also The reduction is increased to 40% for taxable basis comes on top of the contribute to stimulating sustainable and buildings with an E-level of E40 or lower. deduction of the normal depreciation energy-efficient buildings. Which green The 10-year period starts in the tax year costs and thus represents a pure tax tax regulations are currently of relevance following the year in which the E-level deduction. For investments in financial for the commercial real estate sector in has been granted. In case the labelled year 2010 (corresponding to assessment Belgium and the Netherlands? building is transferred, the reduction is year 2011), the one-off investment also available in the hands of the new deduction is 13.5% (for budgetary Taxes on energy for heating or operating owner (until the end of the 10-year reasons the amount of the deduction has buildings (or exemption of such taxes on period). Contractually, these property been reduced from 15.5% for the year green energy) and taxes on waste water taxes are typically at the charge of the 2009). In case the company is not tax- and water usage obviously stimulate lessee, but low property taxes should paying, the unused part of the deduction efficient use of natural resources and obviously contribute to higher rents (and in a given year is carried forward in time should favour sustainable buildings. represent an important element in the and amount; the effective use of such Such taxes exist in one or the other form negotiation of so-called green leases). It carried-forward amount in a given year both in Belgium and the Netherlands and is in our view rather likely that the other is however limited (for the year 2010 qualify as indirect taxes. two Belgian regions will also start making the amount is limited to €858,330 or to their property taxes greener to stimulate 25% of the investment, whichever is the Typical real estate taxes are local property green buildings. Please note that in the higher). The investment deduction in taxes that are in principle due by the Netherlands there is also a yearly property practice can also be applied to real estate owner. In Belgium these taxes are levied tax (OZB-belasting) due at the communal which is rented out and is therefore also at the regional level (Flemish, Walloon and level. Although each municipality is of interest to the professional real estate Brussels Capital region). Interestingly, the entitled to determine its own tariffs investor. Flemish Region currently offers a property for property taxes from owners and tax reduction (vermindering onroerende users, currently these tariffs do not vary voorheffing / réduction précompte depending on energy performance levels. Continued 3 Benelux Real Estate Insights Green Taxes In the Netherlands, there is a distinction For the MIA, qualifying assets are pollution) may qualify for accelerated or costs related to polluted land reduce the to be made between the Energy divided into various categories, even voluntary depreciation. Investors taxable basis for the 12.5% transfer tax. Investment Allowance (EIA) and the based on the extra costs for investing may thus generate for example greater Environmental Investment Allowance in environmentally-friendly assets, deductions in the earlier years of the The above examples show that both (MIA). The EIA (energie-investeringsaftrek) compared to a more conventional life of an asset, and this represents a in Belgium and the Netherlands tax scheme offers a fiscal advantage solution. The percentages are 60%, 50% cash flow and interest advantage. Used regulations exist to stimulate the efficient for investing in sustainable energy and 35% depending on the category, and assets and assets exceeding EUR use of natural resources in buildings and certain types of energy-saving these rates may be increased later on 25 million do not qualify. Also here, a (and thus minimize carbon emissions), assets, whereas the MIA applies to approval of the European Commission. number of formalities (reporting to the sustainable constructions and clean land. environmentally friendly assets and tax authorities) have to be observed. Free On the other hand, one can hardly speak professional environmental advice. The The application of both schemes depreciation is recaptured if the asset today of a true green tax environment for fiscal benefit of EIA corresponds to a is subject to a number of further is disposed within five years after the the real estate sector in these countries. deduction from profit before tax (on top requirements such as timely reporting beginning of the calendar year in which However, given the carbon footprint of of normal depreciation allowances) equal to the tax authorities (i.e. within three the investment was made. It is important today’s buildings and their significant to 44% of the total amount of qualifying months from entering into obligations), to note that buildings that are rented out contribution to global warming, this may energy investments in a calendar year. a written request and a statement from do not qualify and therefore this benefit is change in the near future. The deduction is available if a separate the Minister of Economic Affairs that only available to certain owner occupants qualifying corporate asset costs at least the investment qualifies for tax relief. (the professional real estate sector is Maarten Tas €450 and the total amount of energy The tax benefits are recaptured if the thus excluded in practice). Please note Director, Tax PricewaterhouseCoopers investment per calendar year exceeds asset is disposed of within five years that in Belgium there are no deviating tax (Belgium) €2,100. Maximum deduction is reached after the beginning of the calendar year depreciation rules for environmentally- if the qualifying investments amount in which the investment was made.