Info property bevak
A public closed-end property investment company (property investment company with a fixed capital):
- is a collective institution for direct or indirect investments in property;
- is subject to the provisions of the Royal Decree on Closed-End Property Investment Companies;
- must be established as a Public Limited Company or a Limited Company with Share Capital;
- is listed on the stock market, where at least 30% of the shares must be distributed in the market;
- is limited in its activities to property investment;
- is excluded from acting as a property developer, either directly or indirectly (other than on an occasional basis);
- can maintain subsidiaries that are regulated either separately or collectively and which may or may not assume the status of institutional closed-end property investment companies.
Closed-end property investment companies are regulated by the Financial Services and Markets Authority (FSMA) and are required to comply with stringent rules regarding conflicts of interest. In addition to Section 523 (concerning conflicts of interest involving directors) and Section 524 (concerning conflicts of interest involving affiliates) of the Belgian Company Code, which sections apply to all listed companies, there are special rules in place for closed-end property investment companies regarding functional conflicts of interest (pursuant to Section 18 of the Royal Decree on Closed-End Property Investment Companies). In its Corporate Governance Charter, WDP has imposed additional, stringent rules on itself related to conflicts of interest, in compliance with the Belgian Corporate Governance Code.
Special regulations
Immovable property
As a general rule, any immovable property/real estate entity may not represent more than 20% of total assets, in order to ensure that investment risk is sufficiently diversified. In specific cases (i.e. if the closed-end property investment company has demonstrated that a deviation* of the above is in the interest of the shareholders, or if it has shown that such a deviation is sound due to the specific features of the investment and, in particular, its nature and size, and always on the condition that the consolidated liabilities of the closed-end property investment company do not exceed 33% of the consolidated assets), Financial Services and Markets Authority may permit a deviation. This deviation must be accounted for in the prospectus and in the periodic reports prepared by the closed-end property investment company, until the deviation is no longer in effect. This type of deviation was heretofore not granted to WDP, on account of its adequate portfolio diversification.
Accounts
Under European law, closed-end property investment companies – like all other listed companies – must prepare their consolidated financial statements in accordance with the international IAS/IFRS standards. Public closed-end property investment companies and institutional closed-end property investment companies (see below) are also required to prepare their separate financial statements in accordance with these standards and in compliance with the Royal Decree on Closed-End Property Investment Companies. Since property investments make up the bulk of the assets of closed-end property investment companies, these companies must appraise these investments at their actual value, in compliance with IAS 40.
Appraisal
The actual value of the property is appraised at the end of each financial year by an independent expert, who adjusts this value at the end of each quarter. The property is then included in the balance sheet in accordance with this appraised value. The buildings are not depreciated.
Result
By way of compensation for the capital, the company must pay an amount that is equal to at least the positive difference between the following amounts:
- 80% of the amount that is equal to the sum of the adjusted result and of the net surplus values on the development of property that has not been exempted from mandatory payment;
- the net decline of the company’s liabilities during the course of the financial year
Naturally, this obligation applies only if the company has reported a net profit and if it has the flexibility to make payment in accordance with company law.
Liabilities and securities
The consolidated level of indebtedness and, effective 7 January 2012, the separate level of indebtedness of the closed-end property investment company, is limited to 65% of total assets. Property investment companies and their subsidiaries are only permitted to provide mortgages or other securities or guarantees as part of their funding of property-related activities. The total amount covered by these mortgages, securities or guarantees may not exceed 50% of the total actual value of the property owned by the closed-end property investment company and its subsidiaries, and the mortgage, security or guarantee provided may relate to no more than 75% of the value of the encumbered property.
Institutional closed-end property investment companies
Subsidiaries of a public closed-end property investment company must always be audited by the public property investment company either separately or collectively. These subsidiaries may take on the form of institutional closed-end property investment companies (whose funds can only be raised from institutional or professional investors). This ensures, for example, that a public property investment company can develop specific projects together with a third party. The regulatory framework for institutional closed-end property investment companies is designed to avoid that such a partnership in an institutional closed-end property investment company would be inimical to the interests of the shareholders of the public closed-end property investment company. If a public closed-end property investment company chooses the form of an institutional closed-end property investment company, it is not authorised to maintain subsidiaries under Belgian law that assume the form of ordinary property companies. Institutional closed-end property investment companies are partly regulated by the Financial Services and Markets Authority.
Tax system
Both public and institutional closed-end property investment companies are subject to corporation tax at the standard rate; however, they are subject to a reduced tax base, consisting of the sum of (1) the nonstandard or gratuitous benefits they have received and (2) expenses and costs that cannot be deducted as professional expenses and costs, not including decreases in value and decreases in the value of shares. In addition, they may be subject to the special taxation on commissions of 309% on commissions paid and compensation not accounted for in individual tax forms and the combined tax return (i.e. a summary of the individual tax returns of all the company’s employees). The withholding tax raised on the dividends paid by public closed-end property investment companies is basically equal to 15%, and amounts to 0% for a closed-end property investment company whose property portfolio consists of more than 60% residential property. This withholding tax generally does not apply to private individuals residing in Belgium.
Companies that request to be recognised as closed-end property investment companies or that merge with, or separate and transfer a portion of their immovable assets to, a closed-end property investment company, are subject to an exit tax of 16.995% (16.5% plus the additional contribution of 3% due to the financial crisis). This exit tax represents the tax price these types of companies are required to pay in order to abandon the civil-law tax regime. Under tax law, this transfer is treated as a (partial) distribution of the authorised capital by the company to the closed-end property investment company. When distributing its authorised capital, a company must treat the positive difference between the payments in funds, securities or any other form, and the reappraised value of the paid-up capital (i.e. the surplus value available in the company) as a dividend. The Code of Income Tax provides that the amount paid must be equal to the actual value of the authorised capital on the date on which this transaction was completed (Section 210, paragraph 2 of the Code of Income Tax, 1992). The difference between the actual value of the authorised capital and the reappraised value of the paid-up capital is considered equivalent to a dividend paid. The previously taxed reserves may be deducted from this difference, with the remainder generally constituting the taxable base, which is subject to the tax rate of 16.995%.
The closed-end property investment company is an investment vehicle comparable to the Fiscal Investment Institutions (FBIs) in the Netherlands, the Sociétés d’Investissements Immobiliers Cotées (SIICs) in France and the Real Estate Investment Trusts (REITs) in a variety of countries, including the United States.
Since 1 November 2010, WDP Nederland has been subject to the regime for fiscal investment institutions (fiscale beleggingsinstelling) and the attendant zero tax rate.
Click here for more information* See Article 39 of the Royal Decree of 7 December 2010.
