Company and shareholder co-owners: not a good idea
June 2022 – Anyone who owns a property together with another person can end this joint ownership by leaving the joint ownership. Depending on where the property is located, the sharing duty amounts to 2,5% in Flanders or 1% in the other two regions. However, if you are a co-owner with your own company, you pay a sales tax of 12% or 12.5%. Why is this?
Historical partners
Let's say you have a public limited company (a limited liability company) and this company owns a building. If the limited liability company is wound up and the property is transferred to you, you will have to pay sales tax, even if you yourself contributed the property to the company when it was wound up. This sales tax amounts to 12% in Flanders and 12,5% in the other two regions.
If you are a partner in a limited liability company (a partnership) and you receive the property in the course of the liquidation, there are two possibilities:
If you were not a partner at the time the BV/SRL acquired ownership of the building, you pay a sales tax.
If, on the other hand, you were a partner when the BV/SRL (or previously, SPRL) bought the building, or if you yourself contributed the building, you are a historical partner and are subject to the provisional regime.
The provisional regime means that you only have to pay a fixed fee when you are liquidated. The taxman then waits to see what happens:
if you acquire the property with other partners who are all historical partners, you will be able to leave the joint ownership and will only have to pay a division fee;
if, on the other hand, the property is allocated to a person who is not a historical partner, sales tax will be due.
The loophole is a dead end
In a public limited company, you will therefore not escape the right of sale, unless, perhaps ...
The practice of the shareholder buying a property in joint ownership with the company emerged about ten years ago. The shareholder buys, for example, 10% of the property - on which he has to pay sales tax - and the company buys the remaining 90% - on which sales tax is also due, but deductible as a business expense.
After years, if the shareholder wants to liquidate the company, for example, he leaves the undivided ownership and buys back the company's share. Is it then sufficient to pay partition duty on this transaction?
"No", says the taxman. This is because the rules for partners who receive real estate from their own company are special rules, designed as an anti-abuse provision. And this anti-abuse provision takes precedence over the general regulation on partition duty. The term 'tax authority' in this case refers to both the federal tax administration (which is still partly responsible for registration fees) and Vlabel, which is responsible for Flemish registration fees.
From the Court of First Instance via the Court of Cassation to the Constitutional Court
This interpretation has already caused a lot of ink to flow. A large number of taxpayers have taken their case to the competent courts and finally ended up before the Court of Cassation. One of the arguments put forward was the violation of the principle of equality. However, this does not fall within the competence of the Court of Cassation, but rather within that of the Constitutional Court. The principle of equality seems to be violated in that a partner who is in joint ownership with his own company has to pay a sales tax. Whereas another person who is not a partner and who is in joint ownership with the same company will only be charged a right of division.
The Constitutional Court, however, considers this distinction to be justified, because the rule that a right of sale is due when the company draws real estate from its own company is an anti-abuse provision that effectively takes precedence over the right of partition. The question may rightly be asked as to what abuse this provision is combating in this case. At the time of the purchase of the property, the duties were indeed paid, partly by the company and partly by the partner. But the decision of the Constitutional Court puts an end to the discussion. It is, therefore, best to avoid any co-ownership between the company and one of its partners.
