Flemish tax incentive for new investments in material and equipment

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The Flemish Region has introduced an additional exemption from withholding tax on real estate for investments in material and equipment. New investments in material and equipment will further reduce still existing taxable cadastral income and lead to an additional tax benefit.

Background


A cadastral income is determined for material and equipment (materieel en outillage)[1] which are immovable by nature or by their destination, so that - in principle - they are subject to real estate withholding tax.

([1] Material and equipment can be described as all appliances, machinery and other equipment appropriate for industrial, commercial and craft business.)

Current exemptions from real estate withholding tax


In the Flemish Region, the cadastral income of material and equipment can be exempted from real estate withholding tax in the following cases:

  • (i) New investments in material and equipment for which a cadastral income was determined for the first time after January 1, 1998 and before January 1, 2008
  • (ii) Replacement investments (replacement of existing material and equipment by new material and equipment) for which a cadastral income was determined after January 1, 1998 and before January 1, 2008:
    • the cadastral income should be higher than the cadastral income of material and equipment existing on January 1, 1998 (threshold)
    • the exemption is limited to this surplus of cadastral income
  • (iii) Investments in new material and equipment (both new and replacement investments) for which a cadastral income is determined as from January 1, 2008

Consequently, in some cases there is still a taxable cadastral income of material and equipment (investments prior to 1998, second-hand material and equipment, replacement investments after January 1, 1998 and before January 1, 2008 with only a partial exemption from real estate withholding tax).

Additional exemption from real estate withholding tax related to new investments in 2014, 2015 and 2016


In the Flemish Region an additional exemption from real estate withholding tax in respect of material and equipment has been introduced as from tax year 2015 (financial year 2014).

This additional exemption implies that - at the request of the taxpayer - the remaining taxable cadastral income in respect of material and equipment (see above) is exempted from real estate withholding tax up to the cadastral income of new investments in material and equipment, for which a cadastral income is determined as from January 1, 2014 till December 31, 2016.

Consequently, investments in new material and equipment in 2014, 2015 and 2016 will lead to:

  • (i) an exemption from real estate withholding tax on the ‘new’ cadastral income (based on the existing exemption) and
  • (ii) an equivalent exemption on the ‘old’ cadastral income.

The additional exemption is subject to the following conditions:

  • (i) the energy policy agreement (“energiebeleidsovereenkomst”) drawn up by the Flemish Government should be acceded and complied with (for companies belonging to the target group), and
  • (ii) the new material and equipment should not be placed in industrial or commercial buildings in violation of the building permit.

Based on this additional exemption from real estate withholding tax, the remaining taxable cadastral income in respect of material and equipment can be further reduced, without having to divest.

Do not hesitate to get in touch with the contact persons listed here or with your regular contact at EY Tax Consultants for assistance if you wish more information on this alert.