Are you an entrepreneur who wants to purchase real estate? There’s a lot to consider in commercial property acquisition. You can choose to buy real estate with your company name or as a private individual, but also as a private person together with your company name. There are different methods to purchase real estate as an entrepreneur: you can decide to carry out a split property purchase, buy in undivided form, or buy with the right of superficies.
Wondering which option is best for you? That depends on your situation and how you want to use the property. Weighing all the pros and cons is no easy task. So let your real estate plans be optimized by an expert. However, we have compiled these options for you, to enable you make the right decisions.
METHODS TO purchase rEAL ESTATE AS AN ENTREPRENEUR
SPLIT PROPERTY PURCHASE
With a split purchase, you as an entrepreneur can buy real estate, partly through your company. The natural person acquires ‘bare ownership’ and the company becomes the ‘usufruct‘ of the property. As a private individual, you only buy the bare ownership of the property. You are the owner, but you are not allowed to use the property for the duration of the usufruct.
Your company buys the usufruct, and in this way, it acquires user and enjoyment rights. The company can write off the purchase price, so it does not pay corporation tax on this. As a usufructuary, the company may use the property itself (so that it does not have to pay rent) or rent it out (and receive the rental income), for a maximum of 30 years. That investment must fit within the corporate interest when you purchase real estate with this method.
There are various methods for calculating the value of the usufruct. Since 2017, the tax authorities have applied their own method with a number of parameters, including the term of the usufruct, the net rental value of the property, the expected inflation, etc.
During the term of the usufruct by means of a split purchase, the usufructuary manages the property in a legal way. The usufructuary has rights, but also obligations. For example, the usufructuary pays the costs associated with the law of enjoyment (such as property tax, insurance premiums, etc.) and normal repairs.
The ‘gross repairs’ remain at the expense of the bare owner. Just think of renovation works, such as the renovation of a roof, central heating or electricity. At the end of the term, the usufruct will die out. The bare owner (usually the manager) then becomes the full owner of the property, in principle without fiscal repercussions.
Considerations for a split purchase
The usufruct must be correctly estimated in advance. A correct distribution key of (later) costs and works is also crucial, both in the interest of the company and from a tax point of view. The tax authorities mainly focus on usufruct structures with private homes that are made available free of charge to company managers. So you have to analyze well if and know how this fits into the total remuneration package of the manager.
Buy real estate in undivided form
Using this method to purchase real estate entails investing in real estate together as a manager and company. “Indivisibility” means that ownership is distributed. In this case, a property or other right is then owned by several persons. For example, a natural person and a company each purchase an undivided portion of the same property.
The rights and obligations are proportional to the share of each party in the co-ownership. If the company acquires the largest part, it will also bear the largest expenses. The advantage of a two-party purchase is that, later on, the parties can usually split up against a reduced registration tax of 2.5%.
Please note: if the parties step out of the agreement, a capital gain is realized that is taxable. The capital gain is equal to the difference between the sales value (or price) and the residual accounting value (if this is equal to the net tax value). Suppose that after 25 years, the company sells its share to the manager, it will generate capital gains. Indeed, the manager will usually pay little registration tax when purchasing. However, the company will be taxed on the capital gain. The capital gains tax may be spread, but only under certain conditions.
Right of superficies
In this case, you as a natural person buy the land, and you give your company the right to build ‘buildings’ on that ground: one or more building (s) on the ground. When you purchase real estate in this way, you become the private land owner and then the company as a ‘building owner’. The purpose of this is to postpone the ‘right of revocation’ until the end of the agreement. Under that law, the landowner is normally also automatically the owner of the buildings on his land.
If the company building owner erects a building during the building right, the company becomes the full owner of the building. It can write this off, deduct the VAT if the company uses the building for its own VAT activities, collect any income, etc. After the building rights have expired, the landowner also becomes owner of the building.
At that time, there is a fiscal shift of value from the company to the private person. The tax authorities then assume that the private person pays a price for the building, particularly the value at the time of the transfer. It is difficult to predict what that value will be and what its fiscal impact will be.
If the private person pays enough, there is no problem. But if you pay too little, the tax authorities can interpret that as an advantage. If you are also the manager of the company (which is usually the case), this is considered an advantage of all kinds, and that is equated with remuneration for tax purposes. In practice, this construction is especially interesting for buildings that have less value in the long term, such as conservatories or stables. The added value is created on the ground, which remains private.
In summary, investing in real estate as a company can be done in many ways. Which is the best? That depends on your personal situation and goals. Do you want to receive the rent as a private person? Do you want to live for free in a company house and be charged with benefits of all kinds? Or do you want to pass the property on to the next generation?
There are many considerations and choices involved in the purchase. Each option has different advantages and disadvantages. Your choice influences the costs of purchase, the tax on your rental income, and your succession planning.