Real estate and investment trusts

Fiscal and legal care of real estate within your company or real estate fund.

Execution of real estate transactions

The purchase of real estate involves many legal and tax issues. To start with, a short or extensive legal and fiscal due diligence is of great importance, especially if the real estate is not purchased directly, but via shares in a real estate entity. In addition, (purchase) agreements will have to be drawn up. Furthermore, the levying of turnover tax or transfer tax must be considered. Sometimes the purchase of real estate or a real estate entity requires prior legal or fiscal structuring, for example to ensure maximum tax-deductible interest.

Fiscal property valuation

When your business resides in a certain property, you can depreciate this property until the fiscal book value has reached the so-called fiscal floor value. This results in your company paying less income or corporation tax. In addition, the situation may arise that the value of the property itself has decreased due to, for example, developments in the real estate market. If there is a sustainable and substantial drop in value, it is possible to write down the property for tax purposes, which can lead to further tax savings. In the latter case, however, it may be that the value for tax purposes falls below the floor value. Fiscal depreciations are then frozen until the fiscal book value, after revaluations, is once again above the bottom value.

Setting up a property fund

If you are considering investing in real estate jointly with others, we advise you to consider setting up a real estate investment fund. By setting up an investment fund with transparent rules, it is clear to all participants how the joint investment will be shaped.

In practice, many collective property investors decide to set up an investment fund in the form of a limited partnership (CV), joint-stock fund (FGR) or cooperative.

Good guidance in this respect is essential. If required or desired, we will be happy to assist you with drafting a prospectus or investment memorandum, designing a legal fund structure, writing legal documents for both the fund and the manager(s) and custodian(s), and setting up the fund entity or entities.

From a fiscal point of view, much attention will be paid to the turnover tax within the fund, the tax deduction of interest and the optimisation of the fiscal position of the (domestic and foreign) fund participants. In addition, it may be desirable to obtain advance assurance from the Tax Authorities on, for example, the fiscal position of the fund and/or the fund managers.

Project development

If your (real estate) business or property fund, purchases real estate with the purpose of redeveloping or transforming, we advise you to thoroughly map out in advance what the consequences will be for the levying of VAT and transfer tax. After all, VAT is charged on the – sometimes considerable – costs of transformation. The answer to the question of whether this VAT constitutes costs in the project operation, depends on the nature of the transformation and the future use of the transformed property. In this respect, each transformation stands alone.

If the transformation of the real estate leads to the creation of a new manufactured good, then a subsequent resale of the real estate is VAT taxed (but exempt from transfer tax). VAT on the transformation costs is then deductible. HVK Stevens assists many clients in this so-called “renewal discussion” with the tax authorities.

Even if and insofar as the transformed property is let with VAT, the VAT on the transformation costs is in principle deductible. HVK Stevens assists developers in making a reliable VAT forecast.

If, on the other hand, the transformed property is let to private individuals, the starting point will be an exempt use and the VAT on the transformation costs will normally not be deductible. However, the lease can be designed in such a way that VAT may be deductible after all.

The fiscal reinvestment reserve

When your company or investment fund proceeds with the sale of real estate, you can avoid immediate corporation tax being levied on the realised book profit. By forming a reinvestment reserve, this taxation can be postponed. Forming a reinvestment reserve is subject to a large number of conditions. For example, the company or fund must in principle make its reinvestment in no later than the third financial year after the year of sale. The company or fund must also always have the actual intention to reinvest the sale proceeds during that period and must always be able to make that intention plausible to the Tax Authorities. In practice, the existence of a (realistic) reinvestment intention is often discussed with the tax authorities.

HVK Stevens has a multidisciplinary real estate team including tax experts, lawyers and civil-law notaries. The real estate team of HVK Stevens is therefore able to draw up and implement real estate advice.

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