1. Acquisition, holding and transfer by Belgian investors of real estate assets located in Spain Luxembourg, April 1, 2011 Antonio Barba de Alba Erik Sansen

2. Summary Introduction Acquisition of the real estate property Special reference to indirect taxation in Spain Direct acquisition by the non-resident investor Acquisition through a Spanish vehicle Usufruct over real estate assets Holding of the real estate property Taxation of income deriving from the assets Taxation of wealth Exchange of information Transfer of the real estate Onerous Transfer Inheritance/Gift 2

3. 1. Acquisition of the real estate property

4. Brief overview of Indirect Taxation aspects A transfer of real estate is subject to Value Added Tax Transfer Tax It is beneficial to acquire real estate property subject to and not exempt from VAT OR VAT: it is possible to offset or request the refund of this tax Transfer Tax: it is an actual cost If the acquisition is exempt from VAT but it is possible to waive the exemption, this option should always be taken, although Stamp Duty would be triggered Non resident company Spanish company Indirect taxation in Spain 4

5. VAT The transfer of urban land and the first transfer of buildings executed by entrepreneurs for VAT purposes is subject and not exempt from VAT at a 18% (for business premises) or 8% (for dwelling) rate The delivery by a developer of a building once its construction or restoration has been completed is treated as a first delivery Second and subsequent transfers of buildings are exempt from VAT. Seller and buyer can waive to the exemption under certain conditions (inter alia, the buyer must perform a full taxable activity under VAT) Indirect Tax Aspects Indirect taxation in Spain 5

6. Stamp Duty Transfer of Spanish real estate property subject to Spanish VAT is also subject to payment of a Stamp Duty This tax is due by the purchaser The rate depends on the autonomous region where the real estate property is located Most autonomous regions have a 1% rate. However if the seller has opted for a VAT taxable transfer when formerly exempt most autonomous regions have fixed a 1.5% rate Stamp Duty is also levied on the registration of a mortgage loan Indirect Tax Aspects Indirect taxation in Spain 6

7. Transfer Tax The transfer of real estate will be subject to Transfer Tax if: it is executed by private persons (not treated as entrepreneurs for VAT purposes) or the transfer is exempt from or not subject to VAT (i.e. non urban land or second and subsequent sales of buildings if parties have not opted for VAT taxable transfer). The tax rate is of 7% in most autonomous regions Certain regions have established special rates (ranging between 2% and 4%) for transfer of real estate if the seller could have opted for a VAT taxable transfer, but chooses not to Indirect Tax Aspects Indirect taxation in Spain 7

8. The acquisition of an Spanish real estate property is subject to indirect taxation: – VAT: 18% or 8% depending on the kind of property. Tax refund can be requested – Transfer Tax: 7% in most autonomous districts Non-recoverable tax. Acquisition of a real estate property in Spain A. DIRECT OWNERSHIP Acquisition of Spanish Real Estate Belgian company 8

9. B. ACQUISITION BY A SPANISH COMPANY Acquisition of Spanish Real Estate Belgian company Spanish company Capital contribution and increases of capital in a Spanish company is not subject (as from December 2010) to capital duty taxation. However, reduction in capital is still taxable in Spain (1%). The acquisition of an Spanish real estate property is subject to indirect taxation, in the same conditions that the direct acquisition: – VAT: 18% or 8%, Tax refund can be requested – Transfer Tax: 7% in most autonomous districts Non-recoverable tax. Acquisition of a real estate property in Spain 9

10. Corporate Income Tax The acquirer purchasing the shares in local property companies must take into account the deferred corporate income tax liability on the real estate property VAT/Transfer Tax/Stamp Duty VAT exempt It is not possible to opt for a VAT taxable transfer No Stamp Duty is due Transfer Tax Transfer tax could be levied on the buyer depending on the percentage of real estate held by that company C. Special reference to the acquisition of shares in a Spanish “Real Estate Company” Belgian company Spanish company Acquisition of a real estate property in Spain 10

11. D. Acquisition of the usufruct over a real estate asset Acquisition of a real estate property in Spain Transfer Tax In case the usufruct over the real estate is acquired with a consideration, Transfer Tax shall be applicable. Temporary usufruct ; 2% annual (of the value of the asset) with a maximum of 70%. Life usufruct ; the value of the life usufruct takes into account the age of the usufructuary, and results form the formula (89- age of the usufructuary), with a minimum of 10%. In case the usufructuary is a legal entity, and the usufruct is granted for indefinite term or for a term >30 years, it would be deemed that the full ownership of the asset has been transferred, subject to condition. The assessment should be made on the total value of the asset. The value of the bare ownership is computed as the difference between (i) the total value of the real estate and (ii) the value of the usufruct. The applicable tax rate is the corresponding to the real estate assets (in general, 7%, although it depend on the specific region). 11

12. 2. Holding of the real estate asset

13. Holding of a real estate asset A. DIRECT OWNERSHIP Belgian company Tax rate on income: 24% Rental income As a general rule, Tax Treaties (article 6) allow Spain to tax income deriving from real estate located in Spain. 13

14. Holding of a real estate asset A. DIRECT OWNERSHIP Belgium must exempt (with progression) the rental income or rental value : - Spanish income taxes paid on the received income - 40% (buildings) / 10% (land) fixed cost Rental income 14

15. A. DIRECT OWNERSHIP Existence of permanent establishment (PE)  Analysis on a case by case scenario.  If either directly or through a dependent agent, it maintains premises or places of work where the enterprise, either wholly or partly, carries on its business  A mere rental is not considered a business activity unless it has both premises and a full-time employee dedicated exclusively to the renting activity (point 8 of the Comment on paragraph 2 of article 5 of the OECD Model Tax Convention + resolutions of the Spanish Tax Administration). Business activity without a PE: 24% rate on “net” income Business activity with a PE: CIT Law applies as for resident companies; taxed at 30% on net income Holding of a real estate asset 15

16. A. DIRECT OWNERSHIP Taxation of business activity without PE  As to March 2010, NRIT Law provided that the 24% was applicable to the gross amount of the income received by the non-resident.  As from March 2010, the NRIT was modified allowing, for non residents located in the European Union, to deduct the same expenses, foreseen under the Personal Income Tax Law (PIT Law), that resident taxpayers, provided that:  The taxpayer provides evidence that such expenses are directly related to the income derived from Spain, and,  They have a clear nexus with the activity performed in Spain. Holding of a real estate asset 16

17. A. DIRECT OWNERSHIP Taxation of business activity without PE Deductible expenses are limited to those applicable to resident taxpayers under the Spanish PIT Law, which foresees a limited number of expenses. In particular, interests of third party capital invested in the acquisition, insurance, local taxes, amortization under certain limits, repairing and maintenance expenses are deductible for PIT purposes. However, it should be noted that PIT Law is more restrictive that CIT Law, with regard to deduction of expenses. In any case, the WHT tax (24%) applies on the amount effectively paid by the tenants (legal entities), but the taxpayer could apply for the refund. The refund could be applied as from 1 February of the following year in which the income has been obtained (financial burden). Holding of a real estate asset 17

18. Holding of a real estate asset A. DIRECT OWNERSHIP Belgian company Rental income Belgium must exempt the rental income (profit determined according to Belgian internal law) : - Spanish income taxes - costs related to the real estate asset 18

19. Holding of a real estate asset A. DIRECT OWNERSHIP Belgian company Rental income No thin capitalization rules in Belgium (if not borrowed from shareholder) No recapture rules for rental income that is not related to a PE 19

20. A. DIRECT OWNERSHIP Special Tax on Real Estate owned by Non Resident Entities Applies on 3% of cadastral value Levied yearly Exemption: –Companies resident in a country with a Tax Treaty with Spain including an Information Exchange Clause and the ultimate owner is disclosed and resident in such a country. –Companies carrying out a business activity (other than the rental of the real estate property) A. To apply the exemption, the non-resident company should file a declaration, detailing the real estate assets (attaching a certificate of tax resident of the company and the ultimate owners). For individuals, Wealth Tax was abolished as of tax year 2008 Holding of a real estate asset 20

21. B. OWNERSHIP THROUGH A SPANISH COMPANY Corporate Income Tax (CIT) aspects: CIT rate: 30% Reduced corporate income tax rates applicable: Small sized companies (turnover below €5 million): 20% on the first €300,000 and 25% on the outstanding amount subject to certain requirements. Medium sized companies (turnover below €10 million): 25% on the first €300,000 and 30% on the outstanding amount. Depreciation rate : 3% annually. Taxes and costs associated with the purchase of property are capitalized and depreciated with the property. New assets acquired during 2011 to 2015 may benefit from a freedom of depreciation. Deduction of business related expenses Holding of a real estate asset 21

22. B. OWNERSHIP THROUGH A SPANISH COMPANY (cont.) Interest: as a general principle, interest expenses are deductible. Thin capitalization rules: Debt-equity ratio is 3:1. Debt is taken up directly or indirectly from a related entity outside the EU. Transfer pricing: Arm’s length rate on interest. Loss carry-forward : 15 years Capital gains obtained by Spanish-resident entities: taxed at the general corporate income tax rate (30%) A 12% tax credit may be available for certain reinvestments. The amount that should be reinvested is the amount obtained in the transfer of assets (not the profit obtained). For tenants (legal entities); the general rule, 19% WHT on account of the CIT liability. Exemption from WHT in case the Cadastral value of the leased property exceeds 600,000 euro. Holding of a real estate asset 22

23. B. OWNERSHIP THROUGH A SPANISH COMPANY Interest Spanish withholding tax General rate: 19% Reduced rates under Tax Treaties Domestic exemption when paid to EU residents EC Interest-royalty directive Belgian corporate income tax General rate: 33,99% Notional Interest Deduction Belgian company Spanish company Holding of a real estate asset Interest 23

24. B. OWNERSHIP THROUGH A SPANISH COMPANY Dividend Spanish withholding tax General rate : 19% Reduced Tax Treaty rates Exemption under EC Parent-Subsidiary Directive (applicable where the non resident investor holds 5% in the Spanish company, subject to certain requirements) Belgian corporate income tax General rate : 33,99% 95% deductibility of dividends received Belgian company Spanish company Holding of a real estate asset Dividends 24

25. B. OWNERSHIP THROUGH A SPANISH COMPANY Interest General rate: 19% Reduced rates under Tax Treaties Domestic exemption when paid to EU residents In Belgium : 15%(25% if = dividend) Dividend General rate: 19% Reduced Tax Treaty rates In Belgium : 25% / 15% Spanish company Holding of a real estate asset Interests Dividends 25

26. C. USUFRUCT ON A REAL ESTATE PROPERTY The usufructuary would be entitled to receive any income deriving from the real estate assets, based on the rules described above. Holding of a real estate asset 26

27. Value Added Tax Under both scenarios, the renting of Spanish real estate would be subject to Spanish VAT, at the general rate (18%) for business premises. Exemptions for renting of dwellings. Annual Real Estate Property Tax (Impuesto sobre Bienes Inmuebles) Levied on the owner (companies and individuals) of the real estate property It is paid on the cadastral value of the real estate property Tax rate depends on the municipality where the real estate is located. The rate of urban properties may range from 0.4% to 1.10%. Other Taxes 27

28. Local Business Tax (Impuesto sobre Actividades Económicas) Spanish companies are also subject to local business tax, which is levied annually on registered companies engaged in business activities in Spain if their annual turnover exceeds EUR 1 million. The tax is deductible for CIT tax purposes. The amount of tax due depends on the activities carried out by the taxpayer and the surface area of the business premises, as corrected by certain coefficients and increased by a provincial surcharge. However, the tax liability resulting from application of the tariffs and surcharges may not exceed 15% of the presumed average profits notionally attributed to the activity in question. Other Taxes 28

29. Formal obligations/Exchange of information Bilateral exchange of information procedures under the corresponding Tax Treaties. Non/residents investing in real estate located in Spain should file a form D-2A, before the Ministry of Industry and Commerce. Non residents investing in shares in Spanish companies should file a form D-1A, before the Ministry of Industry and Commerce. To apply the exemption on the special tax on real estate owned by non residents, the non-resident company should file a declaration, detailing the real estate assets (attaching a certificate of tax resident of the company and the ultimate benificial owners). European directive... Exchange of information 29

30. 3. Transfer of the real estate property

31. As a general rule, article 13 of the Tax Treaty with Belgium establishes that the direct transfer of a real estate located in Spain by a Belgian resident investor is taxable in Spain. Spanish provisions establish a 19% taxation on the capital gain deriving from the sale of real estate assets. EU investors are allowed to apply the same deductible expensesa as a Spanish tax resident, following the PIT rules. 3% WHT on the price of the sale, applicable by the buyer when the seller is a non resident. Belgium must exempt the capital gain A. DIRECT TRANSFER OF THE REAL ESTATE Disposal of shares by the non-resident investor Onerous Transfer of the real estate Belgian company 31

32. As a general rule, article 13 of the Tax Treaty with Belgium establish that the direct transfer of a real estate located in Spain by a non-resident investor is taxable in Spain. Spanish provisions establish a 19% taxation on the capital gain deriving from the sale of real estate assets. EU investors are allowed to apply the same deductible expenses as a Spanish tax resident, following the PIT rules. 3% WHT on the price of the sale, applicable by the buyer when the seller is a non resident. Belgium must exempt the capital gain (cf. speculative capital gain). A. DIRECT TRANSFER OF THE REAL ESTATE Disposal of shares by the non-resident investor Onerous Transfer of the real estate 32

33. Corporate Income Tax As a general rule, capital gains derived by foreign persons from the disposal of shares held in a Spanish company, which assets are mainly composed by real estate assets, are subject to Non Resident Income Tax unless an exemption applies. The Tax Treaty with Belgium (also with Luxembourg)allows Spain to tax capital gains derived from the transfer of shares in Spanish “real estate companies”. Special mention to Switzerland; the “real estate clause” is currently being under negotiations. The capital gain will be taxed at a 19% flat rate Belgium must exempt (and does not tax) capital gains realized on shares. B. OWNERSHIP THROUGH A SPANISH COMPANY Disposal of shares in a Spanish Company Belgian company Spanish company Disposal Onerous Transfer of the real estate 33

34. Personal Income Tax See previous slide. The capital gain will be taxed at a 19% flat rate. Belgium must exempt the capital gain. B. OWNERSHIP THROUGH A SPANISH COMPANY Disposal of shares in a Spanish Company Spanish company Disposal Onerous Transfer of the real estate 34

35. Corporate Income Tax The capital gain will be subject to Spanish Corporate Tax at the standard rates (30%). A Spanish company will be taxed at an 18% rate, only if the reinvestment allowance is applied. VAT/Transfer Tax A transfer of real estate property is either subject to VAT or Transfer Tax depending on the conditions explained. Municipal Tax Local tax levied on the increase in value of the land (i.e. not the building), levied on the seller. The taxable base is calculated taking into account the cadastral value and the number of years the real estate has been owned. The rate is imposed by each local Council under maximum legal limits. B. OWNERSHIP THROUGH A SPANISH COMPANY Disposal of the real estate directly by the Spanish Company Disposal Belgian company Spanish company Onerous Transfer of the real estate 35

36. Personal Income Tax Article 13.2 of the Tax Treaty with Belgium allows Spain to tax capital gains derived from the transfer of shares in a company that mainly holds real estate in the other country The capital gain will be taxed at a 19% flat rate. C. OWNERSHIP THROUGH A BELGIAN COMPANY Disposal of shares in a Spanish Company Belgian company Disposal Onerous Transfer of the real estate 36

37. Spanish inheritance Tax and Gift Tax applied on assets or rights located in Spain irrespective of the residence of decedent/heirs or donor/donees. It is applicable only to individual beneficiaries. Spanish Inheritance and Gift Tax Spanish Company Spanish Inheritance and Gift Tax Deceased/Donee TRANSFER OF A REAL ESTATE BY INHERITANCE /GIFT Gratuitous Transfer of the real estate Deceased/Donee Belgian Company No Spanish Inheritance and Gift Tax 37

38. Spanish Inheritance and Gift Tax Taxpayer is the inheritor or donee of the assets Both taxes are very similar, the main difference being some reductions and familiar allowances exclusively applicable in the Inheritance Tax. Competence of the Spanish regions (“Comunidades Autónomas”): important regional differences exist depending on the region. For resident taxpayers, the corresponding regional rules are applicable. However, for non-resident taxpayers, the central rules are applicable and, therefore, in practice regional personal deductions or allowances are not applicable to non residents Under central rules, no general reductions are provided except for a 95% allowance in case of family business and participations in family entities European Commission; this rules are incompatible with the free movement of persons and capitals. February 2011, the EC send Spain a complementary reasoned opinion and requested the amendment of its discriminatory rules on inheritance and gift taxation of non-residents and assets held abroad Gratuitous Transfer of the real estate 38

39. Spanish Inheritance and Gift Tax The taxable base of Inheritance/Gift Tax is formed by the net market value of the assets received, with deduction of debts and related costs. The tax rate charged on the tax base is calculated in a two-tier process, by applying a first progressive tax scale, which depends on the value of the estate or gift and further, Gratuitous Transfer of the real estate 39 Tax Base First (€) Tax Debt € Rest of Tax Base Up to Applicable rate % 07,993.467.65 239,389.1340,011.04159,388.4125.50 398,777.5480,655.08398,777.5429.75 797,555.08199,291.40Upwards34

40. Spanish Inheritance and Gift Tax applying to the resulting debt a multiplying coefficient that depends on the previous net worth of the beneficiary and the degree of kinship with the donor/deceased. Gratuitous Transfer of the real estate 40 Previous Wealth Donee/heir Degree of kinship Up to 402,678. 11 402,678.11 to 2,007,308.43 2,007,380.43 to 4,020,770.98 Over 4,020,770.98 Group I and II. Children and adopted children, spouses, ascendants and adoptive ascendants 11.051.11.2 Group III. Collateral family members in second and third degree of kinship, ascendants and descendants by affinity 1.58821.66761.74711.9059 Group IV. Collateral family members in fourth degree of kinship or further removed and non family heirs 22.12.22.4

41. Belgian Inheritance Tax Belgian inheritance taxes are due on the worldwide assets of a Belgian resident. No Tax Treaty with Spain to avoid double taxation. Article 17 Belgian Inh. T. Code granting a tax credit for foreign real estate assets. Does this also apply for Spanish real estate companies? Gratuitous Transfer of the real estate 41

42. Belgian Gift Tax No Belgian gift taxes are due on foreign real estate assets. Belgian gift taxes are due when movable assets are donated before a Belgian notary public (3 or 7%). When donated before a foreign notary public : no gift taxes but risk to Belgian inheritance taxes in the case of decease within three years after the donation. Gratuitous Transfer of the real estate 42

43. Summary Inheritance Taxes Gratuitous Transfer of the real estate Spanish real estate Spanish company Belgian company Spainyes no Belgiumyes but tax credit yes (tax credit?) yes 43

44. Summary Gift Taxes Gratuitous Transfer of the real estate Spanish real estate Spanish company Belgian company Spainyes no Belgiumnono (Inh.T. 3 years) yes (3%-7%) no (Inh.T. 3 years) yes (3%-7%) 44

45. Optimization : Split purchase: anti-abuse provisions. Real estate with debt Purchase by a Belgian company Regional benefits in Spanish inheritance taxes. Gratuitous Transfer of the real estate 45

46. THANK YOU! Antonio Barba antonio.barba@cuatrecasas.com CUATRECASAS, GONÇALVES PEREIRA Tel. +349547196 - Fax +34915247170

47. Erik Sansen Cazimir Advocaten Vijfhoekstraat 40C 1800 Vilvoorde T. +32 (0)2 255 87 00 M. +32 (0)477 35 08 78 F. +32 (0)2 255 87 05 E. erik.sansen@cazimir.be W. w ww.cazimir.be Brussel - Kortrijk