Bill proposal to stimulate waiver of commercial leases in response to the COVID-19 crisis
A new draft bill was proposed to the Federal Parliament on 19 November 2020 to introduce a specific income tax exemption for landlords of commercial immovable property. If adopted, this exemption will apply with respect to amounts of commercial lease that are voluntarily waived by the landlord in the period between 12 March 2020 and 31 December 2021, for the benefit of tenants-entrepreneurs hit by the Covid-19 crises. The exemption will apply from assessment year 2021.
The new draft bill was introduced to support regional measures aimed at enhancing the liquidity of tenants-entrepreneurs, such as the Flemish guarantee scheme. The Flemish scheme was implemented in May 2020 to stimulate landlords of commercial immovable property to voluntarily waive one or two months of lease for the benefit of their tenants that are severely impacted by the economic consequences of the COVID-19 crisis. The new draft bill is aimed as a further stimulus for landlords to waive lease and help tenants overcoming liquidity issues.
If the draft bill is adopted, the new exemption will be introduced under the heading “economic exemptions” in the Belgian Income Tax Code, hence resulting in a reduction of the taxpayer’s gross income with the amount of the tax exemption. Unfortunately, taxpayers not realizing a taxable income would therefore not be able to benefit from the new exemption.
The tax exemption will be subject to certain conditions and limitations, including:
- the amount that can be tax exempt is limited to two months commercial lease per property;
- there is a voluntary waiver of the commercial lease by the taxpayer (landlord);
- the economic damage of the tenant attains a certain level, resulting from a partial or complete interruption of its economic activity for at least seven consecutive calendar days, or a decrease in turnover of at least 60 %; and
- the exemption cannot be applied for lease between affiliated parties within the meaning of the Belgian Code on Companies and Associations.
Similarly to other support measures, the exemption will not be applicable to enterprises that were in financial difficulties on 18 March 2020. Moreover, companies executing any form of reduction or distribution of equity (including buy back of own shares) between 12 March 2020 and the last day of the taxable period, will be excluded from the scope of the exemption. Additionally, companies that have a direct participation in a company located in a tax haven, or make payments to companies located in a tax haven whereby the payment cannot be economically or financially justified, will also be excluded.
What are the implications for you?
If you are a party to a commercial lease arrangement, we advise you to follow the above developments. If the proposed measure is adopted, you are recommended to consider the implications of the proposed income tax exemption in your specific situation. Hereby, it is also useful to consider the VAT as well as the commercial law implications of a waiver.
How can we help you?
We monitor further developments and keep you informed. In the meanwhile, if you have any questions on the above topic, we are glad to assist you and feel free to contact your KPMG advisor.
 Draft bill of 19 November 2020 amending the Belgian Income Tax Code aiming to promote the waiver of commercial leases in the framework of the COVID-19 crisis (DOC 551656/001).