“Taxation cannot simply be reversed. It settles the score.”

Author: Jan Tuerlinckx is a lawyer at Tuerlinckx Tax Lawyers

We have a natural tendency to postpone problems. Today’s gains outweigh tomorrow’s costs.

Some ideas perfectly capture their moment in time; others only reveal their true nature in the long run. Purchasing the family home through the company falls under both categories. Thirty years ago, the advice was clear and almost self-evident: entrepreneurs acquired property through the company. It was rational and mathematically correct. The idea was to invest with gross turnover rather than overtaxed private income. The costs were deductible, depreciation reduced profit, and private use was treated leniently for tax purposes under the benefit in kind principle.

But taxation is never a snapshot. It is a process – and one that threatens to apply retroactively. Our entrepreneur is now facing a new reality: his retirement. The company that was once the engine of his wealth accumulation has come to a stop. But the costs remain. In other words, a home no longer is an asset, but remains a liability. This is where taxation erodes liquidity. The entrepreneur has to pay market-rate rent, otherwise he would be penalised fiscally by categorising the rent as a benefit in kind, which, incidentally, has been increasingly restricted. In that context, maintenance and repairs are trials.

Everyone wants this fiscal corrosion to stop there. The reflex is to bring the home into the private sphere. But taxation cannot simply be reversed. It settles the score. The corporate tax on latent capital gains is the first in a waterfall of taxes. The book value of the home is usually small. However, this constitutes a problem, because corporate tax is levied on the difference between the market value and the book value. This tax must be payable by the company. If the company does not have those funds, the entrepreneur will have to advance the money, which could send him under in the later acceleration of registration duties.

The property must subsequently be paid out to the company director privately as a dividend. That means paying withholding tax on movable property. If our entrepreneur failed to plan ahead, that is 30 percent. If he has accrued liquidation reserves in the past, he can reduce that amount by a little more or a little less than half. And if he has planned well and can also immediately dissolve and liquidate the company, even down to a third.

And even then, the entrepreneur is not quite out of the woods yet. Because the transfer of real estate also involves registration duties. In principle, these amount to 12 percent. However, anyone who has remained continuously associated with the company as a shareholder can fortunately acquire the home for a fixed fee of 50 euros, under the so-called historical partner (historische vennoot) scheme. The company must, however, have built up sufficient equity to reach at least the market value of the property. If either of the two conditions is missing, the 12 percent rate may still apply. That may be the case if the entrepreneur advanced the corporate tax on the home, as mentioned earlier.

The calculation is rarely elegant – rather a financial vortex. Honestly, it rarely truly surprises anyone. And yet, it happens time and time again. This has less to do with taxation than with human behaviour. We have a natural tendency to postpone problems. Not out of ignorance, but out of opportunism. Today’s gains outweigh tomorrow’s costs. Until tomorrow becomes today and the costs present themselves, increased by interest.

Maybe that’s the real lesson. Not that a bad choice has ever been made. On the contrary: in its context, it was often perfectly defensible. But optimisation without an exit strategy is not a strategy. It is delaying the decision. And postponement, as shown by experience, is rarely painless.

The author is a lawyer and founder of Tuerlinckx Tax Lawyers