The Reform of the Flemish Preferential Regime for Family Companies: Impact and Key Considerations

Under certain conditions, this regime allows (the assets of) family businesses or (the shares of) family companies to be transferred free of donation tax or inherited at reduced inheritance tax rates (3% or 7%). As a result, the regime has become an important tool in family wealth and succession planning.

As from 1 January 2026, the preferential regime for family companies has been substantially reformed, especially for companies holding residential real estate. The Flemish legislator has introduced stricter and more formal rules defining which companies can benefit from the regime.

For family businesses, the rules remain largely unchanged, except for the explicit clarification that transfers of building land are also excluded from the regime.

A. Situation before 1 January 2026: an “all-or-nothing” system

To qualify for the preferential regime, family companies had to carry out a “genuine economic activity”. In recent years, this condition led to many discussions, especially for companies that combined operational activities with real estate holdings. The stakes were high because the regime worked on an all-or-nothing basis: either the company fully qualified for the preferential regime, or it did not qualify at all.

If a company’s accounts showed that it mainly held real estate assets (more than 50% of its total assets) and had limited personnel costs (less than 1.5% of total assets), it was presumed not to carry out a genuine economic activity. In practice, due to the restrictive position taken by the Flemish Tax Authorities (“commonly referred to by its Dutch acronym “VLABEL”), it was almost impossible to rebut this presumption, unless the company only held real estate that was entirely used for its own business activities. In other words, the presence of residential real estate generally prevented the application of the preferential regime.

However, the courts rejected this restrictive interpretation. As a result, it became possible to prove the existence of a genuine economic activity even where a company held residential real estate.

Although VLABEL eventually accepted these court decisions, it remained opposed to applying the preferential regime to residential real estate. The reform of the regime should therefore be understood in this context.

B. Situation since 1 January 2026: exclusion of residential real estate

The basic objective of the preferential regime remains unchanged: the Flemish legislator still wants to ensure the continuity of family businesses and family companies by facilitating tax-efficient transfers, whether by donation or inheritance. The traditional conditions also remain in place without major substantive changes, including the required participation threshold, the requirement that the company’s effective management be located within the European Economic Area, the existence of a genuine economic activity, and the continuity conditions.

1. Exclusion of residential real estate

The main reform concerns the scope of the regime. The legislator has now clearly decided, as a general rule, to exclude residential real estate from the preferential regime. Immovable property mainly intended for or used as housing – including houses, apartments, and building land – no longer qualifies for the regime.

This exclusion does not only apply to residential real estate directly owned by the family company itself. It also applies where the family company holds at least a 10% participation in a subsidiary or, further down the corporate chain, in another company that owns such residential real estate. In practice, this means that companies can no longer avoid the exclusion by placing residential real estate in a separate company. The legislator thereby aims to prevent residential real estate from indirectly benefiting from the preferential regime through a corporate structure.

The impact of this reform may be significant, especially for real estate companies or mixed companies (i.e. companies carrying out business activities while also owning residential real estate). For these companies, the preferential regime will only apply to the portion of the share value corresponding to the operational business assets in the strict sense. The part relating to residential real estate will be taxed separately at the ordinary donation tax rates (3% or 7%) or inheritance tax rates (progressive rates up to 27%). The legislator clearly intends to distinguish between genuine economic activities and mere private asset management.

At the same time, an exception has been introduced for companies whose activities mainly relate to residential real estate. If at least 75% of the company’s turnover comes from such activities and an employment condition is met (1 full-time equivalent employee during a period of three years before and after the transfer), the preferential regime may still apply to the full value of the shares, provided that a genuine economic activity exists.

This exception appears intended to avoid automatically excluding professional real estate businesses. However, in practice, it also raises new questions, particularly regarding how the turnover and employment conditions should be assessed. VLABEL has already published an FAQ clarifying that, in the case of a family holding structure, these conditions must be assessed separately for each individual company.

2. Assessment of the genuine economic activity

Another important change concerns the way in which a company’s economic activity is assessed. The previous purely quantitative approach, based on the accounting criteria mentioned above, has been abandoned.

However, companies must still demonstrate that they carry out a genuine economic activity in order to benefit from the preferential regime. From now on, this can be proven by any available means of evidence.

Although this new approach may appear more flexible, it could also reduce legal certainty and shift the discussion towards a more factual assessment. For example, there will generally be little or no debate regarding the genuine economic activity of a company that actively produces goods or provides services, even if it also owns real estate. The situation is likely to be different, however, for companies mainly engaged in real estate management with only limited additional activities. In this respect, VLABEL maintains its position that the mere management of real estate does not qualify as a genuine economic activity.

It is therefore expected that administrative guidance and case law will continue to play an important role in this area.

3. Additional formal requirements

The reform also introduces significantly stricter formal requirements.

One of the main new requirements is a mandatory valuation report prepared by a statutory auditor or certified accountant. The purpose of this report is mainly to determine which part of the share value relates to residential real estate. In practice, this creates an additional administrative burden and extra costs, even for companies that do not own residential real estate.

Although the report is not formally binding on VLABEL, it will generally serve as the starting point for its assessment. VLABEL has stated that it will not replace the judgement of the statutory auditor or certified accountant regarding the valuation report and the estimates included in it, but will only reject valuations that are manifestly unreasonable.

It is noteworthy that the specific valuation methods are not regulated by decree. The FAQ mentioned above nevertheless confirms that VLABEL places full responsibility for the chosen valuation method on the statutory auditor or certified accountant. When determining the total market value of the shares, financing arrangements and obligations entered into by the company may be taken into account. However, according to VLABEL, liabilities linked to residential real estate cannot be offset against the market value of such real estate. This administrative position may be seriously criticised.

It can therefore be expected that the valuation of family companies will lead to differing interpretations and disputes with VLABEL.

4. Prior certainty remains possible

As before, it remains possible – though not mandatory – to request confirmation from VLABEL before the execution of the notarial deed of donation that the conditions for applying the preferential regime are met. Following the reform, VLABEL may also give its position on the valuation report as part of such prior certificate requests.

Since 1 January 2026, it is also possible to obtain a prior certificate in inheritance tax matters relating to a family company. In such cases, the certificate will only concern the valuation report.

While a certificate issued by VLABEL is binding for inheritance tax purposes, in donation tax matters it only provides legal certainty insofar as the information submitted is accurate, complete, and the relevant circumstances remain unchanged.

For inheritance tax purposes, the request for a prior certificate must be submitted within 30 days following the date of the valuation report and at the latest before filing the inheritance tax return or before expiry of the filing deadline. For donation tax purposes, the request must be submitted within 30 days from the date on which the shares were valued and at the latest before the execution of the notarial deed of donation.

A prior certificate for inheritance tax purposes remains valid indefinitely, whereas a prior certificate for donation tax purposes is only valid for 60 days.

C. Thorough prior analysis required for family companies holding residential real estate

As a result of the reform, residential real estate is now, in principle, excluded from the donation tax exemption and from the reduced inheritance tax rates. This exclusion already applied to family businesses and has now been extended to family companies. The only exception concerns family companies carrying out residential real estate activities.

Although the legislator intended to align the regime more closely with its original purpose, there is a risk that this objective may not always be achieved in practice. This may, for example, affect family businesses that own residential real estate genuinely used for professional purposes. The same applies to family businesses active in residential real estate that narrowly fail to meet the turnover or employment conditions mentioned above.

In addition, access to the preferential regime has become more complex, both substantively and procedurally.

For family companies – and especially for companies holding residential real estate – applying the preferential regime now requires careful preparation and guidance. Even if a transfer to the next generation is not yet immediately planned, it is advisable to assess now whether, and to what extent, the conditions for applying the regime are fulfilled. A timely analysis may still allow the necessary measures to be taken in order to optimise the benefit of the preferential regime. At Andersen in Belgium, both our Tax department and our Real Estate department can assist you with this analysis. Please do not hesitate to contact us should you have any questions.