Key attention points when organising a solar panel project - PwC Legal News
Introduction
The onset of the energy crisis has focused minds on finding ways to lower energy prices, and financial investors are exploring different options for investing in renewable energy. In recent years, investment in solar panel projects has boomed in Belgium. Uncertainty around the subsidy measures has not dissuaded investors from engaging in new projects.
As of 1 September 2021, a new property law entered into force. The Belgian legislator has created a more flexible legal framework for new solar panel projects. Depending on the circumstances, solar panel installations can be considered as either movable or immovable property. Correct classification in this regard is necessary for correct tax treatment.
In this Newsflash we point out the key legal and tax aspects to be taken into consideration when preparing a solar panel project.
Solar panels - movable or immovable goods?
The categorisation of solar panels as either movable goods or immovable goods is crucial for property law purposes as well as for tax purposes:
- Property law – While for movable goods the mere possession suffices as proof of ownership (“bezit geldt als titel”/”possession vaut titre”), a notarial deed and a transcription of this notarial deed on the official mortgage register is required in order to validly own an immovable property.
- Tax law – Depending on the categorisation as movable or immovable, the immovable withholding tax will apply and in case of transfer of ownership, VAT and/or registration duties aspects need to be taken into account.
According to the new property law, the Belgian legislator qualifies solar panels as “immovable goods by incorporation” which means that the constructions have to be (i) an inherent part of the immovable property and (ii) a necessary element for the use of the movable property.
Depending on the type of solar panels, one can argue to what extent the solar panels contain an “inherent part” of the construction, knowing that they can be easily removed without heavy construction works or damage to the construction. Also, it remains questionable if solar panels are a “necessary element” of the immovable property when the produced solar energy is merely an additional part of the used electricity, meaning that the immovable mainly relies on electricity from the grid.
Although solar panels are principally considered as “immovable by incorporation”, an alternative categorisation can be “immovable by destination” if both the building and the solar panels belong to the same owner.
Legal structuring of a solar project
Legal aspects
There are several scenarios possible for legally structuring a solar panel project. One can think of a right in rem (e.g. a building right or a long-term lease), a personal right (lease agreement) or a security right (right of retention). For large-scale solar panel projects where several parties are involved, the building right (opstalrecht/droit superficie) or a long-term lease right (erfpacht//emphythéose) are most appropriate.
- Building right: is a right in rem to build constructions, works or plants (e.g. solar panels) on, above or below other people’s land.
- Long-term lease right: is a right in rem to have the full enjoyment of other people’s property (which can be a roof or ground to install solar panels).
In practice parties will prefer a building right structure because this right is more in line with the specific purpose and needs of a solar panel project whereas the scope of a long-term lease right might be too broad.
Tax aspects
As already stated above, depending on the categorisation as movable or immovable, the immovable withholding tax will apply and in case of transfer of ownership, VAT and/or registration duties aspects need to be taken into account.
This is also the case when the application of article 47 of the Belgian Income Tax Code (hereinafter: BITC) is considered. Article 47 BITC anticipates the possibility for a company to reinvest a capital gain in a beneficial way. The period during which such reinvestment could be made is three years for movable and five years for immovable property.
From a tax perspective, it would in our view be recommended to reach out to the tax authorities by means of an advance ruling to get clarity on the categorisation, because, as demonstrated above, the categorisation could have different outcomes.
Focus areas
Taking into account the key legal and tax considerations, it’s important to focus on specific clauses to be implemented in the building right agreement (and ancillary contracts) as set out in the following points on the next page.
Description object
First of all, it is important to describe the object in detail. That means not only the description of the solar panels, but also the connection to the network, the electricity lines, the technical transformations and also the exact location and the surface.
Necessary conditions precedent
Depending on where the parties are in the process of the project, one must check if all studies, subsidies and permits are available before signing and if certain precedents are needed.
Stipulation obligations and responsibilities
A strict description of the obligations and responsibilities of both parties is required. For guidance, the following questions can be asked:
- Who will be responsible for the maintenance of the roof as well as of the solar panels?
- Do we have to include reinstatement obligations or transfer restrictions?
Easements and neighbouring plans
As the positioning of solar panels is crucial for the efficient production of solar energy, it’s important to take into account the immediate environment. Both the current status and any future plans are important.
Apart from the existing easements on or around the property on which the solar panels will be installed, one must think of corresponding easements for the access to the roof and cables and the non-building zones (“zone non-aedificandi”) to be established.
Conclusion
The first step of the organisation of a solar panel project is to carefully categorise the solar panels as movable or immovable property (depending the level of incorporation in the roof, the amount of the electricity use, the title of ownership). This categorisation will define the further legal and tax consequences.
In the event the solar panels are to be categorised as immovable property, we often advise to establish a building right. It is further recommended to obtain legal certainty from a tax perspective by filing a ruling request.
Furthermore, the structure of a solar panel project is often a complex structure with different actors and stakeholders. Therefore, it is important to take into account specific focus areas such as the necessary easements, non-aedificandi zones as well as communication with the neighbours, etc., during the process and when drafting the necessary contracts.
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