VAT revolution for the real estate sector

Letting real estate in Belgium is in principle a VAT-exempted activity (Art. 44, 3, 2 W.BTW).

The down side of this exemption implies that the VAT due by property developers and rental agencies of commercial properties to contractors for new constructions and renovations is not recoverable.

The non-recoverable  VAT is therefore an expense that is often recharged in the rental price.

The summer agreement refers to a change to the current exemption for letting real estate. Concrete texts are not yet available, but the amendment would provide in an optional VAT system.

For lease agreements coming into effect from 1 January 2018, the charge of 21% VAT on the rental price would be possible.

Those who choose for this option will be able to eventually recover the full VAT paid to the contractors.

The application of VAT is an option and no obligation.

Earlier concluded lease contracts are explicitly excluded.

The rented property must also be used for professional purposes (B2B environment). Other tenants like public institutions (if not primarily used for VAT activities), individuals, etc. would not be eligible.

For the tenant is the VAT neutral as he can deduct the VAT charged on the rent. The minister even expects rental prices to fall because landlords will no longer need to recharge the non-deductible VAT as there is none.

This amendment would also imply an administrative simplification as tax structures, such as usufruct or immovable leasing that were built in the past to enable landlords to however recover VAT, will no longer be required.

The reform should also put an end to the competitive handicap vis-à-vis surrounding countries. In the Netherlands and in the UK, property developers have long been able to recover VAT.

Comments:

A VAT unit already provides for deductibility of VAT to the extent that the building is used for the exercise of VAT activities and, in most cases, offers other benefits, such as avoiding pre-financing of VAT on mutual transactions.

The start date of January 1, 2018 immediately raises questions about the fiscal fate in renewal of contracts, the possibility of a revision of input VAT for older buildings for investment within the review period (5 or 15 years depending on the nature of the works) , as well as the impact on registration fees due for such leases.

 

We will of course keep you informed of further developments in this regard.

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