Belgium | Option to Tax Regime for Rental Property from October 2018

On 23rd March 2018, the Belgian federal government approved preliminary measures to introduce the option to tax regime for supplies of “new” professional rental property.

The mechanism is expected to come into effect as of 1st October 2018, bringing Belgium’s treatment of such supplies in line with that of most other EU Member States.

Until now, the letting of immovable property in Belgium has generally been exempt from VAT.  The main exclusions to this were financial leasing agreements and letting of car parks, storage spaces, and immovable equipment and machinery.

Under the proposed new rules, B2B rentals of immovable property may be subject to VAT provided that both the landlord and tenant jointly agree to exercise the option. This will enable the landlord to recover any VAT incurred on the acquisition price or construction and renovation costs. Additionally, where the tenant is a taxable person it will be able to deduct the VAT applied to the rent. Of course, VAT recovery is restricted to the VAT incurred on the use of the building for the tenant’s business activities.

Only buildings that are “newly” constructed or extensively renovated as of 1st October 2018, are eligible for the option to tax regime, so this does not include buildings for which VAT is owing for work already started prior to that date. Once the option to tax is exercised, a VAT adjustment period of 25 years will apply instead of the usual 15-year period.

As a simplification measure, the proposed legislation also provides for the mandatory application of VAT to short-term property rentals which are neither private dwellings nor immovable property used for the purposes of socio-economic activities.

The implementation of the option to tax mechanism will significantly alter the VAT landscape of the property industry in Belgium: investment costs are expected to fall considerably; hence removing the competitive disadvantage suffered by property developers in Belgium in relation to other EU countries.

In view of these expected changes, businesses should seek VAT advice before future construction or renovation projects are finalised.  Accordance is able to carry out the required analysis, so if you have any questions on the above, please contact us.