The Belgian government has reached an agreement on the introduction of an option to have certain immovable rent subject to VAT as of 1 October 2018. This long awaited change had been announced in the framework of the Summer Agreement (see our earlier Tax Alert from August 2017), but was abandoned in October 2017 for budgetary reasons.
The proposed right to opt for the taxation of immovable rent would offer major simplification for the real estate sector as the lessor would no longer have to rely on more complicated arrangements - such as complex services contracts or financial leases - to allow for a full right of input VAT deduction on the construction/acquisition costs of a building.
Although many uncertainties remain as to the specific conditions and formalities which will have to be fulfilled, the expected new rules are as follows:
- The option to opt will only be available for newly constructed buildings (or buildings that are sufficiently renovated to be considered as "new" for VAT purposes) as of 1 October 2018. Based on the information currently available, it would seem that a "new" building would only qualify for the new regime to the extent that no invoice has yet been received in relation to the construction / development of that building before 1 October 2018.
- The tenant and the lessor will jointly have to opt for the taxation.
- The right to opt will only be available for the renting of immovable letting goods used by a taxable person for professional purposes.
- The option to opt will not be available if the tenant is a non-taxable person (eg, a private individual or a pure holding without economic activities).
- The lessor will have a full right of input VAT deduction on the construction/acquisition and maintenance costs related to the rent subject to VAT.
- However, and this is important, the VAT recapture period will be extended to 25 years (in place of 15 years) under the new rules. In this context, if a tenant concludes a contract for a shorter period than the applicable VAT recapture period of 25 years, and the related spaces remain empty for a while during this period, the input VAT previously deducted by the lessor would have to be recaptured.
- The tenant will have a right of input VAT deduction on the lease payments according to its own right of input VAT deduction.
As an additional measure, the short-term rental (ie, rental of less than six months) of immovable properties would always (ie, without option) be subject to VAT in a B2B and B2C context - except if the building would be used for private dwelling or cultural purposes.