In the so-called summer agreement of 26 July 2017 from the current government, it was decided to introduce an optional VAT regime for the lease of immovable property to professionals.
Until now, beside certain exceptions, the lease of immovable property is exempted from VAT in Belgium. An important consequence of this is that a developer of for example an office building is not able to deduct the VAT, paid on the construction or renovation of the building in question.
There are, however, a few exceptions where the lease is subject to VAT, such as the rental of car parks. Under certain conditions, the lease of a warehouse is also subject to VAT. One of the conditions is that the offices in the warehouse in question occupy not more than 10% of the total area and that the offices are used only for the administration for the warehouse. The provision of furnished accommodation in hotels and motels is also subject to VAT. Moreover, there is the immovable leasing, under conditions, and the rental of safe-boxes which are immovable by nature.
1. VAT structures usually implemented to avoid the VAT exemption
In order to avoid the exemption from VAT, certain VAT structures have been set up.
For example, the rental of retail space in a shopping centre is divided into the rental of the store and the provision of services, such as shared use of parking and gallery, marketing and promotion, organisation of various events etcetera. A widely used distribution key is 30% rent, without VAT, and 70% for services, subject to VAT. Following this construction, 70% of the VAT paid for the construction of shopping centres can be deducted.
Another construction concerns hotel contracts. When an investor leases a building to a hotel operator, no VAT can be charged on the rental price. A commonly used construction is the management agreement by which the hotel operator exploits the hotel in the name and for the account of the investor, the owner of the building. In that case, operating revenues will be paid to the investor who pays a fee to the hotel operator. Here, too, the VAT paid for the construction of the hotel can be deducted.
2. What can be expected from the optional VAT regime for the lease of immovable property to professionals?
In the so-called current government's summer agreement of 26 July 2017, it was decided to introduce an optional VAT regime to the letting of immovable property to professionals, inter alia to put an end to the competitiveness handicap of Belgian operators. This has already been announced in the "Finance and Combating Tax Fraud" policy note of 28 October 2016, by Finance Minister Johan Van Overtveldt. In that note he stated that the introduction of such an optional letting tax of professional real estate would be examined.
The precise terms and conditions of the system are not yet known, but Minister Van Overtveldt explicitly referred in his policy note to the Dutch model, where this system already exists for a long time.
In the Netherlands it is possible to opt for VAT on the rent if the tenant carries out an activity which is subject to VAT in the rented premises. The owner can deduct the VAT according to the percentage of the VAT activities of the tenant.
It is expected that in Belgium only lease agreements entered into after 1 January 2018 will be eligible for this optional regime. The existing contracts will therefore remain exempted from VAT.
The question is whether this different treatment will survive the test of the Constitutional Court.
We are following this issue closely.