New optional VAT regime

New optional VAT regime for immovable rent

Peter Empsten
New optional VAT regime
New optional VAT regime for immovable rent

Recently the Belgian government announced that an optional VAT regime to tax the immovable rent for professional purposes will be introduced as of 1 January 2019. Previously, an immovable rent was in any case VAT exempted, without the right to deduct VAT (e.g. on construction costs, maintenance costs, etc.).

On 2 August 2018, the draft law and explanatory notes were published by the Federal Chamber of Representatives providing further detail on the application conditions for the new optional VAT regime.

Scope of application of the new optional VAT regime

The application of the optional VAT regime is subjected to material as well as formal conditions. As material conditions, the (draft) legislation stipulates that:

  1. The rent should concern a building or parts of a building which can be operated separately (with or without adjacent grounds);
  2. The immovable property is rented to a VAT taxable person that uses the immovable property for the purpose of his (VAT taxable) economic activity.
  3. The optional VAT regime only applies for rental agreements relating to immovable property that is new or thoroughly renovated. The legislator has opted to allow the optional VAT regime in principle only for immovable property on which VAT has become chargeable as of 1 October 2018. Buildings for which VAT became due before 1 October 2018 are thus out of scope of the optional VAT regime.

Furthermore, the optional VAT regime is subject to a formal condition. More specifically, it is required that both the renter as well as the tenant must mutually agree to apply the optional VAT regime.

As a counter to the option to tax and deduct the VAT incurred, the VAT revision period for the immovable property that is rented under the optional VAT regime will be extended from 15 years to 25 years.

Needless to say that the extended VAT revision period is a drawback of the new optional VAT regime. Therefore, a VAT taxable person should still consider possible alternatives to the optional VAT regime such as a VAT group, immovable lease, business center, etc.

Short term lease

In addition to the new legislative initiative for professional real estate, the Belgian legislator imposes a mandatory application of VAT on the short term rental of real estate (up to 6 months) in both B2B and B2C relations. Exceptions will, however, be introduced for immovable property used for private use and for socio-cultural activities. This measure also applies to existing buildings (e.g. existing party halls, meeting rooms, seminar and congress rooms, ...)

Peter Empsten
Peter Empsten
Partner Tax
Crowe Spark