Main take-aways of the Optional VAT regime for immovable letting
Draft bill dd. 31 July 2018 of the Belgian Government
Further to the Government’s decision of earlier this year (see our newsflashes 27/03 and 26/04) and after extensive consultation with the main stakeholders, the Minister of Finance has filed a draft bill dated 31 July 2018 (FR & NL) setting up the optional VAT regime for immovable letting.
We summarise the key principles of the new regime here below.
2 key dates to keep in mind
- 1 January 2019: the option to submit the lease to VAT can be exercised for the first time on that date;
- 1 October 2018: the regime can only apply if the VAT on the construction works of the leased building did not become due before that date (Important: intellectual work or intangible services, such as architect services, advisory services, pre-construction studies, do not fall under the notion of ‘construction works’, neither do demolition works or works related to the accompanying land);
3 main conditions to be respected
- The letting concerns buildings, or parts thereof, including the rented accompanying land;
- The premises are exclusively used for the (taxable or exempt) economic activity of the tenant;
- The option to apply VAT must be jointly exercised by the landlord and the tenant (a pro fisco declaration in the lease agreement should be sufficient to demonstrate that the option has been jointly exercised)
Other noteworthy features of the optional VAT regime
- The option to apply VAT shall cover the entire term of the lease;
- A minimal taxable base (normal value, which is the market value for a rent in similar conditions) will apply if the tenant is not entitled to a full right to deduct input VAT and is linked to the landlord on the basis of personal, financial or organizational ties;
- Extension of the application of reduced VAT rates (6% or 12%) to immovable letting for which the option to apply VAT has been exercised (e.g. private housing for disabled persons, educational establishments)
- The transfer of the lease (‘cession de bail/overdracht van huur’) will be excluded from the VAT exemption provided for by Article 44, §3, 2° of the VAT Code and will thus in all cases be subject to VAT);
- The extended VAT adjustment period of 25 years (instead of the normal 15 years) has been maintained (despite a dissenting opinion of the ‘Conseil d’Etat/Raad van State’);
Short-term lettings subject to VAT without option
- Leases not exceeding 6 months will become subject to VAT (with multiple exceptions);
- The underlying lease agreement constitutes a presumption for the calculation of the six month-period, which can be refuted by all matters of law or of fact;
- The following short-term lettings remain VAT-exempt: the lease of immovable property for housing purposes, the lease to natural persons who use the premises for private purposes or for purposes falling outside the scope of their economic activity, the lease to non-profit making organizations and the lease for social purposes
Lease of warehouse space subject to the option
- The option to apply VAT will be applicable in a B2B context, with a flexible notion of ‘warehouse space’, i.e. premises essentially used for warehouse purposes (more than 50%) and not used as a retail space/store for more than 10% of the entire premises ;
- For warehouse lease agreements which were subject to VAT before 1 January 2019: VAT regime will continue to apply until the end of the agreement;
- For warehouse lease agreements which were not subject to VAT before 1 January 2019: the option to apply VAT may be exercised as from 1 January 2019;
- In a B2C context, the lease of 'warehouse space' will automatically be subject to VAT.
The draft Bill has now been submitted to Parliament and is scheduled to be voted in September. Some of the above principles will require further clarification through Royal Decree or Administrative Commentary, but operators can already start reviewing their position based on what is known today.