14 December 2020

Full deduction of VAT in publicity and brokerage fees is possible for property developers

In a recent decision of 1 October 2020 the Belgian Court of Justice has decided on the deduction of VAT in publicity, administrative and brokerage fees on the part of property developers in case of a split sale.

Split sale structures

In the real estate industry a property developer often builds a new construction project on land owned by a third party through long-term lease. Next, the property developer sells the new construction project with due VAT and the land owner will sell the land shares.  Such structure holds a tax benefit because a 10% rate (registration fee) applies on the land shares instead of 21% (VAT). 

When selling newly built flats, publicity, administrative and/or brokerage fees are to be considered. In practice, it often happens that the property developer pays such costs and fully deducts the VAT. Tax authorities often found it difficult to accept this full deduction, resulting in legal proceedings. Jurisdiction seemed to be divided in this matter. In a judgement of the court of first instance of Ghent (B) on 21 March 2016 it was considered that full deduction of VAT is possible. However, the Appeal Court of Ghent repeatedly believed that such costs also relate to the sales by the land owner and therefore, full deduction on the part of the property developer is not right. 

Judgement of the Court of Justice, October 1st, 2020

In the judgement of 1 October 2020 the Court of Justice clarifies the deduction of VAT in split sales: “so the taxpayer can deduct the VAT charged and in order to determine the extent of that right, there must, in principle, be a direct and immediate relation between a particular transaction in a former phase and one or more transactions in a later phase for which the right of deduction exists.” (our underlining)  

The Court specifies that publicity, administrative and brokerage fees are general fees, and as such directly and immediately relate to the overall economic activities of the property developer. Therefore, full deduction is possible in case the benefit on the part of the land owner is subordinate to the activities of the property developer who has a more active role in these building projects. Furthermore, the Court specifies that the third party’s benefit should result from a service performed in the interest of the taxpayer himself. In this case such costs are actually paid for by the property developer, obviously making the benefit subordinate. 

If there are no general costs, but in fact there are costs that can be attributed to particular transactions in a later phase, full deduction can possibly be applied. The Court of Justice has decided this should meet two requirements: (a) the costs must directly and immediately relate to the taxed transactions of the property developers, and (b) the judge has to make an assessment in view of the circumstances of these transactions.  

If the property builder partially charges these costs to thirds, the Court says that this is merely an indication, but in fact insufficient, to determine the extent of the right of deduction. Besides this indication, all circumstances of the transaction concerned must be considered in order to determine the extent of the property developer’s right of deduction.  


Before, the tax authority and the majority of the jurisdiction were of the opinion that full deduction of VAT was not possible because the concerning costs also regard the sales by the land owner. The judgement of the Court of Justice, however, dismisses this opinion. This judgement is therefore for the property developer also a convincing argument to enable full deduction. Nevertheless, we will have to wait and see how the Appeal Court and the Court of Cassation will implement this new direction. 

De Langhe Attorneys
Frank De Langhe and Lize De Corte

Published in VOKA – Ondernemers, VOKA Kamer van koophandel Oost-Vlaanderen, edition December 2020.

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