A year ago, we reported on the government’s intention to introduce a legal framework for VAT-taxed property rental. Now the final draft law has finally been published (http://www.dekamer.be/FLWB/PDF/54/3254/54K3254001.pdf). With a planned entry into force on January 1, 2019, it is worthwhile to provide the outlines now so that you can take this into account when planning your future projects.
Since the introduction of VAT at the end of the sixties, immovable property rental is in principle exempt from VAT, with the result that VAT on construction or purchase cannot be recovered. This will change soon. Under the new regime, a building or part of it may be let with VAT if the tenant uses the building exclusively for the economic activity that gives him the status of VAT taxable person (so-called B2B situations – nothing changes for B2C situations). This is an optional regime: both the tenant and the landlord will have to indicate (perhaps in the tenancy agreement) that they choose to tax the rental with VAT. If they do not do so, or if one of the parties objects to this, the old regulation of exempt real estate rental remains applicable.
Terms and conditions
The new regime applies if:
- it concerns buildings (possibly with the corresponding premises). If it only concerns part of a building, it must be of an independent nature. This means that there must be separate access;
- the tenant uses the real estate exclusively for the exercise of his economic activity (whether this is a taxed or an exempt activity);
- a market rent should be charged if the tenant does not have a full right of deduction of VAT and if he is linked to the lessor;
- both the tenant and the lessor must opt for the application of VAT; and
- the option is valid for the entire duration of the contract.
Restriction related to the object
The application of this new VAT regime will only apply to buildings for which the VAT on the transactions that contribute to their construction became due for the first time on 1 October 2018 at the earliest. This only concerns the (invoicing of) material construction costs. Intangible costs (e.g. surveyors, architects, etc.) and demolition work are not included and should therefore be invoiced before 1 October 2018.
Finally, a special review period of 25 years will be introduced to apply to buildings intended for rent under the optional regime. This special review period will only apply if the building is used for a VAT taxable letting when it is occupied, or during the first 15 years. Further modalities will be further clarified by an amendment to Royal Decree No 3 on the revision of VAT.
Provision of storage places
In principle, the provision of storage spaces has long been a VAT-taxed service and offers an interesting exception to VAT-exempt real estate rentals for entrepreneurs. Often, however, there will be an area in such a warehouse that does not have a storage function but is used, for example, as an office, so that the taxpayer ran the risk that the entire service was nevertheless qualified as an exempt real estate lease.
In order not to take an overly strict view, the Tax Authorities have been proposing for several years that if no more than 10% of the volume of the property had a function other than storage, the total VAT on the service could still be levied. Note that the judiciary showed more flexibility.
The legislator has now chosen to solve this problem. In B2B transactions, as from 1 January 2019 there will be a taxed provision of storage space as soon as the building in question is mainly, i.e. more than 50%, used as storage space. There is an exception for buildings that will partly be used as shops or commercial space. The 10% rule is kept here.
These new rules apply both to current contracts and to existing buildings.
Evert Moonen, De Langhe Attorneys
Published in VOKA – Ondernemers Oost-Vlaanderen, edition October 2018