Summer agreement offers new perspective for the VAT-treatment of property rental

Besides the raft of reforms in corporate income tax on which the Federal government reached agreement and which we informed you about earlier, a major change in the VAT-treatment of property rental was announced.

At present, property rental is exempt from VAT. One consequence of this exemption is that a lessor of real estate can’t levy VAT on the rent. Nor can he, in principle, deduct the VAT that he may have had to pay as a result of acquiring, renovating or erecting the property. That is why, in the past, lessors often resorted to ground lease clauses, leasing- or disposition agreements, among other workarounds. Such alternatives are, it is true, VAT-neutral but, in some cases, too complex compared to a standard lease contract.

The new system, proposed by the Federal government, would amount to an optional scheme, in which the letting of immovable property could be subject to VAT, provided certain conditions are met.

The terms of the new system are, as yet, unknown. In any event only contracts concluded since 1 January 2018 would qualify. Contracts older than that would be expressly excluded.

Despite the exclusion of contracts concluded prior to 1 January 2018, this change, in our opinion, affords lucrative opportunities for the VAT-expenses incurred in the past on your real estate. Subject to a reading of the definitive legislative texts, the impression we get is that a right to deduct historical VAT will be permitted, viz. that you will be able to deduct VAT on operating assets provided that the 15-year adjustment period has not yet expired. And as for contracts that pre-date the said date, one can gauge what the possibilities are as regards early termination and/or renewal. The fiscal anti-abuse regulation will need to be taken into account, of course.

The moment definitive texts become available, we will advise you thereof in more detail.

 

Frank De Langhe and Kim Bronselaer