VAT on real estate leasing: What about the refund of historical VAT?

In previous editions of this magazine we presented an overview of the changes envisaged by the legislator with regard to the optional VAT on real estate leasing. This legislation has been in force since 1 January 2019 and this option can now be implemented. However, the tax authorities were quick to express their own vision regarding the VAT deduction and refund of historical VAT under this legislation.

From 1 January 2019, the landlord and tenant may (jointly) opt to lease newly constructed real estate (for which the VAT on the material construction or renovation works became due no earlier than 1 October 2018) with the application of VAT. In this case, it is necessary that the building be used exclusively for the economic activities of the taxable tenant.

This change offers many interesting prospects to those who have invested in new buildings with a view to achieving a good return from (B2B) leasing. After all, the VAT paid by the investor for construction of the building (including VAT on construction costs, costs of preparatory activities such as architects, studies,…), since it was borne in the light of a non-exempt activity, may be deducted from the VAT owed by that investor to the Belgian Treasury. This fact is new and represents a financial leap forward for many Belgian property developers.

In addition, VAT on costs that have already become due and payable before 1 January 2019 (“historical” VAT) but could not be deducted before that date, can in principle be deducted under the new rules. However, on 9 January 2019, the VAT authorities published a “notice” in which it links a number of conditions and restrictions to this.

It states, for example, that historical VAT may be deducted in the tax return relating to the first period of 2019, on condition that the enterprise concerned supplies an inventory to its local VAT office stating the goods and services in question for which it wishes to deduct the VAT. It was not clarified exactly what information should be included in this inventory. Logically, it concerns all invoices, the taxable amount and the VAT amounts involved.

In addition, the VAT authorities announced that historical VAT can be deducted for the amount of the VAT due for the first period of 2019. More specifically this is the monthly VAT return for January 2019, to be filed by 20 February 2019, or the VAT return for the first quarter of 2019 for quarterly declarants that must file this return by 20 April 2019.

If after this settlement an amount of historical VAT is still eligible for deduction, this credit is transferred to the following tax periods until the amount has been fully allocated. The amount of VAT that cannot be settled during the year 2019 can be included in the monthly declaration for December 2019 or for the fourth quarter of 2019 (latest date of filing 20 January 2020), regardless of the end result of these returns; this can no longer be transferred after this date. In the final return for 2019, the remaining amount of the historical VAT can be fully declared. If this return results in a credit in favour of the taxpayer, this can be reclaimed. This reimbursement will take place during the first quarter of 2020. This arrangement means that a building promoter who cannot declare VAT due in the course of 2019 (which is not inconceivable for projects that can take years) will only be able to declare historical VAT in the last return for 2019.

We note with astonishment that nowhere does this announcement explicitly refer to the legal basis of the procedure imposed by the VAT authorities. In this respect, we believe its enforceability in court is also far from certain.

Evert Moonen

De Langhe Attorneys