Belgium – New reform : option to submit real estate leases between professionals to VAT

As part of agreeing to the new government budget for 2017-2018, the Belgian Federal Government announced at the end of July 2017 the option to make real estate leases between professionals (i.e. not private individuals) subject to VAT as of 1 January 2018.  Until now real estate leases were not subject to VAT (except, if certain conditions were met, for leases for parking places, warehouse space and financial leasing). The Belgian Federal Government has been inspired by the Dutch model that also provides for an optional system of VAT-application.

If this new rule enters into force, the landlord can opt for VAT-application to the letting of its property if the tenant is a professional. By doing so, the landlord can recover the VAT paid on the construction costs or the VAT paid on the acquisition of a new property (i.e. “new” in accordance with VAT-rules). For the tenant the VAT-application will in most cases be neutral, as it will be in a position to deduct such VAT payments.

This VAT-reform will most likely have an impact on the real estate letting market in Belgium. As the landlord can now recover VAT, it will no longer have to include it in the rent, i.e. a decreased rent can be applied and offered to the market. Parties will also be “less encouraged” to look for alternative structures governing their contractual relationship in order to ensure a VAT-recovery.

The possibility for the application of VAT will be possible for leases as of 1 January 2018, not for leases prior to that date.

Once the legislative texts will be finalized we will see how this reform will be put in place and whether or not it will be easy for a landlord to choose for a VAT-option. This will a determine whether or not this reform will become a success.

We will closely monitor this reform, but please do not hesitate to get in touch if you already have any comments or questions.

 Lieven Peeters, ALTIUS, Brussels ([email protected] – www.altius.com)