Belgium – Option for VAT on (professional) lease

I reported earlier that the Belgian Government withdrew its decision to make real estate leases with a professional tenant subject to VAT (during the exercise of agreeing to the new government budget for 2017-2018).

Well, here we are again as a result of a verification of the current government budget. The Belgian Federal Government announced last weekend that parties can opt as of 1 October 2018 for VAT on lease agreements for new buildings if the tenant is a professional party (or a VAT-exempt party).  Leases with a private party as tenant can not be made subject to VAT.

This is a welcome revolution for the real estate sector in Belgium as 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 structures). The Belgian Federal Government was inspired by the Dutch model that also provides for an optional system of VAT-application.

Now the landlord will be allowed to opt for a VAT-application to the letting of its new property if the tenant is a professional party and the building is considered “new” (i.e. “new” in accordance with VAT-rules). So it only concerns newly built buildings as of 1 October 2018 or totally rebuilt properties (limited renovation will not be sufficient). The budget impact will thus only be seen at the earliest in 2019-2020. 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. For the tenant the VAT-application will be -in most cases- neutral, as it will be in a position to deduct such VAT payments (or it is exempt).

It is to be noted that the tenant needs to agree with the VAT-application, so appropriate wording needs to be provided for in the lease agreements.

Noteworthy is also that the VAT revision period is extended from 15 to 25 years, so a landlord will need to lease out (with application of VAT) the property concerned during 25 years in order to recover all VAT paid at the time of construction.

In general the government wants to avoid the use of special constructions in order to be able to recover VAT by the landlord and as such thus simplify the structures used in a VAT-neutral way. On the other hand the Belgian Government wants to stimulate investments in new properties and to get rid of the VAT-handicap in comparison with neighboring countries..

We will keep you posted if the legislative texts are finalised. 

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