In principle, work on property is subject to the standard VAT rate of 21%. However, certain transactions are subject to the reduced VAT rate of 6% if the following conditions are all met:
The work on property relates to the conversion, renovation, refurbishment, improvement, repair or maintenance of a property, and does not consist of cleaning or redevelopment.
- After the work is completed, the property will be used exclusively or mainly as a private home.
- The building is at least ten (previously five) years old.
- The work is intended for and invoiced to the end user (for example, the owner, tenant, etc.) of the dwelling.
For renovation work on a building that is not exclusively or mainly used as a private home, the standard VAT rate of 21% thus applies.
Note the required VAT reporting method for work on property!
We find that the following procedure is often used with regard to purchase invoices in which ‘VAT reverse-charged’ is applied for work on private homes more than ten (previously five) years old (at a rate of 6%): the VAT payable is reported as 21% (schedule 56), with deductible VAT of 15% (schedule 59). The thinking behind this is that 6% VAT has been paid and a deduction right has not been exercised (due to completely private use).
Note that this reporting method is NOT permitted! The administration will not have any problem with the overpaid VAT (21% instead of 6%), but it will have a problem with the excessive deduction of VAT at 15%: as this VAT was not due, it cannot be deducted. In order to avoid fines and interest, we strongly recommend that you no longer apply this method.
Who pays the VAT for work on property?
As well as the rate of VAT for work on property, it is necessary to determine who is liable for the VAT. In practice, we find that it is often not entirely clear when work on property should be invoiced with VAT or with a VAT reverse charge.
If a taxable party has work on property (construction, conversion, finishing, fitting-out, repair, maintenance, cleaning, demolition) carried out, the contractor is required to apply the VAT reverse charge principle. It is then up to the other party to the contract to reverse-charge Belgian VAT through its VAT return. The invoice must state ‘VAT reverse-charged’, without showing any Belgian VAT on the invoice.
When does a taxable party reverse-charge the VAT to the other contractual parties?
The taxable party is required to reverse-charge the VAT to the other contractual parties in connection with work on property when (Article 20 Royal Decree no. 1):
- The service-provider is a taxable party based in Belgium; AND
- The other contractual party:
- is a taxable party based in Belgium, OR
- is a taxable party not based in Belgium, with a liable representative for VAT purposes in Belgium;
- AND is the submitter of periodic VAT returns.
Note that the application of the VAT reverse charge is not an optional system. If the conditions are met, it must be applied. In all other cases, the taxable party must issue an invoice with VAT.