13 August 2018

VAT and property rental final?

After an agreement in principle was reached within the government in March of this year on the introduction of an optional VAT letting system, a final bill has now been drafted.  This new regulation will enter into force on 1 January 2019.

As in the agreement in principle, provision is still made for optional VAT rental of the building and the associated land, if this is leased along with it, in case that:

  • The tenant uses the building exclusively for an activity subject to VAT, whether or not exempt
  • The option is exercised by both tenant and landlord. A pro-Fisco statement in the rental agreement is sufficient for this purpose.

This option can only be exercised for contracts relating to buildings or parts of buildings for which the VAT on the transactions contributing to their construction is due for the first time on 1 October 2018 at the earliest. In contrast to the previous design, from now on only the real works of incorporation are taken into account, i.e. no tasks by architects, for example.

 

VAT for full contract duration

If a VAT rental is chosen, this option is valid for the entire duration of the contract. If the tenant is 'connected' to the landlord and he is a taxable person without a full right of deduction, then the rent charged should be in line with the market.

The option to rent out buildings for VAT purposes can also be applied to parts of buildings provided that this self-standing can be used and leased (separate access).

 

Exceptions

The existing exceptions to exempt property rental (such as furnished accommodation, real estate leasing, provision of accommodation or parking for vehicles) will continue to exist under the current regulations.  Only the regulations concerning the provision of storage facilities are subject to change.

The mandatory subjection to VAT for the provision of storage space will only apply in a B2C story.  B2B transactions will henceforth be subject to VAT. The term 'storage space' will also be interpreted more broadly.  From now on, all buildings are meant which are mainly used as storage space, i.e. for more than 50%. In addition, that part of the space which is not used for the storage of goods may not be used as sales space for more than 10 % of the total space.

 

Transitional period until 1 January 2019

In order to ensure that the initial price agreements between the parties can be maintained unchanged, the current VAT treatment will be perpetuated until the end of the normal period of validity of the lease.  A transitional period has been provided for for the letting of storage premises.  Existing agreements that are currently subject to or exempt from VAT will continue to be subject to VAT or exempt until the end of their duration.

When contracts are renewed afterwards, the option scheme can be applied. For buildings that are mainly used for storage, one can opt for VAT as of 1 January 2019.

The rental of immovable property for a maximum period of 6 months will from now on always be subject to VAT, with the exception of immovable property intended for habitation, for private purposes or for purposes other than the economic activity, letting to non-profit organisations and these used for exempted transactions pursuant to Article 44 §2 of the VAT Code.

 

Changes

Finally, a number of other changes are also being introduced:

  • The review period for buildings intended for optional VAT rental is increased from 15 to 25 years
  • Lease transfer becomes a VAT taxable service, irrespective of the VAT treatment of the underlying agreement
  • The extension of reduced rates for the letting of buildings under VAT (social rental, education and apprentice guidance and private housing for institutions with disabilities).

Although Parliament has yet to approve this bill (expected in September), this new regulation will enter into force on 1 January 2019.

Tax

Accountancy

VAT

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