10 June 2014

Recently, the VAT authorities have put an end to the operating procedure applied by property developers which aim to benefit from the 6% reduced VAT rate for the supply of new immovable property (administrative decision E.T. 120.125 dd.13 May 2014).

VAT rates applying to the real estate industry

In Belgium, the supply of a new building (and corresponding land) is subject to the standard VAT rate of 21%.

In addition, a 6% reduced VAT rate is provided for by Royal Decree No. 20, which applies to construction works to private dwellings that have been occupied for at least 5 years. It also applies to the demolition and reconstruction of buildings in certain urban areas which are to be used as privately owned dwellings after completion of the works.

Certain property developers draw up contracts, aiming to split the sale of a new building into the sale of an old building (subject to registration duties), followed by significant renovations or the demolition and reconstruction of that building (which is subject to the reduced rate of 6%).  

Two types of contracts scrutinised by the VAT authorities

In case of the sale of old buildings followed by the demolition and reconstruction or by significant renovations, as a consequence of which the building is to be considered as a “new” building, two types of contracts can be distinguished:

  • either the buyer concludes a contract with the same contracting party for both transactions (a purchase and a construction contract); or
  • the seller and the contractor taking care of the renovation or demolition and reconstruction are legally two separate persons.

Based on the aforementioned decision, the construction can, in both cases, be requalified. An analysis based on the factual circumstances is required to investigate whether the VAT authorities can invoke abuse of law in the sense of article 1, §10 Belgian VAT Code.

Requalification of the transaction

With its ruling of 19 November 2009 in the Don Bosco case (case C-461/08), the Court of Justice of the European Union clarified that if two transactions are indivisibly interconnected, the division of these transactions is to be considered artificial and does not correspond to the economic reality or to the intention of the contracting parties.

In case of the first type of contract, the building contractor will often sell common parts of the old building of which he is the owner to customers who are intending to buy a new apartment. In the course of this transaction, the customers are forced or advised to accept the same building contractor to perform the renovation or the demolition and reconstruction.

The common parts of the old building sold to the customers will be determined based on the surface of the new apartment. This implies that in practice, not every buyer will have the possibility to choose his own building contractor. The VAT authorities, therefore, decided that the splitting into two transactions (sale followed by a construction contract) is of artificial nature and does not correspond to the economic reality or to the intentions of the contracting parties. Hence, the transactions are indivisibly interconnected.

This means that such supplies, followed by the renovation or demolition and reconstruction are to be considered, for VAT purposes, as a single transaction which has the nature of the sale of an immovable property in its state to be finalised (sale based on plans), regardless of whether there is only one or there are several buyers and regardless of whether the real property qualifies as a forced joint ownership. As a consequence, the supply of the building (and corresponding land) is subject to the standard VAT rate of 21%. 


Based on the ruling of 21 February 2008 of the Court of Justice of the European Unions in the case Part Services (case C-425/06), transactions can be considered as an abuse of law when the intended result is a tax advantage that would be contrary to one or more purposes of the VAT legislation and when said advantage is the actual purpose of the chosen contractual solution.

The sheer artificial nature of the transaction, as well as the legal, economical and/or personal ties between the parties involved are taken into consideration to assess the intention of the transaction.

When the factual circumstances reveal that the transactions are indeed linked, the VAT authorities stated that article 1, §10 of the Belgian VAT Code as well as the above mentioned judgement of the Part Services case can be invoked and that the actual intention of the split transaction (regardless of whether two separate companies are involved – cf. second type of contract) is deemed to be the avoidance of the application of the standard VAT rate.

Renovation at 6% VAT not necessarily a problem

The administrative decision is in principle also applicable to the past. However, as the VAT authorities have tolerated the above operating procedures of property developers in the past, certain exceptions have been provided.

When the tax payer has received a formal agreement from the VAT authorities or from the Ruling service which deviates from the above mentioned point of view, said agreement will remain in force for the project which it relates to.

The situation for tax payers who feel able to call upon the tacit consent of the VAT authorities will be assessed on a case-by-case basis by the Central Services of the General Administration of the Fiscal Laws. This is the case when a tax payer has received a formal agreement regarding a project and intervenes in a second project for which the circumstances are fully identical to those relating to the first project. This is also the case when a motivated request was filed with the tax authorities and to which no answer was received up to the publication date of this Decision.

When the Central Services accept the tacit agreement, this approval will only be applicable for buildings that were sold prior to the publication date of said Decision (to be substantiated by means of a document stating a fixed date).

Renovations at 6% VAT therefore remain possible in many cases.


Should you have any further question with respect to this subject, please contact your regular contact person at BDO or you may send an email to [email protected] for the attention of one of the members of the Competence Centre VAT:

  • Erwin Boumans, 02/778.01.00
  • Pascal Dauw, 09/210.54.10
  • Kaatje Bondewel, 02/778.01.00
  • Brigitte Braeckmans, 03/230.58.40
  • Joëlle Teuwen, 081/ 20 87 87

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