• VAT and the letting of immovable property

VAT and the letting of immovable property

10 August 2017

In the budget agreement of 26 July 2017, a modification of the VAT regime for the letting of immovable property was announced. In many cases, the current VAT exemption has a cost-increasing effect, as the VAT on new buildings and on renovations cannot be recovered by the lessor. An optional system will now be provided if the lessee intends to use the building predominantly for VAT purposes.

Optional VAT system

The lessor will henceforth have the option to charge VAT on the letting of immovable property, which will allow him to  recover the input VAT on investment costs. This would provide a valid alternative to the so-called ‘real estate leasing’, in which case the VAT deduction is subject to strict conditions, such as the reconstitution of the capital within a 15 year period by means of the lease payments and a mandatory purchase option at the end of the leasing contract. A VAT unity, on the other hand, in many cases also offers different advantages. E.g. no pre-financing of VAT on mutual transactions.

 

Excluded entities

Lease contracts that relate to other lessees, that do not predominantly use the building for VAT purposes, such as public institutions, private individuals, etc. will not qualify for the optional VAT system.

 

Scope

The new rule will apply to new rental agreements concluded from 1 January 2018. This immediately triggers a number of questions regarding the VAT destination of renewed contracts, the possibility of the revision of input VAT related to older buildings regarding investments within the revision period (5 or 15 years depending on the nature of the works), as well as the impact on the payment of registration duties.

BDO will follow up on this subject and inform you on the further developments once legislative documents will be available.

 

Contact

Questions regarding this subject can be addressed to one of our VAT specialists, or you can send an e-mail to [email protected]: