Option to tax for professional (B2B) immovable letting
As soon as the new regulation enters into force, property owners will have the option to subject the letting of their ‘new buildings’ to VAT, and as a consequence will also be able to recover the input VAT incurred on the investments made. This option is however only possible if:
- It concerns the letting of immovable property destined for business purposes (i.e. the tenant uses the building for his VAT taxable activities, regardless whether in the end these activities are taxed or exempt);
- It concerns a newly constructed building, or a building gone through thorough renovation works (i.e. stripping the building entirely and rebuilding it);
- Both the landlord and tenant jointly opt for the VAT system (the modalities still need to be published).
As a consequence, there will be no option to tax for the letting of existing buildings or letting of new buildings to private individuals, to taxpayers using the building for private purposes or to public bodies who use the building for an activity for which they do not qualify as a taxable person.
The optional VAT system will only be eligible for newly constructed buildings as from 1 October 2018, meaning that if the project has already started before said date (i.e. contractors or architect already issued invoices), the option to tax will not be possible.
The optional submission to VAT will also be available for buildings that will be significantly renovated to a point that they become a “new” building for VAT purposes after 1 October 2018.
Extended VAT revision period of 25 years
When contracting parties opt to subject the rental payments to VAT, an extended VAT revision period of 25 years will be applicable (instead of the normal 15 years revision period for immovable property). This means that the landlord must let the entire building for at least 25 years with application of VAT, if his intention is to fully recover all the input VAT incurred at the time of the purchase or construction.
Short term rental agreements (almost) always subject to VAT
In addition to the optional VAT system for professional immovable letting agreements, a mandatory application of VAT will be implemented for short term letting agreements. This obligation will be applicable to all immovable property letting agreements (B2B and B2C) with a duration of less than 6 months.
There is, however, an exception for private dwellings and buildings used for activities of social-cultural nature. Such letting agreements are always VAT exempt.
In practice, the mandatory application of VAT will mainly concern the short term letting of event, congress, seminar or meeting spaces.
Currently we still have to wait for the final legislation and the administrative guidelines to be published.
It is nevertheless recommended to proactively analyse new construction or renovation projects in light of these fundamental VAT changes.
Our VAT experts are ready to advise you and keep you posted on the latest developments. Check our BDO website for more updates and actions regarding this ‘VAT (r)evolution’.
Questions regarding this subject can be addressed to one of our VAT specialists, or you can send an e-mail to [email protected]: