On 26 July 2017 the Belgian Federal Government announced that it reached a consensus on a major tax reform. One of the less highlighted measures of this reform is the introduction of an option to make the leasing of immovable property between professionals subject to VAT. On 2 August 2017 the Minister of Finance issued a press release confirming and emphasizing the importance of this element of the reform.
Traditionally, the leasing of immovable property is exempt from VAT in Belgium. Exceptions to this rule, however, which are all subject to specific conditions, include the letting of parking spaces, the letting of warehouses, and financial leasing agreements, among others. When this reform becomes enacted, the new measure will add another exception to this rule: a landlord could opt to tax the letting of immovable property if the tenant is a professional. If the landlord does opt for this, it could recover the VAT charged on the construction costs or the VAT charged on the acquisition price of a new building, while the VAT payable on the rent will not in most scenarios lead to an increased cost for the tenant who – because he or she is a professional – will be able to deduct the VAT (fully or partly depending on his or her own VAT status).
According to the Minister of Finance’s press release, the option to tax would only be available for leases that are entered into after 1 January 2018. It would not be possible to opt for the taxation of leases whose date precedes this date, but there are no further details available on how this would be effected.
Introducing an option to tax leases entered into with a professional is clearly a measure that is very welcome. Not only will it allow the rent to be reduced (given the ability for the landlord to recover VAT), but it will also entail a simplification of the relationship between landlords and professional tenants who will no longer have to find alternative, more complex ways to enter into an agreement that allows the landlord to recover VAT. The extent that this new measure will be the success it promises to be will depend on the conditions and formalities to which the exercising of the option to tax will be subject (e.g., in the Netherlands, the tenant should be a taxable person who can deduct at least 90% of all input VAT). At this time, no further information is available on the conditions and formalities, but our tax team is closely monitoring the developments in this matter and is available to discuss any further questions you might have.