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Introduction of optional VAT regime for real estate lease

Introduction of optional VAT regime

At the occasion of the recent budget control, the federal government has approved the introduction of an optional VAT regime for the lease of real estate used for business purposes. The optional regime will in principle apply as from October 1, 2018. The measure was already announced in the summer agreement of 2017, but was withdrawn in October 2017 due to budgetary reasons. Besides the optional regime, a mandatory VAT regime for short term rental of real estate will be introduced. This novelty will apply to all short term rental contracts with the exception of real estate destined for housing or for transactions of a socio-cultural nature.

Veerle Coussée, Partner Tax and Legal KPMG in Belgium

Partner, Tax & Legal Advisers

KPMG in Belgium


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Introduction of optional VAT regime for real estate lease

The optional VAT regime, which will only be possible for buildings or parts thereof used for business purposes, requires that both parties (lessor and lessee) opt for VAT. The lessee must also be a VAT taxable person. Exempt lessees such as hospitals, schools and the like would also qualify for the optional regime.

It is important to note that the new regime will only apply for new construction projects including existing buildings undergoing a fundamental renovation. However, the construction or renovation can only start as from October 1, 2018. In practice, it will therefore take a while before we will see the first rental contracts being VAT taxable under the new optional regime. If the option for VAT is exercised, a special VAT revision period of 25 years will apply, instead of the usual period of 15 years.

The introduction of the optional regime is one of the most important changes in the field of VAT of the past decades and must be cheered. The current VAT exemption of rental of real estate has as consequence that the owner cannot deduct VAT on construction and renovation costs. The owner includes this non-deductible VAT in the rental payments charged to its tennants, contrary to e.g. the Netherlands and France where the option to subject the rental of real estate to VAT already exists for many years and allows owners-lessors to deduct VAT.

With this measure the government not only aims to eliminate the competitive disadvantage with neighbouring countries, but also aims to achieve an administrative simplification. Owners-investors will no longer need to look for or fall back to (sometimes complex) VAT taxable alternatives (such as rights in rem, business centers, shopping centers, storage spaces, etc.). This should benefit investment in Belgian real estate.

The new regime and the practical modalities will be anchored into legislation in the near future.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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