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Belgium: Extension of reduced VAT rate for residential demolition and reconstruction

Belgium: Extension of reduced VAT rate

The ministerial council has decided to extend the existing regime of the reduced value added tax (VAT) rate of 6% for demolition and reconstruction.

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The current regime will remain unchanged but will be extended with three additional measures that will be applicable for all of the Belgian territory. These three additional measures will however only be applicable temporarily (from 1 January 2021 until 31 December 2022). The temporary extension of the reduced VAT rate is aimed at giving a major stimulus to the real estate and construction sector.


Background

The current regime regarding demolition and reconstruction is territorially limited to 32 urban areas.

Application of the reduced VAT rate may only be applied if it concerns the (re)construction of a house or apartment whereby the client (private person, real estate developer, etc.) has, prior to the (re)construction, demolished an existing building on the subject parcel of land. It is not relevant whether the existing building had been used for private housing prior to its demolition. It is relevant for application of this reduced VAT rate that the building that is to be demolished is an immovable property by its nature that has a significant size and was constructed in a permanent and sustainable way. The position of the VAT authorities is that the newly built house or apartment building must not be constructed on the same spot on the parcel where the demolished building was located.

Finally, a number of formal conditions must be met for the application of the reduced VAT rate (such as the filing of specific statements, invoicing references, etc.). This existing regime in the 32 urban areas continues to apply under the same conditions.


Extended scope of reduced VAT rate, three new measures

The new rules can be divided into three categories.

  • First measure: demolition and reconstruction of a private (and only) home

In principle the reduced VAT rate of 6% will be applicable on the demolition and reconstruction of houses and apartments located in the entire country of Belgium. In order to apply this reduced VAT rate, the clients must be private persons who will actually use the (to-be-constructed) building as their private residence and must have their domicile there without any delay. Moreover, the building must qualify as the clients’ private and only home (private dwellings acquired by inheritance are not taken into account). The reduced VAT rate only applies for VAT which becomes due between 1 January 2021 and 31 December 2022 (and not later than 31 December of the year of the first occupation of the building). A final condition relates to the size of the house or apartment. The total habitable surface may not exceed 200 m². It is yet unclear how this habitable surface must be calculated.

These last two conditions are supposed to demonstrate the “social” character of this new measure (which do not apply to the existing regime for demolition and reconstruction in the 32 urban areas, where the current conditions continue to apply in full). The benefit of the reduced VAT rate of 6% is considered to be definitively “acquired” by the clients once they used the building as their private and only home for a minimum period of five years. If this five-year period is not met, the corresponding difference in VAT rate must be paid back to the authorities pro rata temporis.

  • Second measure: letting of the reconstructed building in the framework of social housing

The reduced VAT rate of 6% will also apply to the demolition and reconstruction of a building intended for long-term rental in the context of social housing. In essence, this concerns buildings that will be rented out by the client to social rental agencies or that will be rented out by that client to these agencies in the framework of a so called “management mandate.” The habitable surface limitation mentioned above does not apply here, nor is there any condition with respect to the capacity of the client. Similar to the first measure, the reduced VAT rate only applies for VAT which becomes due between 1 January 2021 and 31 December 2022 (and no later than 31 December of the year of the first occupation of the building). The reduced VAT rate of 6% will only be definitely acquired after a 15-year period (in contrast to the first measure).

  • Third measure: sale of reconstructed buildings

Finally, the reduced VAT rate of 6% will also apply to the sale of reconstructed buildings (and the accompanying land) when they are realized after the existing building has been demolished. For application of the reduced VAT rate, the buyer and the concerned building must meet the same conditions as mentioned under the first scheme (the buyer is a private person, the registration of the domicile, the 200 m² habitable surface limitation). Also in this case, the conditions must be fulfilled for five years in order to definitively benefit from the reduced VAT rate. The temporary VAT rate reduction will also apply when the reconstructed building is sold to a buyer who will rent out the building in the context of social housing (refer to the second measure above). In that situation, the benefit of the reduced VAT rate will only be fully acquired after 15 years. Also within this third measure, the reduced VAT rate only applies for VAT which becomes due between 1 January 2021 and 31 December 2022 (and no later than 31 December of the year of the first occupation of the building). Application of the reduced VAT rate under the current existing scheme in the 32 cities will also be extended to the sale of houses and apartments.


KPMG observation

These new rules provide some additional breathing space for the construction sector and families, and real estate developers can temporarily benefit from a reduced VAT rate on their sales. The new rules, however, are temporary regimes.

Read a November 2020 report prepared by the KPMG member firm in Belgium

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