Real estate work on homes older than 10 years can be done under certain conditions at a reduced VAT rate of 6%. In practice, however, there is often discussion as to when something should be considered conversion or improvement work. With a recent ruling, the Supreme Court has brought more clarity to this, predominantly in favor of the administration.
Remodeling or new construction?
The law provides that works in immovable condition on houses older than 10 years can be done under certain conditions at a reduced VAT rate of 6%. Thus, it must be conversion or improvement works on a building which, after the works, will be used primarily for private habitation and where any extension works do not result in the surface area of the new parts exceeding half of the total surface area of the converted dwelling. Moreover, the works must be billed to the end user, for example, the owner or tenant.
However, there is no clear guidance in the law on what is to be understood by conversion or improvement works, so the administration was forced to clarify this further through administrative commentary. These comments have already been adjusted several times based on important case law on the subject. Nevertheless, these rules still leave room for interpretation and this subject therefore often leads to important discussions with the tax authorities.
As a rule of thumb, it should be assumed that there is a conversion only if the works relevantly support the pre-existing load-bearing walls, especially the exterior walls, and, more generally, the essential elements of the structure of the building to be renovated.
New Supreme Court position
In a dispute pending before the court, the Supreme Court eventually adopted the following new positions that are important in assessing this criterion:
- Substantially strengthening or (partially) renewing existing load-bearing walls and, in particular, the foundations has the effect of creating a new load-bearing structure despite the fact that the old components are (partially) retained. The new condition does not substantially rely on the old structure;
- The parts of the building that have undergone such modification should be considered new within the assessment of the area criterion (already confirmed);
- The fact that a builder finds during the works that foundations or load-bearing walls must be renewed or reinforced despite this not being foreseen in the building plan, cannot be invoked as force majeure within the assessment of whether it concerns a renovation for VAT purposes. After all, the administration only has to take into account the actually executed works/condition and not the (submitted) plans.
This ruling already means a further tightening of the applicable rules and is predominantly in favor of the administration. If you are starting a construction project, check critically whether all conditions are met in order to apply the reduced rate.
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