Since Jan. 1, 2024, the reduced VAT rate of 6% for demolition and reconstruction of dwellings all over Belgium has been definitively enshrined in VAT legislation. The final regulation is an amalgamation of the old regulation applicable in 32 specific urban centers and the temporary regulation applicable the entire Belgian territory that had an end at the end of 2023.
Apart from the fact that the uniform regulation now applies throughout Belgium, it nevertheless has a number of important limitations. In particular, the fact that supplies of demolished and reconstructed housing can no longer benefit from the reduced rate was a thorn in the side of the construction and real estate sector. Indeed, the reduced rate for supplies of housing will no longer apply as of 2024. Only projects started in 2023 are still eligible provided the VAT becomes due before the end of 2024.
In addition, it was no longer possible for investors-natural persons or corporations-to reconstruct a property in the 32 urban centers at the reduced rate and then rent it out.
Therefore, within its budgetary means and under pressure from the construction industry, the regulation is once again undergoing an overhaul and the government has submitted a bill to extend it to the demolition and reconstruction of a property intended for rental to individuals. It is expected to be almost certain that this bill will be passed given that the core cabinet has already given its approval. However, the terms explained below are subject to further amendments.
Long-term rental to individuals: what are the conditions?
The demolition and reconstruction of a dwelling intended for rental to individuals is largely supported by the same ground conditions as what is already provided today for demolition and reconstruction of dwellings intended for rental with social character. Thus, the demolition and reconstruction must be done by the same person on the same cadastral plot. This may be a natural person or a company. The dwelling may only have a maximum habitable surface area of 200 m² and the natural person-tenant must establish his or her domicile there without delay at the start of the lease.
It is important to note that only the building owner can take advantage of the extension and thus only construction projects for direct rental between the building owner and the private tenant are eligible for the reduced rate. Among other things, this means that it will not be possible for property developers to deliver a property to 6% VAT if the buyer were to allocate it for private rental. After all, the builder (developer) is not the landlord. In addition, obtaining and maintaining the reduced rate is contingent upon the property being rented for at least 15 years. While this may be a series of consecutive rentals with a reasonable and justifiable interval between them. This rental period is demonstrated on the basis of registered leases.
In addition to the ground conditions, there are again some familiar form conditions. For example, the before any claimability of the VAT with regard to the demolition and reconstruction, a declaration must be submitted online by the lessor with a copy of the building permit and building contract(s) attached. A copy of the declaration with a unique reference number is then sent by the builder-lessor to the service providers, who must refer to the aforementioned number on each invoice in order to apply the reduced rate. Once this formality has been completed, the reduced VAT rate is possible on works in immovable property for which the VAT becomes due at the latest until 31/12 of the year in which the property was first taken into use.
From when does this extension apply?
The present draft law provides for entry into force from 01/06/2024. Specifically, this means that construction projects intended for rental that meet the aforementioned conditions can only benefit from the reduced rate as of this date. There is therefore no problem for projects started after this date.
This leaves the question of how projects already underway will be dealt with. The answer to this depends on whether the property is located in one of the 32 urban centers referred to in the old regulation or not:
The property is located in one of the targeted 32 cities and the building permit was submitted no later than 31/12/2023.
- The old provisions of the scheme remain applicable for VAT due until 31/12/2024.
- The new provisions of the scheme are applicable for VAT due from 01/01/2025.
- Property meets land conditions? 6% VAT if declaration is submitted by 31/03/2025.
- Property does not meet land conditions? 21% btw.
The property is not located in one of the aforementioned 32 cities and/or the building permit was submitted after 31/12/2023
- The property meets the land conditions of the expansion.
- 21% VAT if due before 01/06/2024.
- 6% VAT if due after 01/06/2024 provided the statement was filed before 31/03/2025.
- The property does not meet the land conditions of the expansion.
- 21% regardless of date due.
The manner in which the reduced VAT rate can be obtained for housing intended for rental purposes thus prevents projects that were initially intended for sale and which, for example, would be reallocated to rental in the absence of sales, from benefiting from the reduced rate.
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