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Coming soon: the option to subject leases of business real estate to VAT

 
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Coming soon: the option to subject leases of business real estate to VAT

Hilde Van den Keybus, Patricia Stas

On 26 July the Federal Government approved the budget agreement. In addition to the reform of corporation tax, the agreement also provides for an important change relating to VAT, more particularly the option to subject the real estate leases of business premises to VAT.

 

Competitive disadvantage is eliminated

 

With this option, the government aims to improve the competitiveness of Belgian players on the European market. Until now, the leases of business premises – with a few exceptions – has been exempt from VAT. Lessors cannot recover the VAT on the establishment or acquisition costs of the buildings to be leased and are forced to pass on this VAT cost to lessees as part of the rent. In (neighbouring) countries where the leasing of business premises is subject to VAT– e.g. in the Netherlands – this cost is not passed on and the rent (excluding VAT) is lower. Business lessees are therefore more likely to lease premises outside Belgium.

 

Moving towards the Dutch model

 

With this anticipated change, the agreement is following the Policy Document of the Minister of Finance of 28 October 2016. This announced that a further investigation would be carried out into the possible introduction of an optional VAT levy on business real estate leases according to the Dutch model.

 

The Dutch system provides for an “option for taxed leases” for certain business premises. The option may only be exercised if the lessee can deduct at least 90% (in certain cases 70%) of the VAT on the premises. In other words, the business premises must be used at least 90% (or 70%) for business activities on which VAT is charged. If this condition is fulfilled, the lessor and the lessee can together choose to subject the leasing of the premises to VAT. To do so, they must fulfil certain formalities (declaration, compulsory references in the lease contract, request, etc.).

 

Consequences

 

Should a similar system be introduced in Belgium, this would eliminate certain disadvantages of the current scheme. Examples are the VAT revision on establishment costs for business premises if these premises are leased to a third party, after a few years of own business use by the builder. In the future, this revision cost can be avoided by subjecting the lease to VAT.

 

Since there are no texts available yet, it is not yet clear which form this optional system will take. We will of course be following further developments closely. Do not hesitate to contact us should you have any particular questions.

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