Background
In October last year, the Belgian government decided to make the 6% VAT on demolition-reconstruction permanent, which until then was a temporary measure that was extended every year. However, this was initially only applicable to private projects of up to 200 square meters, triggering the exclusion of developers and investors that developed properties for sale or rental purposes. In practice, this meant the end of the 6% VAT rate on demolition-reconstruction in a commercial development context.
Recent development
In a recent turn of events, the government's top ministers decided on Wednesday to extend the 6% VAT rate on demolition and reconstruction to rental properties. This decision was driven by the need for additional supply in the rental market, as explained by the Finance Minister.
In practice, the new regulation would mean that developers or investors that redevelop properties for the purpose of residential letting may still enjoy a 6% VAT rate, significantly decreasing the cost of such projects. On the other hand, the reduced 6 % VAT rate will still not apply to private individuals who would purchase a residential unit from a developer/promotor that has undertaken the demolition/reconstruction works (such sales will as a rule still be subject to the 21 % VAT rate).
Conditions for the reduced rate
To benefit from this reduced VAT rate, the following conditions must be met:
- The property must be rented to natural persons who use it as their main residence.
- The surface area of the property must not exceed 200 square meters.
- The property must be let for at least 15 years (under one or successive lease agreements).
- The property must be let by the owner-developer itself.
Reasoning of the government
This decision is expected to stimulate the production of affordable housing and modernize our housing stock. Property professionals have expressed unqualified enthusiasm for this development. They believe that it will significantly support the production of affordable housing.
However, it is important to examine the decision in detail to understand its full implications. For example, the Ministry of Finance estimates the cost of this measure at around EUR 8 million.
Potential Impact on your investments
This change in policy could have a significant impact on your current and future investments. The reduction in VAT from the standard 21% to 6% could result in significant savings, particularly on larger projects. This could potentially increase the profitability of your investments in rental properties.
Next steps
We recommend that you review your current and planned investments in light of this new development. Consider the potential benefits and implications of this reduced VAT rate on your investment strategy.
We are here to help you navigate these changes. Please do not hesitate to contact us if you have any questions or would like to discuss how this may impact your current or future investments.
