In principle, immovable property benefits from the VAT exemption. This concerns the ‘passive’ provision of a building or part thereof.
In other words, an agreement whereby a party purely undertakes to grant the enjoyment of immovable property to another party for a certain period of time and in return for a consideration is exempt from tax.
Deze vrijstelling vormde geruime tijd een belangrijke rem op investeringen gericht op onroerende verhuring daar de, veelal belangrijke, btw-kost niet gerecupereerd kon worden in hoofde van de investeerder-verhuurder.
This exemption has long been a serious obstacle to investments in immovable property as the, often significant, VAT costs could not be recovered from the investor-lessor.
Ultimately, the law of 14 October 2018 met the concerns of the property sector through an optional VAT levy for the professional letting of immovable property.
This optional VAT levy is subject to the following conditions:
- 1) The optional VAT levy shall only apply to buildings and parts thereof. In other words, no application can be made of the option with regard to the lease of land.
- 2) The new rules will only apply in a B2B context and provided that the property is used exclusively by the lessee for the purposes of his economic activity.
- 3) Both the lessor and the lessee must opt to subject the lease to VAT.
- 4) The optional VAT system shall only apply to new buildings or fundamental renovation for which no VAT has become due prior to 1 October 2018. The costs associated with those works shall only include the actual material construction costs in the strict sense. In other words, the liability for payment of the VAT on intellectual transactions (such as preliminary studies, architect costs) shall have no influence on the applicability of the option system. The same shall apply to all works that relate to the complete prior demolition of a building and all works related to the land.
- 5) The optional system shall only apply to lease agreements that start as of 1 January 2019.
To clarify this system, the administration published its comments in the form of a FAQ in the spring. It is remarkable that a crucial question in this FAQ has remained unanswered, namely:
‘Who bears the burden of proof concerning the liability for payment of VAT on the construction or renovation work on the leased building?’
After all, it remains unclear whether the tax authorities or the taxpayer must demonstrate that the VAT levy is justified or not.
However, it appears that this is an important question in practice as the taxpayer will, if necessary, have to have the necessary documentation to be able to demonstrate that no VAT was due prior to 1 October 2018 on the tangible real estate works that contributed to the construction or major renovation of the building.
In view of the fundamental nature of the exemption for immovable property leasing, it is likely, however, that the burden of proof for this shall be placed on the lessor.
If a real estate investment has been envisaged with a view to leasing it under the optional system, it is therefore best to request a file that is as complete as possible from the vendor in order to ensure that no VAT has become due prior to 1 October 2018 on the material construction or renovation work for that building.
In the best-case scenario, the invoicing for the (re)construction file shall be available in case there is a discussion with the tax authorities.
In addition, it is advisable to save this file, taking into account a possible transfer of the building. After all, the issue of proof concerning the condition of liability for payment will also be relevant to the future owner if he wishes to lease the building under the application of the optional system.
In addition, the lessee also has every reason to ensure that no VAT has become due prior to 1 October 2018 with regard to the leased property.
If the VAT levy is successfully challenged by the tax authorities, this will mean for him/her that he has wrongly deducted the VAT with the result that the administration can question the deduction of the VAT on these transactions. According to settled case law of the Court of Justice, there is only a right to deduct the tax that is legally due.
As a result, it is also extremely important for the lessee to incorporate the necessary guarantees into the lease agreement in case there is insufficient certainty about the due date for payment of the VAT on the (re)construction works.
Therefore, both the lessor and the lessee will have to compile or request a file which is as complete as possible to ensure that no VAT has become due prior to 1 October 2018 on the material construction or renovation works for the building to be leased.
If you have any questions about the above, please do not hesitate to contact us.