Demolition and reconstruction – Extension of the reduced VAT rate (6%)

Larissa Cobbaert   |  

Larissa Cobbaert

Larissa Cobbaert

Larissa is part of the Tax & Legal team.

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For anyone planning to demolish and rebuild a home, 2021 holds out good prospects. From 1 January 2021, the reduced VAT rate (6%) for demolition and reconstruction will (temporarily) apply throughout Belgium, while this was previously only the case in the 32 major cities.

The extended rate reduction is the subject of a completely new scheme with its own terms and conditions, about which an FAQ has now also been published by the VAT authorities.

We are happy to list the most important points for you:

1. Temporary arrangement

The extension of the reduced rate is a temporary measure that will apply from 1 January 2021 until 31 December 2022, i.e. a strict time limit.

In order to respond to this, the legislator has, however, provided for a number of transitional measures:

A. Projects started before 1 January 2021

For projects starting before 1 January 2021, the reduced rate can also be applied to transactions that are invoiced after 1 January 2021.

Important: When current construction projects are invoiced to the client (i.e. not (on-plan) sales), a 111 declaration must be submitted by 31 March 2021 at the latest.

So you would do well to take a closer look at your current projects.

B. Projects started after 1 July 2022

Taking into account the average turnaround time of inter alia, the administrative, preparatory and finally, the actual work, a period of 2 years is over in no time.

To avoid major delays in the (pre-)invoicing of projects in 2022, the advantage of the reduced rate is limited to a maximum of 25% of the total project amount if the application for the environmental permit is submitted from 1 July 2022. However, you will have the opportunity to prove that invoiced amounts which exceed the threshold relate to work actually performed during that period.

2. Scope

This new scheme in itself consists of 3 categories to which the reduced rate can be applied:

  1. Construction work for a client-natural person who will occupy the house themself (Category I)
  2. Construction work for a client (natural person or legal entity) or delivery to a purchaser who will let the house for 15 years to or through a social housing agency (Category II)
  3. The delivery of a new house erected after demolition (Category III)

The second and third category include new situations not envisaged in the existing scheme. These will therefore also apply in the 32 major cities.

3. Conditions

A number of specific conditions must be met for the activities included in categories I and III:

  • The client – natural person or the purchaser must use the house as their only and exclusively or mainly as their own home.

In principle, the criterion concerning “only home” is assessed for each client/purchaser individually.

However, a married or legally cohabiting couple is considered as one unit in order to determine whether it is an “only home”. If one of the partners already owns a home, they will therefore always be invoiced at the normal rate of 21 %.

However, no account will be taken of a home of which one is co-owner, bare owner or usufructuary after an inheritance.

  • The total living area of the house may be 200 m2 max.;

In order to assess the living area criterion, account will be taken of the actual living quarters, as well as the spaces used for professional purposes. The following are considered to be living quarters: kitchens, living rooms, dining rooms, bedrooms, habitable attics and basements, offices and all other spaces intended for housing.

Garages, bathrooms, toilets, wash houses, stairs, storerooms, corridors and uninhabitable basements and attics are not taken into account.

  • The client – natural person or the purchaser must establish their domicile there without delay.
  • Finally, the aforementioned conditions must be met for at least 5 years after the first occupation of the house.

If these conditions are no longer met within that five-year period, the client/purchaser must submit a statement thereof to the competent VAT office within a period of 3 months and refund the VAT advantage received for the year in which the change occurs and for the years still to come at 1/5 per year.

4. Issues requiring special attention

In addition to the aforementioned, material conditions, attention should also be paid to the following (indirect) requirements:

  • The demolition must be on a significant scale.

Complete demolition and reconstruction (or major renovation, in which the new construction does not rest on old load-bearing walls, or on the essential structure of the old building) is effectively necessary.

The mere demolition of a few walls or temporary structures will not suffice.

  • Demolition and reconstruction must be located on the same plot.

The same plot, not the same location.

Demolition therefore need not always precede reconstruction.

For larger projects covering several plots (whether or not built on), it is also possible to apply the reduced rate on condition that at least 50% of the new construction is located on the previously built-on plots.

  • Demolition and reconstruction by the same person

The supplier or client-natural person of the house must have carried out both the demolition and the reconstruction themself.

How is this now assessed in the building structures?

In the context of building projects, building structures are regularly used:

A built-on plot is held by a landowner who grants a property developer the right to build. The right to build gives the developer the right to demolish the existing building and erect a new house.

If the property developer to whom a building right is granted demolishes the building and erects a new house on the plot themself, the subsequent sale can take place at a rate of 6%. In this connection, it is important to check the precise ownership relationships.

For example, if a land company takes care of the demolition of a house and subsequently grants a property developer who is building the new house the right to build, then there are two separate clients and the application of the 6% rate is in principle not possible.

There is, however, a tolerance for such projects for which a reason for claimability has already arisen before 2021: The VAT authorities will accept the application of the reduced rate provided that the landowner and the property developer are related parties and there is “project uniformity”.

Formalities

Finally, the scheme also depends on certain formalities:  

For example, a 111 declaration must be submitted to the competent VAT office or via the MyMinfin application, confirming the purpose of the dwelling. This declaration must be made before the time at which the VAT becomes due and must be accompanied by the environmental permit and the works contracts, and – if the temporary VAT reduction is applied to the sale of a house rebuilt after demolition – also by the ‘agreement’ (‘compromis’) or the official deed of that sale.

However, according to the FAQ, it is sufficient that the annexes are simply available to the authorities.

Conclusion

In a relatively short period of time, a completely new regulation was introduced, whereby an attempt was also made to clarify this via the FAQ from the VAT authorities. However, although the FAQ has clarified a number of principles and concepts, the complexity of project development appears to go much further.  

Therefore, if you have any specific questions or comments, please do not hesitate to contact us.

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