Implementation of the 25-year revision period for the new optional regime to subject the letting of immovable property to VAT

Introduction 

On 25 October 2018, Belgium (finally) introduced the highly anticipated optional regime to subject the letting of immovable property to VAT as of 1 January 2019. We summarised these new rules based on an unofficial Draft Proposal and Explanatory Memorandum in our newsletter of 10 April 2018 (click here).

In summary, the new regime provides for an option to subject the letting of immovable property to VAT provided that certain conditions are met, e.g. no VAT became due on the material construction costs of the building prior to 1 October 2018 and the tenant is required to use the rented (part of the) building exclusively for an economic activity that is in the scope of VAT.

This newsletter provides you with more details on the Royal Decree of 12 May 2019 (published in the Belgian State Gazette of 27 May 2019; hereafter “the Royal Decree”) with respect to the 25-year revision period that may apply under the new optional regime.

Royal Decree of 12 May 2019 – implementation 25-year revision period

Whereas the general revision period for VAT on the acquisition or construction costs of a new building is 15 years, if a building is let with VAT in the first 15 years, then the revision period is extended to 25 years. With respect to movable property, the revision period remains five years.

As already mentioned in our newsletter of 10 April 2018, it is doubtful whether the 25-year revision period is in line with VAT Directive 2006/112. We indeed are of the opinion that there are good arguments to challenge the 25-year revision period.

The Royal Decree provides for the implementation of the 25-year revision period by amending VAT Royal Decree nos. 3 and 14 as follows: 

  • the 25-year revision period can only be applied if the building has been let with VAT under the optional regime (for whatever period) in the first 15 years as of the 1st of January of the year of the first use of the building (irrespective of any changes in the use of the building at a later stage).

    For the calculation of the amount of the VAT to be revised, the starting point of the 25-year revision period is the 1st of January of the year of the first use of the building;
  • if the optional regime is not applied as of the moment of the first use of the building but only after some time (but within the first 15 years; see above), a revision needs to be carried out on an annual basis whereby the amount of VAT to be revised is calculated as follows: 

    the total amount of input VAT deducted which has not been revised at the moment of the change in use of the building deducted by the number of years remaining of the 25-year revision period at the moment of the change in use 

    If the optional regime is applied as of the moment of the first use of the building, then the ordinary revision rules apply but spread over 25 years.

    In both cases, the revision should be carried out at once for the year in which the change of use has taken place as well as the years to come if the building is entirely used for private purposes or for activities which do not entitle the taxpayer to deduct VAT;
  • the period during which books, invoices, contracts, account statements, etc. have to be kept regarding a building that is subject to the 25-year revision period is extended from 15 years to 25 years;
  • a specific VAT regularisation regime regarding a building to be let under the optional regime is introduced for input VAT which has become due prior to 1 January 2019 (i.e. material construction costs in relation to which the VAT has become due in the period between 1 October 2018 and 1 January 2019 and intellectual services regarding the building, e.g. rendered by an architect, in relation to which the VAT has become due prior to 1 January 2019) and which initially was not deducted. This VAT can still be deducted in 2019 (if certain formalities are fulfilled) but if this deduction results in a VAT credit, then such VAT credit should be carried forward until the end of 2019 at the latest; 
  • the seller of a building that is subject to the 25-year revision period does not have to revise the VAT when he sells the building without VAT, provided that the rental agreements regarding the building are also transferred to the purchaser of the building.

    Any VAT revision in relation to such building which is caused by a change in the use of the building after the sale of the building will have to be carried out by the purchaser.