Agreement to reinstate 6% VAT rate on demolition and reconstruction of rental properties

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On 20 March 2024, the Belgian minister of finance reached a political agreement within the government on a new measure to reinstate the reduced 6% VAT rate for the construction of rental housing. Parliamentary approval of the proposal is required, and once obtained, the intention is for the new measure to enter into force on the first day of the month after publication of the relevant legislation in the Belgian official gazette.

Background

As from 1 January 2024, the demolition and reconstruction scheme in 32 Belgian cities which allowed developers to apply the reduced 6% VAT rate when building private homes (e.g., single-family homes, apartments, student housing) for their own use or for rental, was abolished. The scheme did not contain any restriction on the maximum habitable area of the dwelling and applied both to private builders and to developers or institutional investors.

Given that the unanticipated abolition of this successful measure was contrary to the challenges of the real estate sector (such as the provision of affordable housing, compliance with the green deal, etc.) and the government had only provided a transitional one-year period for current projects, consultations were initiated with the minister of finance’s cabinet, in close cooperation with a number of investors. The purpose of the consultations was to draw the minister's attention to the negative social impact of the removal of the scheme, and to look for alternatives.

On 20 March 2024, it was announced in a press release (Dutch │ French) that the minister of finance had reached a political agreement within the government on a new measure to reinstate the reduced VAT rate for the construction of rental housing. The scheme, which is still pending approval by parliament, would have a broader application than the previous scheme, as it would be valid throughout the Belgian territory and not limited to the 32 cities. On the other hand, a new restriction requires the fulfilment of three social conditions, namely:

• The property must have a maximum habitable area of 200 square metres;
• The property must be the tenant’s main residence, meaning that registration of the lease agreement is mandatory; and
• The landlord must lease the property for at least 15 years to one or more successive tenants as their main residence.

Observations

The proposed expansion to the scheme is in response to the real estate sector’s concerns, and offers potential opportunities. Due to the abolition of the previous scheme, the sector was confronted with additional VAT costs that could not be recovered from tenants, as a result of which various projects were no longer financially feasible and the supply of new (energy-efficient), affordable, rental homes would have been expected to decrease. The new measure would make it possible to increase the supply of rental housing for tenants who do not have access to social housing and are currently unable to buy a home.

During the consultation, the minister was also requested to clarify or expand the demolition and reconstruction scheme to include investors, and to make the 6% VAT rate available for other forms of social housing, such as budget or subsidized rent, cooperative housing, etc. This expansion and clarification is included in the text of the agreement.

Regarding the maximum habitable area condition, the existing administrative comments for the calculation would be considered, and an additional confirmation was requested on the application of the expansion to multi-family dwellings. With regard to the obligation to rent for 15 years, the regulation explains that the investor must demonstrate this intention, and a correction to any VAT benefit received must be made if this condition is no longer met (i.e., a correction at a rate of 1/15th of the unpaid VAT per remaining year of the 15-year term).

For the sake of completeness, it is important to note that the condition regarding the establishment of the tenant's main residence implicitly excludes the construction of student housing from the scheme. In addition, the sale of houses within the scheme for rental by the buyer would not benefit from the reduced VAT rate, as this extension only applies to the demolition and reconstruction by a builder who subsequently rents out the completed homes themselves. A request to annul the decision to remove the scheme as from 1 January 2024 has been set before the Constitutional Court, and further information will be provided when available.

The proposed entry into force of the extension is the first day of the month after its publication in the Belgian official gazette. The measure is expected to be voted on quickly.

Deloitte Belgium comments

The extension of the demolition and reconstruction scheme for rental housing is an important step in the right direction for affordable housing. The measure also shows that politicians are fully aware of the crucial importance of the real estate sector for the provision of affordable (rental) housing and the required approach to address the sector’s challenges. From a tax perspective, this scheme offers opportunities for investors and alternative forms of housing such as cooperatives, and figures such as budgeted rent can be reviewed with renewed attention.