Following several convictions by the European Court of Justice, Belgium recently changed its legislation on the taxation of foreign real estate.
The aim is to tax foreign real estate owned by Belgian residents in the same way as Belgian real estate, with the cadastral income (i.e. the deemed rental income) as taxable basis (“kadastraal inkomen” / “revenue cadastral”).
For the implementation, the competent authority within the Federal Public Service Finance will determine a cadastral income for foreign real estate owned by Belgian residents by March 2022. The relevant taxpayers will be contacted to collect the necessary information.
By taxing foreign real estate on the basis of the cadastral income, the overall tax burden for the Belgian taxpayer will in principle decrease.
We provide you with an overview of the changes made and a report on the current situation!
Current situation – different taxation regimes for Belgian and foreign real estate
Belgian real estate owned by Belgian residents is in principle taxed on the basis of:
- the cadastral income, indexed and increased with 40% for non-rented real estate;
- the cadastral income, indexed and increased with 40% for real estate rented out to individuals who use it for non-professional purposes; and
- the gross rent paid for real estate rented out to individuals who use it for professional purposes or to legal persons (companies).
On the basis of the previous legislation, foreign real estate owned by Belgian residents was in principle taxed on the basis of:
- the gross rental value, i.e., the fictitious rental income that could be received in case of rental, for non-rented real estate;
- the gross rent paid for real estate rented out to individuals who use it for non-professional purposes; and
- the gross rent paid for real estate rented out to individuals who use it for professional purposes or to legal persons (companies).
Examples:
A Belgian couple owns a secondary residence in Belgium that is not rented out. The immovable income is determined on the basis of the cadastral income.
A Belgian couple owns a secondary residence in France that is not rented out. The immovable income is determined on the basis of the gross rental value.
A Belgian resident owns an apartment in Brussels that is rented out to an individual who uses it as a residence. The immovable income is determined on the basis of the cadastral income.
A Belgian resident owns an apartment in Amsterdam that is rented out to an individual who uses it as a residence. The immovable income is determined on the basis of the gross rent paid.
According to European law, the difference in taxable basis cannot be upheld.
New legislation – equal taxation regime based on cadastral income
The new legislation provides for equal treatment. The basis for determining income from Belgian real estate, i.e. cadastral income, will also become the basis for determining income from foreign real estate. When real estate is not rented out or is rented out to an individual who does not use it professionally, the taxable basis will be determined on the basis of the cadastral income.
Generally, the cadastral income (even after indexation and 40% increase) will be lower than the gross rental value or the gross rent paid. Therefore, in principle, the change of legislation will be advantageous for the taxpayer.
Double tax treaty
If Belgium concluded a double tax treaty with the country in which the real estate is located, the immovable income is exempt from income tax in Belgium, but subject to progression.
Belgium has concluded such double tax treaties with e.g. the Netherlands, France, Spain, Portugal and Italy.
Although the income is exempt, the progression does have an effect on the tax rates applicable to other taxable income of Belgian residents (e.g. salary or pension). Consequently, a reduction of the taxable basis of immovable income, based on cadastral income, will in principle have a positive effect on the overall tax due.
Determination of cadastral income for foreign real estate
For the implementation of the new legislation, a cadastral income must be determined for foreign real estate owned by Belgian residents, as is the case for Belgian real estate. The competent administration (“Administratie Opmetingen en Waarderingen” / “l’Administration Mesures et Evaluations”) will determine the cadastral income.
The cadastral income is a fictitious income equal to the average annual normal net rental value of an immovable property at the reference time, i.e., (still) 1 January 1975.
In absence of the rental value or normal market value in 1975, the cadastral income of foreign real estate will be determined on the basis of the current normal market value. To obtain the market value in 1975, a correction factor will be applied to the current normal market value (for 2020: 15.036), to be multiplied by a fictitious return of 5.3%.
Example: A Belgian resident purchased a house in France in 2020 for € 250,000. The cadastral income will be € 881 (i.e. € 250,000 / 15.036 x 5.3%).
Owner of foreign real estate before 1 January 2021 - action?!
A taxpayer who already owned foreign real estate prior to 1 January 2021 must in principle spontaneously provide the necessary information to the competent administration by 31 December 2021 at the latest, via a form on the website or via the MyMinFin platform.
The competent administration will in principle contact taxpayers who included foreign immovable income in previous years' personal income tax returns.
A taxpayer who purchased foreign real estate in 2020 (which was therefore not included in the personal income tax return of previous years), will have to submit a form spontaneously.
At least the following information must be provided:
- Short description of the foreign real estate;
- Location (country and address); and
- Normal market value. If the normal market value is not known, the purchase price and the year of acquisition must be indicated and, if applicable, the renovation costs and the year of renovation.
Acquisition or sale of foreign real estate as from 1 January 2021 - action!
If a Belgian resident buys or sells foreign real estate or acquires property rights in another way (e.g. an inheritance) as from 1 January 2021, the information must be submitted spontaneously via a form on the website or via the MyMinFin platform, in principle within four months.
For foreign real estate acquired or sold between 1 January 2021 and 25 February 2021, this deadline is extended to 30 June 2021. This term is shorter than for foreign real estate held prior to 1 January 2021.
Objection to cadastral income
The cadastral income will be notified to the taxpayer by registered mail.
The taxpayer can object to the cadastral income within two months as from the notification. The objection must contain a counterproposal.
Modifications to real estate - reassessment
As for Belgian real estate, a reassessment of the cadastral income is required in case of extension, reconstruction and/or "substantial changes" to the foreign real estate.
The taxpayer must spontaneously notify the authorities of the modifications within thirty days after the completion of the works.
Holders of foreign real estate
This article is limited to foreign real estate of which the holders are Belgian residents-individuals.
The holder of an immovable property is (a.o.) the owner, possessor or usufructuary.
Cayman tax
The obligation to provide information also applies to foreign real estate held by foreign legal structures targeted by the Cayman tax of which a Belgian resident is a "founder" (as defined in the Cayman tax legislation). In this case, the Belgian resident must declare the immovable income in his personal income tax return and comply with the information requirements to determine a cadastral income of the immovable property.
Example: A Belgian resident is a shareholder of a BVI company that holds real estate on the BVI. The company is a foreign legal structure based on the Cayman tax legislation. The income of the real estate must be included in the personal income tax return of the Belgian resident. The Belgian resident must comply with the information requirements.
Automatic exchange of information - Mutual Assistance Directive
On the basis of the automatic exchange of information pursuant to the European Mutual Assistance Directive, Belgium obtains information about (the value of) European real estate owned by Belgian residents.
Sanctions
In case of non-compliance with the information obligations, an administrative fine ranging from € 250 to € 3,000 may be imposed. The scale of fines and modalities of application will be determined by a Royal Decree.
Entry into force
The new legislation entered into force on 1 January 2021. The changes in the personal income tax are in principle applicable as from assessment year 2022 (income year 2021).
The competent administration expects to have an established cadastral income for all foreign real estate owned by Belgian residents by March 2022.
Finally, equal treatment of income from foreign real estate!
Generally, the equal treatment of the immovable income of Belgian and foreign real estate through the taxation of a (lower) cadastral income will provide a tax benefit to Belgian residents owning foreign real estate.
It is estimated that Belgian residents hold around 150,000 real estate properties abroad. Determining the cadastral income for each of these properties will undoubtedly be a gargantuan task for the competent administration.
The owners of foreign real estate can already start collecting the necessary information.
We will keep you informed of any further developments!
