2024 take-aways regarding VAT in the real estate sector

At the end of November 2024, Belgian parliament enacted a law in which the ‘transitional measures’, in the context of the reduced VAT rate for demolition and reconstruction, were extended.

As a reminder, there are currently two transitional measures in place:

• For the demolition and reconstruction works performed in the 32 specific city areas, the reduced VAT rate of 6% can still be applied according to the ‘old’ regime (which contained less strict application conditions) insofar as the building permit for the project was applied for ultimately before 1 January 2024;
• For the sale of buildings after demolition and reconstruction, the reduced VAT rate of 6% can still be applied insofar as the building permit for the project was applied for ultimately before 1 July 2023.

Both transitional measures were originally foreseen to end on 31 December 2024. However, given the exceptional amount of rainfall during the past months causing delays for many building projects, it has been decided to extend these transitional measures until 30 June 2025.

Apart from these transitional measures, the reduced VAT rate currently remains applicable for the following types of projects:

• Demolition and reconstruction works performed for a natural person who will use the building as his own and sole home for at least 5 years (max. habitable surface area: 200 m²);
• Buildings destined for ‘social renting’ for a period of at least 15 years (no max. habitable surface area);
• Buildings destined for ‘long term renting’ for a period of at least 15 years (max. habitable surface area: 200 m²).

In a judgment of 12 September 2024 (C-243/23), the European Court of Justice took a closer look at the Belgian VAT adjustment periods applicable on immovable capital goods.

As a general rule, the VAT adjustment period for VAT paid on the construction or acquisition of an immovable capital good is 15 years (or 25 years for buildings rented out within the scope of the optional VAT regime). However, with respect to works performed to such immovable capital goods, the VAT adjustment period is only 5 years if those works are limited to the mere conversion or improvement of a building. The deciding criterion between the 5 or 15 years’ VAT adjustment period, is whether or not the works are sufficiently thorough to cause the building to be considered as ‘new’ again for VAT purposes.

According to the Court, to determine the applicable VAT adjustment period, it should however not be relevant whether the building can be considered as ‘new’ again for VAT purposes. Instead, the relevant criterion should be whether the works have caused the building to have an extended economic lifespan similar to that of a new building.

It remains to be seen if and how this case law will have the Belgian VAT authorities reconsider their viewpoint on the applicable VAT adjustment period for works performed to buildings.

On 7 November 2024, the ECJ issued a judgment in the case Skatteministeriet v. Lomoco Development ApS (C-594/23). This case concerned the question whether land, which at the time of their sale merely contained foundations for residential units, qualify as ‘buildings’ for VAT purposes.

The Court states that such plots of land cannot qualify as ‘buildings’, because the foundations in itself do not make the land ready for actual use. Foundations are only a preparatory phase for a later building.

This case law could have an impact on the principles as set out in the Belgian administrative VAT comments, considering that they currently extend the concept of a ‘building’ to all materials which are permanently connected to the ground and therefore immovable by nature (such as foundations).

In its annual report for 2023, the Ruling Commission cited a case regarding the right to deduct VAT on costs of infrastructure (public infrastructure and landscaping) incurred by a real estate developer.

In the framework of development projects, real estate developers are often imposed many obligations with respect to the provision of infrastructure (roads, landscaping, etc.), which they often need to transfer ‘for free’ to the municipality. In a number of decisions and based on existing guidelines, the VAT administration allowed real estate developers to nevertheless deduct the VAT on such infrastructure costs under certain conditions, most important condition being that the costs of the infrastructure works were included in the VAT taxable sales prices applied by the developer. However, the Ruling Commission now seems to significantly limit the cases in which that input VAT deduction is possible by adding as a condition that the works carried out should have a direct and immediate link with and necessary for the economic activity of the developer itself.

Careful thought should be given when considering the VAT deduction on costs of infrastructure !

If you have any further questions on how these developments may impact you, feel free to reach out to us.