6% VAT in case of demolition and reconstruction by the same person
July 2022 – Construction work is subject to VAT at the standard rate of 21%. There are a few exceptions to this rule, such as the conversion of an old house, where the rate is only 6%. At the end of April 2021, an exception was added to the list: the demolition and reconstruction of a house. However, the demolition and reconstruction must be carried out by one and the same person.
Demolition and reconstruction
If you are a private individual who is having a house rebuilt, you can benefit from a VAT rate of 6% if the house is at least 10 years old. For some works, the house must be at least 15 years old. But not all conversions are eligible for this reduced rate. In principle, a conversion can only be considered if the basic structure of the building is retained. If you demolish the building and then rebuild it, this is not a conversion, but a new construction, and both operations are subject to VAT at 21%.
The 6% rate is nevertheless possible for demolition with reconstruction in 32 specific cities. This possibility is part of the urban renewal process.
At the end of 2020, the government decided to extend the 6% rate for demolition with reconstruction to the entire Belgian territory. However, this possibility is subject to conditions: a maximum surface area, an occupancy obligation, etc. Through this extension, the Government is pursuing three objectives: a revival of the construction sector, better access to quality housing for vulnerable people and the replacement of old buildings by buildings of high environmental quality. The measure is temporary. The reduced rate was initially scheduled to apply until December 31, 2022, but the measure was recently extended by one year.
The demolisher and rebuilder are the same person
One of the conditions for the application of the 6% rate is that the demolition of the existing building and the reconstruction of the new building be done by the same person. Let us assume that the owner X demolishes the building, sells the building lot to Y, and Y erects a new building on it, the reduced rate is not applicable. A construction company filed an application with the Constitutional Court for the annulment of this condition.
According to the construction company, there is discrimination between a property developer who buys a building plot from a person who has demolished the building in order to be able to sell the plot as a building plot, and a property developer who buys the plot and the building himself in order to demolish the building and erect a new building instead.
However, the Constitutional Court rejects the claim. The distinction created does not impose a disproportionate burden on property developers who buy land on which there were buildings that have been demolished by the former owners. The distinction only implies that the purchasers have to pay the standard VAT rate of 21% (according to the Court).
The Court recognizes, however, that this may result in a competitive disadvantage for real estate developers who can sell their new construction projects with the reduced VAT rate, but the measure does not make it excessively difficult or even impossible to carry out a new construction project or to sell the completed housing units.
Administrative tolerance
The tax authorities also do not apply 100% of the rule that demolition and reconstruction must be carried out by the same person. A circular dated February 25, 2021 states that the reduced rate can also be applied to projects in which the demolition was carried out by the landowner and the reconstruction by a real estate developer.
The administration authorizes it under 3 cumulative conditions:
A cause of VAT liability must have occurred before January 1, 2021;
It is a question of a "project unit"; and
The landowner and the property developer are "related parties".
The tolerance will therefore apply in practice if the demolition began before 2021 and the landowner and the property developer had a joint project for the demolition of the building by the landowner and the granting of a right in rem and the reconstruction of housing by the property developer.
The plaintiff also raised this administrative tolerance before the Constitutional Court, but since it is an administrative rule and not a law, the Court cannot consider this argument.
