New taxation regime for foreign real estate
May 2021 – After two condemnations by Europe, Belgium has finally adapted its taxation regime for foreign real estate. You have until the end of 2021 to determine the value of the income from these foreign properties via a special declaration. After that, you will - possibly - have to pay taxes on this income.
Until 2020
In 2020, Belgium was once again condemned by the Court of Justice of the European Union for taxing foreign real estate more heavily than Belgian real estate. This difference in taxation is due to the valuation of the income of these properties.
The annual income of Belgian real estate is estimated on the basis of standards dating from 1975. The value of the property has an influence, but it is certainly not the most important one. If you build a new building today, its taxable income will be determined on the basis of the rental value of that building... in 1975 (admittedly indexed).
The annual income of foreign real estate is estimated on the basis of the actual rent or the actual rental value, which in practice are significantly higher.
After two convictions, Belgium was therefore obliged to ensure equal treatment of foreign and Belgian real estate.
From 2021 onwards
From 2021 onwards, foreign property income will therefore also be determined on the basis of the standards applicable to Belgian property, i.e. on the basis of a foreign cadastral income. This applies only to residents of the Kingdom of Belgium and legal persons taxpayers (such as non-profit organisations) who have a real right to foreign real estate.
The real rights are ownership, long lease, building rights and usufruct.
No foreign cadastral income is therefore attributed to real estate owned by companies, because the latter are not taxed on this income.
Foreign cadastral income
The rules for determining cadastral income are changing and are also becoming applicable to foreign real estate. Cadastral income will now be determined in three successive stages.
Step 1: the administration bases itself on the normal net rental value on 1 January 1975 of the building itself or of a suitable reference parcel. If there is no suitable reference parcel, it proceeds to step 2.
Step 2: the administration applies a rate of 5.3% to the normal market value of the plot as at 1 January 1975. If the market value on that date is not known (and this is a new feature), it proceeds to step 3.
Step 3: the administration bases itself on the current normal market value, divided by a correction factor to be determined annually and multiplied by 5.3%. For the year 2020, this correction factor amounts to 15.036%, and for 2021 to 15.018%.
There are therefore two novelties: firstly, the way in which the tax base of foreign real estate is determined and, secondly, the introduction of the correction factor, which is also a novelty for Belgian real estate.
Reporting obligation
From now on, you will also be obliged to declare, within four months, any acquisition or alienation of a real right on foreign real estate.
Anyone who owned a foreign property on 31 December 2020 will (presumably) be able to declare it via MyMinfin from June.
If you build or convert a building abroad, you are subject to a declaration obligation (of first occupation or completion of the work), as is the case for Belgian buildings. You only have thirty days to make this declaration.
Failure to declare is subject to severe penalties: the administrative fine is a minimum of 250 euros and a maximum of 3,000 euros. This fine is not only new for foreign property, but also represents a significant increase in the fine payable by anyone who fails to declare the construction or conversion of a Belgian property.
But is Belgium actually allowed to levy taxes?
You are right to ask whether income from real estate abroad is actually taxable in Belgium. The answer is: in most cases it is not. This is because the double taxation treaties concluded by Belgium always provide that the power to tax real estate income lies with the country where the property is located.
This new regulation is nevertheless important. Although Belgium is not allowed to levy taxes on foreign property income, it can take this into account when determining the tax rate on your income. Because of the increase in your foreign income, you will in practice have to pay more tax on your total income.
These changes will come into force from this year. Anyone who has declared a property in recent years will receive an explanatory letter from the tax authorities within a few months. The new foreign cadastral income must be declared for the first time in the 2022 tax return.
