Rent remittance: what about VAT?
June 2021 – The optional VAT liability regime for property rentals came into force on 1 January 2019. In certain cases, the landlord and tenant can make the lease agreement for new buildings used for business purposes subject to VAT, so that VAT can be deducted. But what if the rent is remitted?
Renting with VAT
A new scheme was introduced at the end of 2018 which allows entrepreneurs to lease new (or substantially renovated) property under the VAT regime. This is an optional scheme: the lessor and the lessee must agree that the lease will be subject to VAT. This must be stated in a pro fisco declaration in the lease agreement and the scheme applies for the duration of the agreement.
As mentioned above, the hirer must be an entrepreneur and more specifically a VAT-registered entrepreneur. Furthermore, leasing under the VAT regime is only possible if the lease agreement relates to a building that is used for the purposes of the economic activity.
There are a number of exceptions to this rule. On the one hand, there are cases where VAT liability is compulsory, such as for the rental of garages, camping sites, etc. (which is always subject to VAT). (which is always subject to VAT) and, on the other hand, cases where, on the contrary, no VAT can be charged (for example, when the contract does not concern the rental of a building, but the right to carry out a professional activity in that building).
The letting of warehouses is also subject to a special regime. Rental to private individuals (B2C) is always subject to VAT. Finally, in a B2B situation, VAT liability is optional, it being understood that it does not have to be a new building. It is sufficient if the contract dates from 31 December 2018.
Revision of VAT
If you buy or build a building subject to VAT and you are entitled to deduct that VAT, you will in principle only retain your right to deduct if you continue to use the building in question for your VAT-registered business for the next 15 years. If you do not, you must make a revision.
However, in the case of the optional VAT regime, this revision period - in the case of the lessor, that is - is twenty-five years.
The lessor will have to revise (read: refund) the deducted VAT, in particular in the event of vacancy and transfer of the building during the lease. In principle, a review should also take place at the end of the lease, unless the building can be re-let with VAT shortly afterwards.
Does the fact that the tenant does not pay rent for several months oblige the landlord to carry out a VAT review?
At the end of March, the Minister of Finance received a parliamentary question on the impact of a rent rebate on the VAT deduction.
The author of the question, Joy Donné, explicitly referred in his question to a bill (which has since become law) aimed at encouraging landlords to grant a rent rebate to tenants in exchange for a tax reduction. In practice, it has to be said that a great many landlords grant and have granted, spontaneously or via the commercial lease loan (in the Flemish Region and the Brussels-Capital Region), a discount or suspension of rent to their tenants. The Minister's answer is also important for them.
In her question, Joy Donné refers to the law that introduced the optional VAT regime at the time. It was expressly stated in the debates that if the lessor grants the lessee a "free rental period" as a commercial gesture with a view to concluding a lease agreement, this does not give rise to a review.
But what about a temporary rent rebate? In principle, a "free" provision of rent leads to a loss of the right to deduct, with the consequence that the landlord must actually carry out a review.
Reassuring answer
Fortunately, the Minister gave a reassuring answer. He confirms that a taxable lessor must in principle revise the deduction from which he has benefited if, during these twenty-five years, he uses the building entirely or partially for operations that do not give rise to the deduction. Making the property available free of charge is one of the operations that do not qualify for the deduction.
If, in the course of the execution of the lease agreement, the parties agree that the tenant temporarily does not have to pay the rent, the tax authorities consider this to be a reduction in price or a reduction in rent, and therefore not a free disposal, so that a review is not necessary.
The Minister added that this applies not only to measures taken in the context of the Covid-19 pandemic, but also to cases of reduction or remission of rent, provided that it appears that the contract has been concluded for consideration. According to the Minister, a temporary provision of a building free of charge is generally regarded as a reduction of the price or a reduction of the rent, and not as a provision free of charge. It follows that the lessor does not have to make any revision of the deducted VAT if he grants a remission of rent for a few months to support the lessee in the context of the Covid-19 pandemic.
