The coefficient of revaluation of cadastral income for 2021
October 2021 – The coefficient of revaluation of cadastral income (in short RC) is relevant for an entrepreneur in two specific situations: when, as a private individual, he rents a dwelling to a company and when, as a company director, he rents a dwelling to his own company.
Revaluing vs. indexing
The RC of buildings is the estimated annual rent of these buildings. "Originally (in the 1960s and later), the estimated annual rent was also the amount subject to income tax. The calculation of the tax has since changed, but the estimate is still based on the standards and prices in force in 1975. In order to update this estimate somewhat, the legislator introduced in the mid-1980s a kind of indexation: the revaluation coefficient - and for this year this coefficient amounts to 4,63.
Do not confuse revalorisation with indexation. The underlying idea (to update the amount of the RC somewhat) is the same, but indexation is used for withholding tax and personal income tax, whereas the revaluation coefficient is only necessary in the following two cases.
Is your tenant using the building for business purposes?
If you rent your building to a private individual, you pay tax on the indexed (!) RC of this building. If, on the other hand, you rent your building to a company or non-profit organisation, or to a natural person who uses the building for professional purposes, you pay tax on the net rent.
This net rent is obtained by deducting from the rent a flat-rate expense allowance of 40% of the rent.
However, this flat rate is limited to two thirds of the revalued RC.
Example: the rent for a building is 10 000 euros on an annual basis. You can deduct 4 000 euros in costs from this amount: the net rent is 6 000 euros. The building has a RC of 1 000 euros. This flat-rate charge is capped at two-thirds of 1 000 euros x 4.63, i.e. 3 086.67 euros. The taxable amount is therefore 6 913,33 euros, instead of 6 000 euros.
If the RC of the property was 1 500 euros, 40% of the rent would be below the maximum (two thirds of 1 500 euros x 4.63 = 4 630 euros) and you would be taxed on 6 000 euros.
Do you rent to your own company?
The second situation in which the revaluation coefficient is used is when a company director rents a property to the company of which he is the director. This is a measure that was devised to combat abuse: thanks to the 40% flat fee (see above), it was often more attractive to receive rent than remuneration. But the rent that the company director receives from his company is reclassified as professional income in application of this anti-abuse provision. This will be the case if and insofar as the rent exceeds five thirds of the revalued RC.
Example: the company director receives 10 000 euros in rent for a house with a CR of 1 000 euros. The reclassification of the rent as professional income concerns the part of the rent that exceeds five thirds of 1 000 euros x 4.63 = 7 716,67 euros. The company director therefore receives 7 716,67 euros in rent (of which he can deduct 40% in expenses) and 2 383,33 euros in professional income (in addition to other professional income).
