Taxation of real estate abroad

The episode “The morning market” on Monday, November 16, 2020 on RTBF was devoted to taxation on real estate owned by Belgians abroad. CThis taxation of the residences of Belgians abroad has been condemned by the Court of Justice of the European Union. and the whole system could change.

Obstacle to the free movement of capital

What is the difference between the tax for real estate rented in Belgium and properties rented abroad? In summary, what the European Court of Justice criticises is that it is precisely different from the tax applied to real estate rented by individuals in Belgium.

Let's say you have an apartment somewhere in Europe, in Spain for example. If you rent it out, the tax you will have to pay to Belgium for this rental income will be calculated according to the rents actually received.

Now let's imagine that you have a property in Belgium, you don't occupy it and you rent it to a third party. It is a little less exotic, but much more fiscally advantageous, because the tax you will pay on this rental income is not calculated on the basis of the rents actually received, but on the basis of what is called cadastral income, a kind of fictitious fixed rent that is much lower than the rents actually received.

In short, according to the Court of Justice of the European Union, the Belgian is encouraged by this tax system to buy in Belgium rather than abroad, which hampers the free movement of capital, which is very expensive in the eyes of the Court.

Multiple options on the table

How can Belgium become compliant? That is the whole question. Obviously, the Minister of Finance announces that he will make a proposal in the coming weeks to change the system. How? He's not saying that. It has several options. But if he wants to eliminate this difference in treatment between taxation on residences abroad and real estate in Belgium criticized by the Court, he must necessarily harmonize the system.

First possibility: apply the most advantageous rule in force on Belgian residences to properties rented abroad. It is therefore a question of taxing on the less severe basis of cadastral income. But the problem is that this lump-sum concept of cadastral income does not always exist outside Belgium, abroad.

What if there is no fixed tax base in the foreign country? “For states that are not familiar with the concept of lump-sum tax income, Belgium could obtain 22.5% of the rental value of the foreign building. This percentage comes from a recommendation by the European Commission and has already been established by Belgian courts and tribunals. This practice already exists for foreign buildings that are not rented.“, replies Grégory Homans, tax lawyer at Dekeyser & Associés.

The system is a bit complex, but it has the merit of already existing and could therefore be extended by the legislator.

A second way... much riskier

The other possibility for harmonization would be for the State to tax real rents in Belgium, as it does for rents received abroad? But this would be a real revolution in Belgian real estate taxation, taking into account the rents received in taxable income.

In Belgium, the taxation of real estate income remains a political taboo. Belgium is a European exception in this respect. Moreover, several institutions, such as the OECD or the IMF, denounce this atypical taxation.

For the State, taxing real rents would be a way to end this exception, but also to increase revenue at a time when money is lacking.

However, this taxation of rental income is difficult to assume politically, it is a very sensitive subject for many owners, even for tenants whose rents could increase as a result of this tax. This second path is therefore much riskier, and therefore also less likely.

As for whether there is a deadline for Belgium to get back on its feet... No, even if, with the on-call, it is encouraged to go quite quickly. We'll talk about a proposal in a few weeks.

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Source: RTBF La Première

Published at 8:06am - Updated at 9:28am on November 16, 2020