On 26 October 2021, the Federal Government submitted a draft act to the Chamber that changes the VAT exemption on real estate renting, and specifically the exception for hotel services. The draft act was proposed after the ruling commission had accepted that the renting of student rooms with additional services could be regarded as a “hotel service” subject to VAT (ruling no. 2020.1867 dated 6 October 2020). The Government was displeased with this interpretation and drafted a new act to prevent student rooms from being rented out subject to VAT in the future.
Exempt real estate rentals vs. hotel services
In principle, real estate renting is exempt from VAT. This means that, in principle, the landlord cannot deduct the input VAT relating to the rented property, such as VAT on building costs, purchase price or repair work. There are a number of exceptions to this principle, including real estate renting in a B2B context (see our previous discussion).
“Providing furnished accommodation” is another exception. Such a “hotel service” is subject to 6% VAT. As a consequence of the application of VAT, the operator can deduct the input VAT paid, including input VAT paid on the construction cost of the building.
The ruling commission seems to interpret the term “hotel service” broadly. Last year, the ruling commission accepted that the provision of furnished student rooms with additional services (weekly cleaning of the rooms, (digital) reception, the use of WiFi and the consumption of water and electricity) can be regarded as a “hotel service” and as such is subject to VAT.
To the extent that the renting of student rooms can be regarded as a “hotel service”, the operator will have to charge 6% VAT on the service which allows him to deduct 21% VAT on the construction costs.
It was interesting to see whether other forms of housing would also qualify as a hotel service, e.g. collective housing such as co-housing. However, this will most likely not be the case, as the Government has now decided to bar that option. To this end, it has submitted a draft act that changes the concept of a hotel service subject to VAT. The explicit objective was to avoid VAT on the renting of student rooms. However, following comments from the Council of State (“Raad van State”/“Conseil d’Etat”), the exception to real estate renting, as far as hotel services are concerned, had to be amended more broadly.
Below, we summarise the main points of the proposed legislative amendment:
Duration as a distinguishing criterion
In order to distinguish a hotel service subject to VAT from a rental that is exempt from VAT, the duration of the service will have to be taken into account.
Only rentals that are granted for a period of less than three months can be considered as taxable hotel services. In this regard, the duration of the contract is taken into account. If successive contracts are concluded between the same parties for the same property, the total duration will be considered.
In addition, a hotel room must be provided by a hotel, a motel or an establishment with a similar function where paying guests usually stay for a period of less than three months.
This means that, for example, operators of student rooms, who normally conclude contracts for three, six, ten or twelve months, will not be able to provide taxable hotel services.
Presence of ancillary services
For a hotel service to be subject to VAT, the draft act now stipulates that the provision of furnished accommodation must be accompanied by one of the following additional services:
- physically welcoming the guests;
- providing household linen at the beginning of the stay and replacing it at least once a week (for stays longer than one week); or
- providing breakfast on a daily basis.
As soon as the provision of the room is accompanied by one of these services (and provided the duration does not exceed three months), the operator will be deemed to be providing a taxable hotel service. Contrary to what is currently required, it is not necessary for the additional services to be offered together with the provision of accommodation for one total price.
The Explanatory Memorandum clarifies that the condition regarding additional services does not apply to hotels and motels. These establishments are always considered to be providing a taxable hotel service, provided that the maximum duration of three months is not exceeded.
Applicable as from 1 July 2022
It is envisaged that the new regime will apply from 1 July 2022 onwards.