Since 1 January 2021, the demolition and reconstruction of a residential building can benefit from a 6% VAT rate, regardless of where in Belgium the building is situated. The sale of such a building can now also benefit from the reduced VAT rate.
Until recently, the 6% VAT rate only applied in 32 urban areas in Belgium. Under the new regulation, the reduced VAT rate is, under certain conditions, temporarily extended to the rest of the Belgian territory.
Additional conditions demonstrate the social nature of the new measure. The main condition is that the reconstructed property must qualify as the principal's private and only home. This means that the principal must be a physical person who must have his/her domicile in the property without delay. The buyer should keep his/her domicile there until 31 December of the fifth year following the year of first occupation. The total habitable area of the dwelling may not exceed 200m².
An important new provision is that the 6% VAT rate will now also apply to the sale of demolished and reconstructed buildings. This extension is particularly interesting for real estate developers, who will be able to offer new dwellings for sale with 6% VAT provided that the building is erected on a cadastral plot on which they first demolished an existing building. In this context, again, the total habitable surface will be limited, and the buyer will only benefit from the reduced rate provided that the dwelling is used as his/her private and only home.
The reduced VAT rate also applies, in principle, to the accompanying plot of land, unless this is sold separately by a land company and is therefore subject to registration duties of 10% (Flanders) or 12.5% (Wallonia and Brussels). Although the sale of land with the application of VAT may seem attractive from a VAT perspective, caution should be exercised in this regard. Today, it is common practice to sell residential real estate projects on a split basis, where the land is sold by the land company with application of registration duties of 10% or 12.5%, while the sale of the structures by the building company is subject to 21% VAT. The Belgian VAT authorities accept such a split-sale structure, provided that this is applied in a consistent manner.
In addition to the private and only home, the reduced VAT rate of 6% also applies to the demolition and reconstruction of buildings or the sale of buildings reconstructed after demolition, when such buildings are rented out for a period of 15 years by the landlord or the buyer to a social rental agency or within the framework of a "management mandate" granted to a social rental agency. In such cases, the habitable area limitation does not apply.
The new measures are limited in time: they only apply to the extent that VAT becomes due between 1 January 2021 and 31 December 2022.