As mentioned in our Newsflash of 8 December 2020, the European Court of Justice (ECJ) imposed a lump-sum fine and penalties for each day that the Belgian tax authorities would continue to maintain a difference in tax treatment for rental income depending on whether the property is located in Belgium or abroad. In order to comply with EU Law and to ensure equal tax treatment for tax residents of Belgium with property located abroad, the Belgian Federal Government proposed to attribute a cadastral income (kadastraal inkomen / revenu cadastral) to each foreign real estate. Furthermore, foreign taxes will no longer be deductible from the real estate income which is reportable in a Belgian resident tax return. A draft bill was introduced into the Parliament. This draft legislation was approved and resulted in the Law of 17 February 2021 (as published in the Belgian Official Gazette on 25 February 2021), changing the Belgian Income Tax Code of 1992 (BITC92) with respect to real estate located abroad.
In order to determine the taxable income of properties, article 7 of the BITC92 will no longer contain a distinction between real estate located in Belgium and real estate located abroad. Up to tax year 2021 (income of 2020) a cadastral income was only attributed to properties located in Belgium (and used to determine the taxable income). A cadastral income is a fictitious income that corresponds to the average annual net income that the property would yield to its owner.
For foreign real estate up to tax year 2021 (income of 2020) “the rental value” had to be included in the Belgian tax return (if it was not rented out) and could be reduced by the foreign real estate taxes paid. In recent years, under European pressure, the Belgian tax authorities already accepted the use of a foreign equivalent of the Belgian cadastral income where such an equivalent was available for foreign properties (based on local legislation) in specific countries (e.g. ‘valor catastral’ for properties in Spain or ‘valeur locative brute’ for properties in France). As of tax year 2022 (income of 2021) the taxable income for properties located abroad will also be determined on the basis of a Belgian cadastral income that will be attributed to the foreign property (no deduction of foreign real estate taxes allowed). The Belgian tax authorities estimate that this change applies to around 150.000 properties (especially in France, Spain, Italy and the Netherlands).
Regardless of where a property is located (in Belgium or abroad), if it is rented out to a “professional user” (for example to a company or to a person who will use the property for his profession), the owner of the property (tax resident of Belgium) will still be taxed based on the actual received rental income (and thus not on a cadastral income). However, also here, foreign taxes are not deductible.
Of course, if Belgium has concluded a double tax treaty with the country where the real estate is located, the cadastral income (if not rented out or if rented out to an individual for private use) or the actual rental income (in case of renting out to a professional user) can still be exempted (with progression reserve) via the Belgian tax return.
Circular of 1 March 2021
In the circular of 1 March 2021 the Belgian tax authorities already commented on this new legislation. Following a brief introduction on the change in tax law, a detailed FAQ is provided.
Establishing the cadastral income for foreign properties
In order to attribute a value/cadastral income to foreign properties, owners (who have already included foreign real estate income in their recent personal tax returns) will receive a questionnaire from the Belgian tax administration to provide specific information regarding these properties. It will concern questions with respect to a short description and location of the property, the normal market value or (in absence of the normal market value) the purchase value in the year of acquisition, etc. In principle, the normal actual market value of the property (or the purchase price) will be the starting point for the attribution process. This value will then be adjusted based on specific factors/parameters.
Taxpayers who already owned property outside Belgium before 1 January 2021 do not have to take any action at the moment. They will only be able to submit the information as of June 2021 via MyMinfin or via a form that will become available on the website of the Belgian tax authorities. This form can also be requested by email (email@example.com) or by sending a letter to the Administration of Measurements and Valuations – Cel Foreign Cadastral Income (Administratie Opmetingen en Waarderingen – Cel buitenlands KI / Administration Mesures et Evaluations – Cellule RC étranger).
It is anticipated that the cadastral income will be made available (via www.myminfin.be) by 1 March 2022. If the cadastral income is not made available / not visible, it will ultimately be up to the resident taxpayer of Belgium (who owns real estate abroad) to inform the Belgian tax authorities about this “error” (so that it can be taken care of, allowing the taxpayer to include it in his or her personal tax return).
For properties abroad that were owned before 1 January 2021, the cadastral income will be deemed to exist as of 1 January 2021.
If one has purchased a property abroad after 1 January 2021, a declaration form has to be requested within 4 months following the purchase date. After the spontaneous notification, taxpayers will be able to declare the value of their property as of June 2021.
Please note that the new cadastral income must only be included in the Belgian tax return as of assessment year 2022 (income year 2021). If the property abroad is purchased in the course of 2021, taxpayers will only need to include a prorated value of the cadastral income in their Belgian resident income tax return (assessment year 2022 – income year 2021). For the personal income tax return in relation to income year 2020, nothing will change concerning income from foreign real estate as the old rules can still be applied.
In case of any questions, please do not hesitate to contact Sandrine Schaumont or Philip Maertens.