On 12 November 2020 the European Court of Justice (ECJ) imposed a lump-sum fine of EUR 2 million and a daily penalty of EUR 7.500 for each day that the Belgian tax authorities continue to maintain a difference in tax treatment for rental income depending on whether the property is located in Belgium or abroad. Recently, the new Belgian Minister of Finance, Mr. Vincent Van Peteghem, proposed a solution to the problem. Essentially, the Belgian tax authorities will undertake a large scale exercise for determining a cadastral income to approximately 150.000 properties abroad owned by Belgian taxpayers.
What is the problem?
For a Belgian individual taxpayer who rents out his property abroad (for example a vacation home in Spain) the actual rental income is in principle taxable (via his/her Belgian resident income tax return). This is different from the way immovable income is taxed when a property is located in Belgium and is rented out (to another individual who uses it for private purposes). Individual taxpayers who rent out a property in Belgium are actually taxed on the basis of the “cadastral income of the property” (which is indexed and increased with 40%). The cadastral income is a notional income which is typically determined by the Belgian tax authorities based on a number of factors.
Note: The cadastral income reflects (or should reflect) the estimated average normal net income that the property provides to its owner. It symbolises the net average annual rental value for a property at a certain reference date. However, in practice the cadastral income is still based on the 1975 index, but subject to annual indexation.
The abovementioned unjustified unequal tax treatment of rental income, depending on whether the property is located in Belgium or in another EU member state was already addressed a couple of years back by the European Commission. Moreover, Iin 2018, Belgium was ordered by the ECJ to amend its national legislation, but no action was taken.
What is the proposed solution?
In order to ensure an equal treatment going forward, the Belgian tax authorities will allocate a cadastral income to each foreign property, on the same basis as for a property situated in Belgium. It concerns approximately 150.000 properties, the majority of which are in France, Spain, Italy and the Netherlands.
This exercise will be based on the information that the owners must provide to the Belgian tax authorities via a specific questionnaire. The owners will be asked by the tax authorities for a description of the foreign property, its location and the normal market value for real estate in the region.
The Belgian tax authorities hope to receive all the information by March 2022, so that the properties can be declared in the June tax return. Anyone who acquires a foreign property from 1 January 2021 will have 4 months to complete those formalities.
Note: From a Belgian personal income tax perspective, it will most likely concern “exempt income”. If a double tax treaty is concluded between Belgium and the country where the property is located, the foreign immovable income may only become taxed in the country where it is located. In Belgium, the taxpayer must however indicate this foreign income in his resident tax return, to determine the average tax rate on his global income (exemption with progression effect).
In case of any questions, please do not hesitate to contact Sandrine Schaumont or Philip Maertens.