On 12 April 2018, the Court of Justice of the European Union (CJEU) ruled that the difference in tax treatment of immovable income, depending on whether the property is located in Belgium or in another State concerned an infringement of EU Law for which there is no justification.
- For immovable properties located in Belgium and which are not rented out or properties rented either to natural persons who do not use them for professional purposes or to legal persons which make such properties available to natural persons for private purposes, income tax is determined based on the (lump-sum) “cadastral value” of the property. This cadastral value, which is often significantly lower than the actual rental value of the immovable property, is subject to indexation every year and increased with 40%.
- For immovable properties located in another State (i.e. outside Belgium), income tax is based on the actual rental value of the property (if not rented out) or actual rent (if rented out).
Letter of formal notice
Recently, the European Commission sent a letter of formal notice to Belgium for not implementing Judgement C/110/17 (Commission vs. Belgium of 12 April 2018) of the Court of Justice of the European Union. Via the differentiated assessment of income from immovable property depending on the state in whose territory that property is situated, tax residents of Belgium may be discouraged from making investments in immovable property in another member state of the EU. This concerns a restriction of the free movement of capital.
In case Belgium does not act within the next two months, the Commission may refer Belgium to the Court of Justice of the European Union. Therefore, in order to be in line with EU law, the Belgian legislator will now have to examine in which sense to amend the legislation. We will keep you posted on further developments in this respect.