EU case law – Discriminatory tax treatment of foreign real estate income


According to Belgian income tax legislation, individuals who own a (secondary) house or apartment in Belgium (i.e. a built property other than their own dwelling) and who do not let out this property, are taxable on the indexed deemed rental income of the property (also known as “kadastraal inkomen” / “revenu cadastral”, which is significantly lower than the actual rental value), increased by 40%.

The real estate income in relation to properties that  are not led out and which are located abroad is determined based on the actual rental value of these properties. Where a double tax treaty is in force, the foreign real estate income will be exempted from taxation in Belgium. However, this income will be taken into account to determine the tax rate that is applicable to Belgian source income.

Recently, the European Court of Justice has decided that the above-mentioned difference in taxation between properties in Belgium and properties located elsewhere in the European Union, can be discriminatory and in violation with the “free movement of capital”, to the extent that this results in a higher tax burden for the taxpayer.

Consequently, it is anticipated that taxpayers may be able to file a tax claim if they can prove that the rental value would lead to a higher taxable income compared to the deemed rental income in Belgium. However, at this point there is no communication available from the Belgian tax authorities as to what approach will be taken regarding possible rectifications.

This court decision does not apply to properties located in countries outside the European Union and properties located outside Belgium that are let out.