Strict rules for demolition and reconstruction at 6 percent VAT

Unofficial translation

The coalition agreement provides that the reduced VAT rate of 6 percent for demolition and reconstruction will be extended to the entire country. What does the existing scheme entail? And in which direction can the new one go?

It is no more than a sentence in the 83 pages of the coalition agreement: ‘In the context of social housing policy, the reduced VAT rate of 6 percent for the demolition and reconstruction of buildings will be extended to the entire Belgian territory.’ But it has a big impact. Today – with the exception of 32 cities – in principle 21 percent VAT must always be paid on the demolition, new structural work and finishing of private homes.

1. Urban areas

The reduced VAT rate for demolition and reconstruction is now available in 32 urban areas. The scheme is not limited to impoverished neighborhoods and urban cancers, but applies to the entire city.

The coalition agreement states that this scheme will be extended to the entire Belgian territory ‘in the context of social housing policy’. ‘That social aspect is imposed by a European directive. A reduced VAT rate for new construction is only permitted if it has a social component, ‘says Tim Van Sant, VAT specialist at PwC Tax Consultants. ‘It is not yet clear how this social component will be fleshed out, but a bill submitted by the CD&V in 2017 and 2019 can indicate the direction.’

A reduced VAT rate for new construction is only permitted if it has a social component.

“In that bill, the reduced VAT rate was reserved for the sole and own family home, which is exclusively for residential purposes,” says Van Sant. That is a curtailment compared to the existing legislation. Today it is sufficient that after reconstruction the building is mainly a private residence. In addition to a single-family home, a second home or a home to rent out is also eligible. Mixed use is also allowed, such as a doctor’s practice that is used as a private residence for 60 percent. ‘Other new conditions in the bill are that people must live there for at least five years and that the surface area is limited: a maximum of 190 square meters for a house and 100 square meters for an apartment,’ says Van Sant.

2. Building

In principle, it is sufficient that what is demolished is a ‘building’. What its function is for the breakdown does not matter. It goes without saying that it can be a private home, warehouse or office building. In the VAT scheme, the term building is interpreted very broadly. It concerns any structure that is permanently connected to the ground, above or below ground. An asphalt site or an area with underground pipes also meets this definition. However, a parliamentary question in 2009 indicated that what is broken down must be of significant size. This is not stated in the law, but VAT inspectors often rely on it in practice. This leads to many disputes about what meets the condition of a building and what does not. Moreover, there are major differences in interpretation between VAT inspectors, ‘says Van Sant.

‘Sometimes people even say that what is being demolished must have a significant size compared to what is being rebuilt,’ says the VAT specialist. ‘Think of a dilapidated house that is being demolished after which a ten-storey apartment building is built. It would be good if those points of discussion were clarified in the new legislation. ‘

3. Contractor

In current legislation, the reduced VAT rate is only for building contracts. ‘As a result, the reduced VAT rate can never be used for an on-plan sale. The bill provides that it may also concern a house that has been rebuilt by developers and developers after a purchase and demolition, on condition that it is subsequently sold to a natural person. A sale on plan could therefore also be possible, which would be a relaxation, ‘says Van Sant. Furthermore, the demolition and reconstruction must take place consecutively today and be for the same client.

4. Material works

Only material works are eligible for the reduced VAT rate for demolition and reconstruction. Intellectual performance – such as the services of architects, construction engineers, and safety coordinators – remains subject to the 21 percent rate.

5. Cadastral parcel

For a long time there was a discussion whether the new building should be in the same place as the demolished building. That has now been clarified: it is sufficient for the new building to be on the same cadastral plot.