Key takeaways
- Letting out a building is VAT-exempt by default in Belgium (article 44, § 3, 2°, of the VAT Code).
- Since 1 January 2019, landlord and tenant can jointly opt to subject a business lease to VAT.
- The option only covers new or heavily renovated buildings, for which VAT on the works first became chargeable from 1 October 2018.
- The tenant must be a VAT-registered taxable person who uses the property exclusively for its economic activity.
- Once exercised, the option applies for the entire lease term and cannot be withdrawn before it ends.
A landlord who lets a new office building to a VAT-registered company can, since 1 January 2019, choose together with that company to charge VAT on the rent instead of staying under the standard exemption regime. This choice, VAT on commercial property rental, changes the picture for the landlord: it can recover the VAT paid on construction or renovation of the building, something the exemption normally forbids. This guide covers the exemption principle, the cumulative conditions of the option, the exceptions that escape it (storage spaces, short leases) and the consequences for the revision period of the deducted VAT.
The principle: commercial property rental exempt from VAT by default
Under Belgian law, letting out an immovable property is in principle a VAT-exempt transaction (article 44, § 3, 2°, of the VAT Code). In practice, the landlord does not charge VAT on the rent, but cannot recover the VAT paid on the purchase, construction or renovation of the let property either. This exemption applies equally to an individual landlord and to a company that lets offices or a workshop to another business.
This exemption rule has historically weighed on companies that build to let: the VAT on their construction costs remains permanently lost, a disadvantage compared with a business that buys a building outright to carry out a taxed activity in it.
The VAT option on a business lease since 2019
The law of 14 October 2018 introduced, in article 44, § 3, 2°, d), of the VAT Code, a joint option regime between landlord and tenant to subject a business lease to VAT. In force since 1 January 2019, this regime lets the landlord charge VAT on the rent and, in return, recover the VAT on its construction, acquisition or renovation costs for the building.
| Exemption regime (default) | Optional regime (since 2019) | |
|---|---|---|
| VAT charged on the rent | ||
| VAT recoverable by the landlord on works | ||
| VAT deductible by the taxable tenant | ||
| Explicit agreement between landlord and tenant required | ||
| Revision period of deducted VAT | 15 years (ordinary investment good) | 25 years |
The choice is not trivial: once the option is exercised, it applies for the entire term of the lease and cannot be withdrawn before it ends, even if the economic interest of the deal changes in the meantime.
The cumulative conditions to exercise the option
The option is not open to every letting. It requires several conditions to be met together, not in isolation.
Cumulative conditions for the VAT option
New or heavily renovated building
VAT on the construction or renovation works must have first become chargeable from 1 October 2018. A renovation counts as heavy when its cost excluding VAT reaches at least 60% of the value of the finished building.
Building located in Belgium
Unbuilt land let on its own does not fall within the scope of the option.
VAT-registered tenant
The tenant must be VAT-registered (article 4 of the VAT Code), whether or not it has a full right to deduct.
Exclusively professional use
The tenant must use the property exclusively for its economic activity, excluding any private or residential use.
Explicit joint agreement
Landlord and tenant must opt together, through an express statement included in the lease itself.
Storage spaces and short-term leases: the exceptions to the option
Two situations follow a different logic from the 2019 option and remain subject to VAT regardless of the building's construction date.
Making a storage space available between VAT-registered taxable persons is automatically subject to VAT, without any need for a joint option: this rule already existed before the 2019 reform and keeps applying under its own conditions, distinct from the option for new or renovated buildings.
Likewise, short-term letting, meaning making an immovable property available for a period not exceeding six months by a landlord acting as part of its economic activity, also escapes the default exemption, whether or not the building is new.
Rate, option term and revision of the deducted VAT
Once the option is exercised, the rent is subject to the standard VAT rate, currently 21%. The landlord can then deduct the VAT on its construction, acquisition or renovation costs, and the taxable tenant can in turn deduct the VAT it bears on the rent, within the limits of its own right to deduct. Before signing a lease containing an option clause, checking these conditions with an accountant or relying on Monsiegesocial's tax support services avoids a later requalification of the contract.
entry into force
Law of 14 October 2018, VAT option on business lease
pivot date
VAT on works chargeable from this date to enter the option
applicable rate
Standard VAT rate on rent subject to the option
revision period
Against 15 years for an ordinary immovable investment good
This extended revision period is set by article 48, § 2, of the VAT Code as amended by the law of 14 October 2018. The Royal Decree of 12 May 2019, which amends Royal Decrees n° 3 and n° 14 on VAT, sets its starting point at 1 January of the year the building is first put into use. If the use of the property changes during this period (the lease ends and the building returns to an exempt use, for example), the VAT deducted by the landlord may be subject to a revision proportional to the number of years remaining.
Need support with the VAT on your business lease?
Monsiegesocial helps you structure your tax and administrative procedures, from setting up your company to tracking your VAT obligations.
Going further
- VAT for self-employed workers in Belgium: thresholds, exemption and obligations, for the general identification and filing rules.
- VAT on intra-EU services in Belgium, for the place-of-supply rule and reverse charge on cross-border services.
- The VAT page of the SPF Finances, for official information on the VAT regimes applicable to businesses.
