Since 1 January 2017 the focus of the reduced 12% VAT rate in social housing has been further extended, and from now on any private investor, natural person or legal entity can – under certain conditions – enjoy the reduced VAT rate if the accommodation is ultimately intended for rental within the framework of social housing.
1. Existing lower VAT rates for social housing remain in place
There were already reduced VAT rates of 6% and 12% for the formation, sale and the transfer and retransfer of commercial rights from or to (new) private housing and housing complexes designated for rental within the framework of social housing. Work performed on immoveable property (including both old and new housing) and property finance leasing was also envisaged.
However, in order to gain from these reduced VAT rates, the transaction must be invoiced to either:
- Regional housing companies or housing funds, in which case the reduced VAT rate of 6% applies.
- Provinces, municipalities, intermunicipal cooperative societies, public social welfare centres (Openbaar Centrum voor Maatschappelijk Welzijn – OCMWs) and accredited institutions such as psychiatric care facilities, residential care homes, etc, in which case the reduced VAT rate of 12% applies.
While these reduced VAT rates still apply, as of 1 January 2017 the scope of the 12% VAT rate has been extended to include private initiatives.
2. 12% VAT rate for private initiatives for social housing
Nature of the transactions
The extension of the reduced VAT rate still covers the same transactions (formation, sale and the transfer and retransfer of commercial rights, work on immoveable property and property finance leasing), but from now on these transactions can be invoiced to any party, including private persons, at 12% VAT if the other conditions are fulfilled.
The reduced VAT rate can under no circumstances be applied for work on immoveable property that concerns agricultural activities, landscaping and fencing, nor swimming pools, saunas, tennis courts, mini-golf courses, etc. Cleaning buildings is likewise subjected to the standard 21% VAT rate.
Designated use of the housing
Only transactions that concern private accommodation and housing complexes that are rented within the framework of social housing are eligible. In reality this means that the recipient, commissioning authority, owner or lessor must:
- Either rent out the accommodation or housing complex to a legal entity under public or private law, which in turn rents out accommodation for social housing;
- Or must rent out the accommodation or housing complex itself within the framework of a management mandate that was entered into with a legal entity under public or private law.
A legal entity under public or private law means those legal entities that could already enjoy a reduced VAT rate (6% or 12%) before 1 January 2017 (see above), but now also includes autonomous municipal companies (autonome gemeentebedrijven - AGBs), social housing rental companies (sociale verhuurkantoren - SVKs) and in a more general sense all recognised legal entities under public or private law that serve a social purpose.
Minimum rental period
To receive the reduced VAT rate, the rental period cannot end before 31 December of the fifteenth year after the first year in which the accommodation or housing complex was first occupied. This rental period must be set down when the rental agreement or the management mandate commences.
If this rental period is not adhered to, the beneficiary of the reduced VAT rate shall lose that gain (in most cases being 21% - 12% = 9%) for the year in which the minimum rental period is no longer honoured as well as for any remaining years of that fifteen year minimum period. That means that the reduced VAT rate is actually a provisional tax benefit, 1/15th of which is permanently acquired at the conclusion of each calendar year, starting from the year after first occupation.
A number of formalities must be fulfilled, both on the part of the buyer, the commissioning authority or the lessee as well as on the part of the seller, service provider or lessor (as the case may be).
For the buyer, the commissioning authority or the lessee the formalities are as follows:
- A declaration that the accommodation of housing complex shall be designated for rental within the context of social housing (or a management mandate therefore) must be submitted to the relevant tax inspection office. This declaration must be submitted before the VAT becomes payable and a copy must also be provided to the seller, service provider or lessor. This requirement does not apply to work on immoveable property that concerns existing housing. In that event the owner or principal tenant must only provide a copy of the rental agreement to the service provider. Except in cases of collusion, this declaration discharges the seller, the service provider or the lessee of its liability with respect to the applied reduced VAT rate.
- A copy of the rental agreement concluded with the legal entity under public or private law must be presented to the relevant tax inspection office within one month of it being signed.
The seller, service provider or lessor must primarily pay attention to the content of its invoice. The following must, inter alia, be stated on the invoice:
- The date and reference number of the rental agreement as well as the particulars of the relevant tax inspection office for the buyer, commissioning authority or lessee.
- It is recommended that reference is also made to the applicable statutory provision that justifies the reduced VAT rate of 12%: ‘Uitvoering van werken die zijn bedoeld in rubriek XI van Tabel B van de bijlage bij Koninklijk Besluit nr. 20 – Huisvesting in het kader van het sociaal beleid – Privé-initiatief’ (‘Performance of work within the meaning of section XI of Table B of the schedules to Royal Decree no. 20 – Housing within the framework of social policy – Private initiative’).
A copy of the invoice must likewise be provided to the tax inspection office no later than on the final workday of the month following the month in which the invoice should have been issued.
3. What about other reduced VAT rates?
For work on immoveable property that is performed on existing private housing that is older than 10 or 15 years, the reduced VAT rate of 6% could be applicable if the relevant conditions are met. This VAT rate is more advantageous and also entails fewer formal obligations. It is likewise required that the end-user is invoiced for the work, which in the present scenario would not be the case. But in the past the condition has been loosely interpreted so that not just the tenant but the owner too could enjoy the reduced VAT rate. It will be interesting to see if this interpretation remains valid.
4. Is it for you?
The primary aim of the measure is to make up for the shortfall in social housing. For a legal entity under public or private law the measure could provide greater financial breathing space. The measures already in existence, in spite of the reduced rates, still entailed considerable tax costs, as in many cases the VAT was not deductible. It is hoped that the improved VAT rates for private investors will create a wider range of rental housing that can be used for social housing. After all, renting such housing is VAT-free. Moreover, the authorities will be faced with less pressure to solve the social housing problem through their own investments, where spreading the cost is often impossible. For the private investor the reduced rate means that VAT expenses will be limited (12% instead of 21%).