From income year 2021 onwards, new rules apply for Belgian resident taxpayers, who own real estate outside Belgium (law of 17.02.2021). The new legislation is the result of European case law, condemning Belgium for the unequal treatment of taxpayers, who own properties outside Belgium as compared to taxpayers with Belgian properties.
Belgian resident taxpayers have the obligation to report world-wide earnings in their annual resident income tax return. This includes the actual or deemed income from real estate, owned in any location in the world.
Depending on the situation, real estate must be declared in Belgium based on actual rent received or based on a deemed taxable value (the cadastral income (CI) of the property). The new rules only apply to the second situation. This only concerns properties:
a) that are not let out
b) that are let out to
The fact that foreign real estate must be reported in the Belgian income tax return does not necessarily mean that tax is also due. If the property is located in a country with a tax treaty with Belgium, the tax is in most cases only to be paid in the country where the property is located. Belgium then exempts the income, but does so with application of the progression reserve rule (the income does play a role in determining the Belgian tax rate on other income).
For goods in countries without a treaty, Belgium will levy tax, although in a number of cases a tax reduction of 50% can be claimed in the annual tax return.
The good thing in the new law is the fact that the discriminatory clauses in the old legislation have been abolished. Taxpayers should nevertheless be aware of new reporting obligations that are imposed on them. Immigrants into Belgium should be extremely cautious with this matter and ensure that they are not faced with severe penalties, as will be explained further.
The taxable base for the above-mentioned properties is determined on the basis of their cadastral value. This is a deemed net rental value (after deduction of all possible costs except interest) for a period of one year. The Belgian tax authorities will therefore determine an equivalent CI for the foreign real estate to be declared, by analogy with Belgian properties.
In order to determine this CI, the Administration needs information to be provided by the owners or other holders of certain related rights on the real estate. This must be done through a specific reporting, to be done before the end of 2021.
The net rental value of the property will be determined by the authorities, based on the current normal market value of the property. This is the market value, obtained under normal market conditions (between independent parties), excluding additional costs such as taxes and notary fees. A correction factor is applied to the market value in order to recalculate a cadastral value back to the reference year 1975, as is the case with Belgian properties.
The system is much simpler for land. The CI of foreign land is set at 2,00 Euro per hectare.
New tax reporting obligation
In order to allow the Administration to determine an equivalent CI for a foreign property, the taxpayers themselves must spontaneously submit data to the tax authorities. An obligation to declare the properties applies to owners, co-owners, usufructuaries or holders of a comparable foreign right. Real estate, owned by a legal structure, must also be declared if the founder of the structure is subject to personal income tax as a Belgian tax resident.
For goods acquired before 2021, there is time to file the reporting until the end of 2021. The tax authorities have announced that they will take the initiative to inform taxpayers about their obligation to report their foreign properties in due time. Anyone who has included a foreign property in the personal income tax return in previous years should receive a request from the Administration in the course of 2021 to provide information.
Anyone who acquires a property abroad from 2021 onwards or who sells a foreign property, must file a declaration within 4 months. It is then up to the taxpayer to take action and penalties are imposed if the reporting obligation is not properly met.
The tax authorities intend to make the CI for the foreign properties available by March 1, 2022, so that it can be used from the tax return for tax year 2022.
Information to be provided
The reporting covers the following:
The tax authorities always have the option to request additional information if the information provided is considered incomplete or contradictory (such as a more detailed description of the good or a copy of the purchase deed).
In the absence of a recent expert valuation or other objective reference point, the price of the good at the time of purchase can be used as a reference (this may have been determined many years in the past). The tax authorities want to look at the price, as would have been agreed between independent parties (without personal or family ties between the parties). The value of a property resulting from an inheritance or donation can also be used as proof.
We have important concerns about the nature and language of the documents that will have to be submitted. After all, it is our experience that the Belgian tax authorities simply assume that documents in the Belgian national languages can be presented without any problems and that official or non-official foreign documents can easily be used for Belgian tax purposes.
Inevitably, there will be many surprises (and translation costs) for the taxpayer and the tax authorities in this area. Our experience with documents in foreign languages, to be presented with Belgian tax officials is not very encouraging. We can only hope that the Administration will significantly change its attitude and style of communication towards these taxpayers.
As is the case in Belgium, not only the acquisition, but also the substantial change to a property must be declared. Any new construction and all changes, renovations, enlargements and other changes that are considered significant will lead to a re-estimation of the CI. The new cadastral income then exits from the first day of the month following the fact that justified the reassessment.
We wonder how the tax authorities will be able to properly follow up on this obligation in the absence of Belgian verifiable data (such as building applications and declarations of commissioning of goods).
In order to be complete, we note that it is possible to request a change of the CI of a property even in case no ownership change has occurred. This can happen when new and permanent circumstances caused by force majeure, by measures ordered by the public authorities or by the actions of third parties, affect the rental value of the property by at least 15% as compared to the rental value in 1975.
We draw the attention of taxpayers to the obligation that has been established for them to take initiative if no CI is notified to them after a declaration was made or if the property does not appear on their information page in the application www.myminfin.be. In such case, one must take the initiative to contact the Administration with a request to rectify the situation. One cannot just passively wait and see. It is of the utmost importance to properly respond to the upcoming request for information for existing properties and to contact the tax authorities if no question is received or for properties acquired or sold from 2021 onwards.
We note that access to the electronic application ‘MyMinFin’ is often very difficult or even impossible for a while for new arrivals into Belgium. The website is based on the national number of the taxpayer, provided by the public authorities and the usual method of access to the information required a Belgian electronic identity document and a 4-digit PIN code (provided by the commune). We experience numerous problems with this access for people, moving into Belgium. This may in turn lead to difficulties for them to properly comply with the new rules.
Contrary to the past, it will no longer be possible to deduct foreign taxes from the amount to be declared in the Belgian tax return for foreign real estate. This is because a CI corresponds to a deemed net rental net income for a period of one year. This is the same for real estate located in Belgium.
This does not mean that costs are not taken into account. The Belgian tax calculation automatically includes a standard cost deduction of 40% for buildings and of 10% for land. This includes any foreign taxes. This is an absolute lump sum and cannot be replaced by proof of actual expenses.
Interest on loans to acquire, improve or maintain the property, however, is tax deductible (usually only against income of the same type). It does not matter whether the loan is from a Belgian or foreign source (whether or not located in the EEA). All possible forms of loan are eligible (subject to sufficient evidence to be provided) for the deduction of interest.
A large pitfall – fiscal immigration
A dangerous matter appears for people, who move to Belgium from abroad and who become a tax resident of Belgium in the course of current year. They too must take the initiative declare the market value of their foreign real estate. They will receive no in invitation to do so and in addition, they are given an extremely limited deadline of 30 days from the day, they become resident.
We do not understand why such a short deadline has been set in this situation. In the first few months after the move to a new country, most people have numerous other concerns than submitting a valuation report of their real estate to the Belgian tax authorities. Furthermore, most often they are completely unfamiliar with Belgian tax law, let alone with the concept of a cadastral value of a property. The language barrier, already mentioned earlier in this text, will also be a problem for many of them. In addition, we do not expect them to be able to obtain the required necessary official documents and translations within the limited period of 30 days.
It is not difficult to predict that this group of taxpayers will run a significant risk of getting into serious trouble as soon as they set foot on Belgian territory. We fear that the quite unreasonable deadline is an open invitation for tax troubles. Immigrant taxpayers are highly likely to run into an unintended tax office soon after their arrival in Belgium. We wonder whether discrimination can be invoked by them, given the different treatment in comparison with other taxpayers, who are offered much longer reporting periods. Tax migrants have a high chance of falling victim to tax penalties.
Anyone who does not comply with the obligation to properly report their foreign properties are at risk for high fines, which can even get as high as 3,000 euros. The reasonableness of such a high fine can be questioned, especially in those (very common) cases where real estate is located in countries with a tax treaty, whereby the real estate in Belgium is exempt from tax, and where only the progression reserve for calculating the taxes is relevant.
We also expect numerous discussions about the valuation of properties and the evidence to be provided by means of documents, made up according to foreign law and in all languages that this world has to offer. As already mentioned, tax immigrants are highly vulnerable to the new fines (as a form of tax welcome gift for their arrival in Belgium).
A more reasonable scheme of tax penalties is highly desirable. Because the fines for foreign real estate are much higher than the fines for Belgian real estate, the tax authorities have unfortunately again returned to the slippery path of tax discrimination.
Contrary to Belgian real estate, the controls, available to the Belgian tax authorities are rather limited for those properties, located abroad. According to the Minister of Finance, sufficient checks are possible, for example on the basis of an international exchange of data between authorities or also via internet sites about real estate, from which the sales value of properties can be deduced. We are afraid that the Minister has overestimated the controls, available to the Belgian officials. The value as official evidence for many data (for example picked from all kinds of websites) is questionable. The Minister is counting on the dissuasive effect of the sky-high fines, but it is not certain that this will be effective.