As Belgian resident you are obliged to declare your worldwide income in your Belgian income tax return, which includes income from movable and immovable property, professional and other income. Therefore, Belgian and foreign real estate held by Belgian citizens is to be declared as income from immovable property in their personal income tax return. Only the residential property (‘family residence’) does not have to be declared.
The amount that should be declared depends on the location of the property (Belgium or abroad) and its usage (unrented, privately rented or professionally rented).
For a long time, however, immovable property located abroad was treated differently from property located in Belgium. Recent legislation has changed this.
A Belgian resident who has immovable property situated in Belgium that is either not rented or rented out to private individuals, is taxed on a lump sum basis taking into account the so-called ‘cadastral value’ of the property. This ‘cadastral value’ represents the annual net rental value of such real estate in 1975.
Up until recently, foreign real estate however was not taxed on a lump sum basis. These properties were taxable on their actual rental value or, when rented out, on the annual net rental income, which is in both scenarios usually higher than the lump sum basis on which Belgian real estate is taxed.
However, foreign real estate income is exempt from taxation if Belgium concluded a double taxation treaty with the country in which the real estate is located. Although the income is exempt, the income is taken into account in order to determine the tax rate applicable to the other taxable income, for example salary or pension (the so-called ‘progression reserve’). Consequently, a reduction of the taxable basis of immovable income, based on the cadastral value, will in principle have a positive effect on the overall tax due.
This unequal treatment has been considered by the Court of Justice of the European Union (CJEU) as an obstacle to the free movement of capital within the European Union. The CJEU has already condemned Belgium twice. In 2014 for foreign property not rented out, and again in 2018 for foreign property that is rented out to private individuals. As Belgium continued to maintain a difference in tax treatment for rental income depending on whether the property was located in Belgium or abroad, the Court recently condemned Belgium again to the payment of a lump sum of €2 million and a daily penalty of €7.500 until the legislation was amended.
Following the abovementioned convictions by the European Court of Justice, Belgium recently changed its legislation on the taxation of foreign real estate.
This new legislation aims to determine the taxable base for foreign real estate on the same lump sum basis as Belgian real estate. Therefore, a ‘cadastral value’ will be assigned by the Belgian tax administration to foreign property held by Belgian residents.
The new regulation applies to foreign real estate that belongs to Belgian residents (subject to personal income tax) and to legal entities (subject to legal entities tax). For corporate income tax purposes, the new regulation does not have an impact. In addition, the new regulation also applies to foreign real estate held by foreign legal constructions of a Belgian resident ‘founder’ (as defined in the Cayman tax legislation).
As previously mentioned, the ‘cadastral value’ is the starting point to calculate the lump sum taxable basis, which is equal to the annual net rental value of a real estate in 1975. When the net rental value is not known, the cadastral value is obtained by multiplying the sales value of the property (in 1975) with 5,3%.
However, such data will usually not be available for properties located abroad. Therefore an additional (more practical) method is implemented which can be used by the tax administration in order to determine the cadastral value of such property. This method is as follows:
For example, if you bought your foreign property in 2011 for €200.000, the coefficient related to 2011 is 13,124, resulting in a (non-indexed) cadastral income of €808 (200.000/13,124 = 15.240 multiplied by 5,3%).
For undeveloped foreign real estate, the law determines the cadastral income at €2 per hectare.
If you do not agree with the cadastral value as determined by the tax administration, a by post registered administrative appeal must be filed within two months following the determination of the cadastral income, and must include the value that you believe is more correct.
Taxable persons/entities who have declared foreign property in their previous income tax return, will be informed by the tax administration regarding the aforementioned new legislation.
In order to determine the cadastral value of the foreign real estate, the owners will receive a questionnaire from the Belgian tax administration to provide specific information regarding their foreign property, among others a short description and location (country and address) of the property, the normal market value or (in absence of the normal market value) the purchase price in the year of acquisition, if applicable the renovation costs and the year of renovation.
Belgian residents and legal entities must provide the requested information to the tax administration no later than 31 December 2021, even when the aforementioned notice has not (yet) been received. Also taxable persons or entities who already owned foreign real estate prior to 1 January 2021 (but have not yet declared the foreign income in their income tax return, for example for foreign real estate bought in 2020) must spontaneously provide the necessary information to the competent administration by 31 December 2021 at the latest.
As from 1 January 2021 taxable persons/entities are nevertheless obliged to inform the tax administration about their foreign real estate within four months following the month of purchase, sale of foreign property or acquisition of property rights in another way (for instance inheritance). For the foreign real estate acquired or sold between 1 January 2021 and 25 February 2021, this deadline is extended to 30 June 2021.
As for Belgian real estate, a reassessment of the cadastral income is required in case of extension, reconstruction and/or ‘substantial changes’ to the foreign real estate. You are obliged to inform the tax administration of these modifications within thirty days following the completion.
The new legislation introduces new fines regarding the notification duty concerning real estate. When a taxable person does not declare the purchase, sale or modification as discussed above, a lump sum penalty of €250 to €3.000 is possibly due.
The cadastral value of foreign real estate determined in accordance with the new legislation is applicable as from 1 January 2021. Therefore, this cadastral value is to be used when declaring the income from foreign immovable property in the income tax declaration of assessment year 2022. The tax administration expects to have an established cadastral income for all foreign real estate owned by Belgian residents by March 2022.
As mentioned above in order to determine the cadastral value of the foreign real estate you will have to provide certain information regarding your foreign real estate to the tax administration taking into account the applicable due dates, either following a request (questionnaire) from the tax administration or spontaneously.
Please do not hesitate to contact us if you have any questions. We will be happy to assist you.
