All about the new tax regime for foreign real estate
A second residence or other property abroad will be taxed in the same way as Belgian property starting next year. To this end, the tax authorities must determine the cadastral income of 150,000 properties owned by Belgians abroad.
After several condemnations by Europe, the unequal tax treatment of Belgian and foreign real estate is being eliminated. As of the assessment year 2022, the cadastral income (ci) - by analogy with Belgian real estate - will be used to tax foreign real estate. Until now, the rent (value) was used. Owners who use their foreign real estate themselves or rent it out to a private person will be taxed on the basis of cadastral income. If the property is rented out to someone who uses it professionally or to a company, then the actual rent will still be taxed,' says Bart Lombaerts of PwC Tax Consultants.
The tax authorities are facing a titanic task. For the approximately 150,000 properties owned by Belgians abroad, a cadastral income must be determined.
Who will determine the cadastral income
Cadastral income will be determined by the Administration of Measurements and Valuations - formerly the land register - of the tax authorities. 'A cadastral income must be determined for all the real estate of Belgian taxpayers worldwide,' says Francis Adyns, spokesman for the federal government's Finance Department. That will be done using data that owners of foreign real estate must provide.
When must you pass information to the tax authorities?
If you already owned property abroad before January 1, 2021, you should not do anything for the time being. Only from June onwards can the information be submitted via MyMinfin or via a form that will be available on the tax authorities' website.
The Federal Public Service Finance will contact you itself if you have declared foreign real estate in your most recent tax return. This does not mean that anyone who is not contacted by the tax authorities will not have to take the initiative and spontaneously submit an information form," says Wim Vermeulen, a lawyer at Cazimir. In any case, you need to take action if you bought foreign real estate in 2020. You have not yet declared this in a tax return and the tax authorities are not yet aware of this,' says Lombaerts.
If you bought property abroad after January 1, 2021, you must spontaneously and at most four months after the purchase request a tax return form by mail or letter. 'The taxpayer may do so now. The notification must be made within four months of the purchase. So for a purchase that took place in January, that is before June,' says Adyns.
What information do the tax authorities want?
What exactly will be asked is not yet clear. The Administration of Measurements and Valuations is still working on the information form. You will probably have to provide the address, a description of the property (villa, apartment or house) and the (current) normal sales value, taking into account buildings in the region.
It is not enough to fill out an information form once. As with Belgian real estate, you must also report the commissioning of a new building on land you own abroad or the completion of renovations. The ki will increase after renovations that increase the useful area and/or comfort of the house. Examples include installing an additional bathroom, converting an attic into a bedroom or installing a swimming pool. Traditional renovations that increase the habitable area, such as adding a veranda, also result in a higher CI. You must also report a sale. Sales that take place now are best reported already," says Adyns.
Regarding possible checks on the accuracy of the data, Adyns is brief: "Checks will be made after a risk analysis. The law stipulates administrative fines of 250 to 3,000 euros.
How does the tax authority calculate the cadastral income?
Cadastral income is not an actual income, but a notional one. It is the average normal rental income at a reference time, still January 1, 1975. The Administration of Measurements and Valuations will reconstruct the 1975 sales value based on the current sales value. The goal is to determine the amount one had to invest in 1975 to acquire a capital that corresponds to the current sales value. 'The tax authorities assume that the current sales value is known, either because the property has just been purchased or because it can be compared to current prices,' Vermeulen says.
To arrive at the 1975 value, the current value is divided by an adjustment factor. For the 2020 income year, that factor is 15.036. That correction factor is adjusted annually, based on the average interest rate for 10-year linear bonds. 'The correction factor for 2021 has not yet been announced but would be lower, at 15.015, based on the average interest rate to be used,' says Rosanne Van Gael, a lawyer at Cazimir. The result is then multiplied by a capitalization factor of 5.3 percent. This is the usual factor for estimating what an asset can fetch in rent.
What if I don't agree with the cadastral income?
Once the CI has been determined, you will be informed by registered letter. This procedure is the same as for a newly determined cadastral income for Belgian real estate. If you do not agree, you can lodge an objection. This must be done by registered letter and within a period of two months from the date of service of the CI mentioned on the document. In your objection, you must mention a counterproposal and thus the CI that you are proposing.
What will be the taxable amount for unleased property or property leased to individuals for private use?
You will need to declare the cadastral income in your tax return. The taxable amount is the indexed cadastral income, increased by 40 percent. Any interest paid to finance the property can be deducted from that property income. You then include the paid interest in your tax return under the federal interest deduction codes. The tax authorities will do that calculation.
The new tax regime will simplify tax returns. 'The twelve separate codes for foreign property on the tax return will no longer be necessary. Domestic and foreign property can be declared in the same codes. There will only be an end section to specify which part is foreign,' says Jef Wellens, tax specialist at Wolters Kluwer.
Is foreign real estate taxed twice?
Owners of property abroad usually pay taxes abroad. Whether taxes also have to be paid in Belgium depends on whether Belgium has concluded a double taxation treaty with that country. There is such a treaty with popular vacation countries such as France, Spain, Italy, Portugal, the Netherlands, Switzerland, Austria and Turkey. It states that the country where the property is located may levy the tax and that Belgium must provide a tax exemption,' says Lombaerts. But that doesn't mean that the declaration has no consequences at all. It can lead to higher taxes on your other income, on which you do pay tax in Belgium.
That's because there is an exemption in Belgium with what is called in the jargon "progression reserve. Foreign income is taken into account to determine the tax rate applicable to your other income. The higher your foreign income, the higher the tax burden on your other income.
If there is no double tax treaty - like with Monaco - then the tax due in Belgium is halved. The condition is that you have already paid tax on the property abroad.
Will the tax burden on foreign property owners increase?
'Those with property abroad will generally pay less tax,' says Wellens. 'The higher the rental yield of the property, the more beneficial the new arrangement.'
Wellens illustrates this with an example. Jan bought an apartment in Germany last year for 250,000 euros. He has a taxable net professional income of 50,000 euros. 'The cadastral income is 881 euros,' says Wellens. 'That's how it's calculated: 250,000/ 15.036 (correction coefficient from 2020 to 1975) x 5.3 percent (flat annual income).
'With a rental income of 5,000 euros - so a rental yield of 2 percent - Jan had to pay 19,301 euros in tax under the old tax regime. In the new regime based on the indexed ki, that becomes 19,197 euros, or 104 euros less,' says Wellens. 'If Jan achieves a rental yield of 4 percent and collects 10,000 euros in rent, the tax difference in favor of the new regime rises to 516 euros.'
How will you complete your tax return this year?
The new rules only apply to the tax return you must file in 2022. In the tax return you must complete this year, you must declare your foreign property one more time in the same manner as in previous years.
If you use a foreign second residence yourself, the letter of the law requires you to declare the gross rental value. This is the rental income that you could have earned if you had rented out the property for the entire year. If you rent out a residence abroad, you must always declare the actual rent received.
For some years now, the tax authorities have accepted that you use the foreign equivalent of the Belgian cadastral income for a second residence in some countries. This is the case for the Netherlands (valuation of immovable property or WOZ value), France (base d'imposition in taxe foncière), Spain (valor cadastral) and Italy (rendita catastale). If the property is located in the European Economic Area (EEA) in a country that has no equivalent of our CI, then 22.5 percent of the gross rent (value) may be declared .
From the income to be declared, you may deduct the foreign tax paid. The tax authorities automatically apply a 40 percent cost flat rate and deduct any interest for real estate financing.
"It is defensible to calculate your cadastral income based on the bill already for this year, applying the correction factor for 2020," Vermeulen says.
What if the renter is using your foreign property professionally?
'If the tenant uses your foreign property for his profession or you rent to a company, you will continue to be taxed on the actual rent received,' says Lombaerts. 'By analogy with Belgian real estate, you will have to report the CI of your foreign real estate in addition to the gross rental income.'
Gross rental income includes not only the rent, but also rental benefits such as maintenance and repair costs that are normally borne by the landlord, but passed on to the tenant. You may not deduct maintenance and repair costs from the gross rent: the tax authorities apply a 40 percent cost flat rate to buildings themselves. These fixed costs are capped at two-thirds of the non-indexed CI and multiplied by a factor of 4.6 (factor for income year 2020). There is also a lower limit: you are taxed at least on the indexed CI, increased by 40 percent. Any interest paid to finance the purchase of the property is deducted from the taxable property income.
The balance is added to your other income and taxed at your highest tax rate (between 25 and 50 percent). If there is a double tax treaty with the country where the property is located, an exemption with progression reservation also applies here. If there is not, the tax due in Belgium is halved.
What if the foreign home was purchased by a Belgian company?
For Belgian companies owning foreign real estate, nothing changes. But there can be a significant difference if they make the real estate available to their manager free of charge. In a strictly Belgian context, this form of remuneration in kind is currently valued at a flat rate on the basis of a formula that includes the returns,' says Van Gael. Now that it is clear how the cadastral income for foreign real estate must be calculated, it can be argued that this calculation formula must also be used for foreign real estate. That would result in a lower benefit of all kinds for those business owners.'
Source: De Tijd