Part I - Foreign property income: new provisions on cadastral revenue for Belgian residents
Following a condemnation of the Belgian State by the Court of Justice of the European Union, the legislator has modified by the law of 12 February 2021 the tax treatment of foreign source real estate income in order to comply with the European legislation concerning the free movement of capital. Until recently, the tax administration applied a different tax treatment to income from real estate situated abroad compared to real estate income from Belgian sources. Real estate income from foreign sources was generally taxed more heavily than income from property located in Belgium. Indeed, residential (built) property in Belgium is in principle taxed on the basis of the indexed cadastral revenue plus 40%, whether or not it is rented. In contrast, real estate situated abroad was taxed on the basis of the actual rental value. As a result of previous European case law, the Belgian administration had already changed its approach in an administrative circular in 2016 and since then has been basing itself on an equivalent local cadastral revenue, but only in the absence of rental. In the presence of rentals, the Belgian administration always based itself on the amount of rent actually received in the case of rentals. In both cases, the income was reduced by the taxes deducted abroad and a flat rate of 40% which is supposed to represent the costs.
The law of 12 February 2021 solves this issue of differentiated tax treatment by attributing a Belgian cadastral revenue equivalent (hereinafter "CR") to real estate located abroad. A CR will therefore no longer be attributed solely to real estate located in Belgium but also to real estate located abroad. In this way, real estate located abroad will be subject to the same tax treatment as real estate located in Belgium. It should be noted that the application of the CR to income from real estate located abroad should only have a limited impact, as income is generally exempt in Belgium, subject to progressive taxation.
The law applies to real estate located abroad over which a Belgian individual resident has a "right in rem", as well as to property held by certain legal persons subject to the tax on legal persons (IPM). The definition of a right in rem in real property located abroad includes "any type of foreign right in real property which, by virtue of the fact that its holder receives the fruits thereof, is similar to the right of ownership, emphyteusis, surface right or usufruct". The law applies with effect from 1 January 2021: income from property located abroad is, with respect to 2021 income, taxed in the same way as income from property located in Belgium. For individuals, the changes in the tax base for personal income tax apply from the 2022 tax year.
1. Spontaneous reporting obligations
In order to be able to attribute a CR to real estate located abroad under this new regime, the administration must be informed of the existence of this property.
Acquisition or alienation: taxpayers are obliged to declare spontaneously any acquisition or alienation of a right in rem in connection with real estate located abroad to the general administration of property documentation.
- Persons acquiring or disposing of real estate located abroad must make a voluntary declaration within 4 months of the acquisition or disposal.
- Persons who already own real estate on 31 December 2020 are required to make the declaration before 31 December 2021.
- Persons who own real estate and change from non-resident tax to personal tax or corporate tax or from corporate tax to corporate tax must file the spontaneous return within 30 days from the first day of the taxable period for which the change in status takes effect.
- Persons who have declared income from real estate for the tax year 2020 and/or 2021 will be contacted by the administration in order to collect from them the information necessary to establish the cadastral revenue of their property.
Other events giving rise to a spontaneous declaration: the spontaneous declaration obligation currently applicable in certain cases to the "owner, possessor, emphyteutic lessee, superficiary or usufructuary" of a property located in Belgium is extended to real estate located abroad to which cadastral revenue is attributed. The obligation to declare takes place within 30 days following one of the following events: (1) the occupation or rental of the property, (2) the completion of work on the modified built property, (3) the change in the mode of operation, the transformation or the improvement of the non-built property, and (4) the putting into use, the decommissioning or the modification of the equipment or machinery.
The declaration can be made from June via the "MyMinfin" service. A declaration form will be available by e-mail (email@example.com) or by letter addressed to the Administration des mesures et évaluations. Non-compliance with these spontaneous declaration obligations will be sanctioned by an administrative fine ranging from EUR 250 to EUR 3 000. The same amounts will apply to the declaration obligations concerning real estate located in Belgium.
2. Cadastral revenue (CR) determination rules
A circular of 1 March 2021 sets out the principles for determining the CR for real estate located abroad. The rules for determining the CR for buildings located abroad are in principle the same as those for buildings located in Belgium. In principle, the "net normal rental values" on 1 January 1975 (i.e. the "reference date") of the building itself or of a suitable reference plot are used.
- If no suitable reference parcel is available, the CR is calculated by applying the 5.3% rate to the normal market value of the parcel as at 1 January 1975.
- If no reference is available to determine the normal market value of the building (according to the above-mentioned procedure) on 1 January 1975, the "current normal market value" will be used as a reference, to which a "correction factor" to be determined each year will be applied (this correction factor will be published each year in a notice in the Moniteur belge). This factor amounts to 15.036 for the year 2020. Once this correction factor is applied, the value is obtained at the level of 1 January 1975. The cadastral revenue is then equal to 5.3% of the market value thus corrected.
- For example, if the "current normal market value" in 2020 is EUR 500,000, the corrected market value (as at 1 January 1975) is therefore equal to (500,000/15.036 =) EUR 33,253. The CR is therefore equal to (33,253 x 5.3% =) EUR 1,762.
The "normal" market value that is taken into consideration as a matter of principle is the "sale value that can be obtained under normal market conditions (excluding additional costs such as taxes)" (Circular No. 18). However, the market value to be declared for allocation to a property situated abroad is not necessarily the market value of the property at the time of the declaration.
- The taxpayer who owns a building abroad may not know its "current normal market value". If a "recent expert valuation" exists at the time of the declaration, it will serve as a basis on which the correction factor will then be applied, after which the result will be multiplied by 5.3% (see above). In the absence of a recent expert valuation, the "historical acquisition price" may be used. Where appropriate, the "value mentioned in a declaration of donation or inheritance" may be used as the historical acquisition price (Circular No. 17).
- The market value determined on the basis of the historical acquisition price must be corrected to its level on 1 January 1975, on the basis of a specific correspondence table provided by the administration.
- If the taxpayer has information on the rental value of the market value of the property in 1975, he may ask the administration to use this value instead of the current value adapted on the basis of the correction factor.
- The use of the historical acquisition price assumes that the property has not undergone any changes that could have an influence on the RC.
It is specified that the law no longer allows taxes due abroad on these same properties to be offset against the cadastral value calculated in Belgium and that the 40% surcharge remains due for built-up property. For undeveloped land, the cadastral revenue is 2 euros per hectare.
If the information provided is in contradiction with the information available to the administration, the administration may request additional information from the taxpayer, such as a description of the property or a copy of the acquisition deed. In case of disagreement with the RC retained by the administration, it is possible to file a complaint according to the rules applicable to RC, i.e. within two months from the notification of the cadastral revenue.
Part II - Private ownership of real estate abroad
Caution is required when acquiring real estate abroad, whether for use or for income. Indeed, this operation will irrevocably expose the non-resident purchaser to the local law of the location of the property. However, even in a European context, practices and legal frameworks may differ greatly.
1. At acquisition
On the one hand, it is necessary to focus on legal and particularly civil matters to ensure the right acquisition procedures in relation to the matrimonial and property situation of the purchasers.
On the other hand, in the absence of common administrative and legal provisions between countries, it is necessary to be particularly vigilant, especially if the provisions of the country in question are less protective than those known by the purchaser in his country, or on the contrary more restrictive.
This may be the case, for example, if the signature of a pre-contract is not required or if there is no mandatory reflection period or right of withdrawal or even a suspensive clause (for obtaining a loan, for example). In practice, the financing of a property purchase abroad is often more complex because of the more limited ability of banks to provide financing abroad, the time limits, the increased contribution sometimes required, the difficulties in obtaining guarantees, etc. It is also important to ensure the conformity of the construction and the correct transfer of ownership, but also that the consumer is protected by the mandatory guarantees.
Finally, the overall cost of the acquisition must be taken into account, which in reality is often significantly increased by various costs: whether these are acquisition costs, including taxes and remuneration of legal advisers or even guarantees, or the remuneration of various intermediaries, which may or may not be governed by law, the exchange rate in local currency, or the compulsory or optional insurance that the purchaser must take out.
For general information, you can refer to the website jachetemonlogement.eu proposed by Notaires of Europe.
2. During detention
The non-resident owner is likely to be subject to local taxation different from that which he may experience in his country of residence; this may sometimes lead to situations of double taxation, which are usually avoided through tax agreements or domestic legal provisions. Usually, four types of taxation are likely to exist:
- Tax on income or rental value of residential property;
- Tax on the transfer of property, whether in return for payment or free of charge;
- Local taxes of a real estate nature, not classified as wealth tax.
In addition, there may be specific (administrative) reporting obligations, particularly in the case of indirect ownership.
As local taxation can differ greatly from one country to another, it is advisable to seek advice. Our experts remain at your disposal to assist you in these international situations, which are by nature complex.
In this respect, you can also consult our articles concerning the ownership of a secondary residence in Spain or in Portugal.