Taxation of real estate held abroad by Belgian resident individuals
09 September 2021
In this update Luc Lamy, Partner at Tax Consult in Belgium and Chair of Alliott Global Alliance's Global Mobility Services Group summarises the tax changes in store for those owning property abroad.
A. Current regime
Under the current system, the rental value of your property abroad - whether or not it is rented out - is included in your Belgian return. Provided that Belgium has concluded a double taxation treaty with the country where the property is located, the rental value of the property is exempt from Belgian tax. However, this is considered when determining the tax rate on your other income (commonly known as "exemption-with-progression").
B. New regime
B.1. Allocation of foreign cadastral income:
From the 2021 income year onwards - and to align the tax regime of foreign properties with that of Belgian properties - the "cadastral income" of foreign properties will be considered (even if, in fine, this income will also be exempt subject to progressivity).
The tax authorities will have to determine the cadastral income of foreign properties held by Belgian taxpayers, with no proactive approach on the part of taxpayers required under law.
B.2. Who is it intended for?
The new regime applies to individuals who are Belgian tax residents and who own property abroad.
The law provides that these individuals be taxed on the income from the said property. However, the word "income" is misleading, insofar as there will still be taxation even if the property doesn’t generate any income (e.g., a secondary residence not rented out).
B.3. What are the declarative obligations?
B.3.1. Declaration form
Any individual who owns a foreign property is obliged to declare this to the Administration générale de la documentation patrimoniale (General Administration of Heritage Documentation). To this end, the Administration Mesures et Evaluations (Measurement and Assessment Administration) has provided a specific declaration form enabling the Belgian tax authorities to establish the cadastral income of the property located abroad.
B.3.2. Deadlines for submitting the form
This form must be completed within a period of time that varies depending on the date of acquisition of the property and the nature of the taxpayer.
Depending on the date of acquisition of your foreign property, there are two possibilities:
- You acquired your property before 1 January 2021
In this case, two scenarios are possible:
- You have already declared the existence of foreign properties in previous Personal income tax returns (IPP)
In this case, you will receive the form on or after 15 June. If you have activated the eBox, you will receive the digital form there. Otherwise, you will receive it by post. You then have until 31 December 2021 to declare your foreign properties.
- You are declaring foreign properties for the first time in the IPP return for the 2020 calendar year.
Here, you will receive the form around September/October. If you have activated the eBox, you will receive the digital form there. Otherwise, you will receive it by post. You then have until 31 December 2021 to declare your foreign properties.
- You acquired your property after 1 January 2021
You must then voluntarily declare this property within four months of acquisition.
However, a transitional period is foreseen between 1 January 2021 and 25 February 2021, the date of publication of the law. Thus, if you have acquired a property abroad on 1 January 2021, you have 4 months from 25 February 2021 to get your affairs in order.
If you change your status from non-resident to Belgian tax resident, you will be required to voluntarily declare your foreign property to the General Administration of Heritage Documentation within thirty days of your move to Belgium. This is a very short period of time, so you should pay particular attention to it.
B.3.3. Penalties for non-declaration or late declaration
It should be noted that the law provides for an administrative penalty of EUR 250 to 3,000 in the event of failure to make a declaration.
I. Establishing the cadastral income of your property abroad
A. Methods for determining cadastral income
The tax authorities are likely to apply three methods to determine the cadastral income of your foreign property.
A.1. First method
The first method involves going back in time to find the gross annual rental income of your property in 1975 (see box 8 of the form).
A.2. Second method
If you don’t know the rental value of the property in 1975, the second method is based on the market value of the property in 1975 (see box 8 of the form).
A.3. Third method
If neither of these methods can be applied to your property, the tax authorities will use the third method. This method is based on the current market value of the property, to which a correction factor is applied to bring this value back to the 1975 value.
This last method is new and is also the method most likely to be applied to your foreign property, given the practical difficulties involved in demonstrating the market or rental value of the property in 1975.
In practice, the tax authorities will rely upon the most recent market value of the property that can be determined based on supporting documents (e.g., the purchase price or the report of local experts or the inheritance declaration). This market value will then be corrected by two factors to arrive at a cadastral income equivalent to that which would be attributed to a comparable Belgian property.
The tax authorities allow you to directly declare the current estimated market value of your property (see box 4 of the form). If you do not know the current market value, the tax authorities will ask you to provide a series of relevant items to enable them to do so (see boxes 5 to 7).
B. Timeframe for determining cadastral income
Establishment of the cadastral income of properties acquired before 2021 will take some time. However, the Belgian tax authorities expects that this will be notified to Belgian taxpayers by March 2022 and should then be included in the return for the 2021 income year.
C. Objecting to one's cadastral income
Within two months of being notified of your cadastral income, you have the possibility to lodge an objection against the latter by submitting a new cadastral income amount.
II. Determining the taxable base of your foreign property
Once the cadastral income has been determined, the taxable base - which is exempt subject to progressivity - will be determined in the same way as for Belgian property, i.e., it will depend on the purpose of the building (rented or not) and the type of rental (private or professional).
- Foreign property not rented or rented for private purposes
The taxable base will be equal to the indexed cadastral income of the building, increased by 40%. Foreign taxes will not be deductible.
- Foreign property rented for business purposes
The taxable amount will be equal to the actual rental income less a flat rate for expenses of 40% which cannot exceed 2/3 of the revalued cadastral income. Incidentally, this ceiling has not previously been applied, given that no cadastral income was attributed to foreign property. Please note that foreign taxes are non-deductible.
III. Practical case
You own a property in the south of France where you stay during the holidays, so it is a second residence that is not rented out.
You are unaware of the market or rental value of the property in 1975. However, you have managed to determine the current market value of your property based on a report by local experts, with this amounting to EUR 400,000.
Based on the above formula, the cadastral income of your property will be EUR 1,412. As Belgium has concluded a double taxation treaty with France, this 'income' will be exempt, subject to progressive taxation. Since your property is not rented out, the taxable base - exempt subject to progressive assessment - will be EUR 1,976.80 (EUR 1,412 plus 40%).
(Read more about Alliott Global Alliance's Global Mobility team)
About Tax Consult:
Since 1981, at Tax Consult, we have acquired and developed a wide range of expertise in various sectors, including accounting, Belgian and international taxation as well as the international mobility of executives.
Our practice will help you make timely decisions by providing you with concrete, flexible and effective solutions.
Tax Consult subsidiaries:
HR TAX & International Mobility: provides expertise in individual taxation for executives and business leaders in a national and international context.
TC Accountancy & Advisory: provides accounting and tax expertise to individuals and businesses in a national and international context.