Article by Mr Lieven Peeters and Mrs Valérie Bidoul
The definition of the concept "new building" for VAT purposes has changed. This new definition entered into force with retroactive effect until on 26 April 2002. The legislator thus tried to avoid the last-minute sales with VAT on "new buildings" applied under the old definition.
The old regime
In order to have VAT applied (instead of registration tax) to the transfer of a building or the granting of a right in rem ("real rights") on a building, certain conditions had to be met.
Amongst other conditions, the VAT Code provided that the transfer of the building had to take place at the latest on 31 December of the year following the year during which the first enrolment of the building for real estate withholding tax purposes took place. In principle, real estate withholding tax was assessed for the first time in the year following the year during which the building was used or occupied for the first time. As a result, buildings were considered to be "new" until the end of the second year following the year during which the building was used or occupied for the first time.
Some buildings, however, were exempt, temporarily in some cases, from real estate withholding tax. These buildings remained "new" for VAT purposes and could be transferred without time limitations with VAT being applied. For example, this was the case for buildings designated for a non-profit use such as education, or for buildings used as a hospital or a home for the elderly.
It was to bring an end to these exemptions that the legislator decided to modify the concept of a "new building" for VAT purposes.
The new definition
As of 26 April 2002, a building is considered to be "new" until 31 December of the second year following the year the building is used or occupied for the first time.
The legislator has thus abandoned the criterion of enrolment for real estate withholding tax purposes and has favoured the criterion of first use or occupation.
Result : nothing changes for the transfer of buildings that, in accordance with the general rule for real estate withholding tax, would have been enrolled for real estate withholding tax purposes during the year following the year the building is used or occupied for the first time. On the other hand, the VAT regime for buildings benefiting from an exemption (temporary or permanent) from real estate withholding tax has been brought in line with the regime for other buildings.
The concept "building"
It should be noted that the legislator took advantage of the occasion to (finally) give a definition of the concept of a "building" as used in the VAT Code. As a rule of thumb, the transfer of an asset that is immovable by nature is always exempt from VAT and subject to registration tax, except for the transfer of a new "building", which can be subject to VAT.
In the absence of a definition in the VAT Code, the VAT Administration stated that the concept of a "building" covered any construction, immovable by nature, to which an income could be attributed as built immovable asset for real estate withholding tax purposes. The VAT Administration considered that this definition could also include certain types of industrial equipment.
This wide interpretation of the concept "building" has now been abandoned. The new definition, which scrupulously reiterates the text of Article 3 of the sixth European VAT Directive, provides that "any construction incorporated in the ground" is to be considered a building.
The new legislation entered into force retroactively as of 26 April 2002, except where VAT paid upwards could be deducted on the construction or on the acquisition of the building before that date, in which case the date of entry into force is the date of publication of the Act in the Belgian State Gazette, i.e. 2 August 2002.
Some buildings which would still be new if the rules of the old regime were to be applied are no longer new as of 26 April 2002. As of that date, the transfer of these buildings will be subject to registration tax, and it will not be possible to recover VAT paid upwards.
This could lead to some unpleasant surprises for the owners of certain buildings…
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.