Preliminary

The tax levied when owning real estate in Belgium is the so-called «immovable withholding tax» (Article 251 to 260ter and 471 to 504 of the Belgian Income Tax Code of 1992 – BITC92). Although called «withholding» tax, the tax is levied annually by assessment.

The tax is computed as a percentage of the «cadastral income» (hereafter ‘CI’), that is in principle estimated every ten years (Article 487 BITC92), but has not been adjusted since 1975. Instead, the CI is indexed every year (Article 518 BITC92)(i.e. on the basis of the Consumer Price Index - CPI).

The CI is the deemed average annual net value of the immovable property in case the taxpayer would rent it out under normal market conditions and after deduction of costs for maintenance and repairs.

For the Flemish Region, the rate is 2.50 per cent of the CI and 1.95 per cent (assessment year 2009) on material and plant (Article 255 BITC92). For the Brussels-Capital Region and the Walloon Region the rate is 1.25 per cent of the CI (Article 255 BITC92).

Local surcharges increase the effective rate to between 18 per cent and 50 per cent or more, depending on the community and the province where the property is located (Article 464, 1° BITC92). However, under certain conditions, reductions and exemptions may apply (Article 257 to 260ter BITC92).

Debtor

The «immovable withholding tax» (hereafter ‘IWT’) is imposed on deemed income from real estate located in Belgium and is due by the person being the owner, holder, usufructuary or lessee of the property on the 1st of January of a given assessment year. As the double tax treaties generally stipulate that real estate is taxable where it is located, the Belgian IWT is also due by non-resident taxpayers (who live in Belgium or who live abroad).

We hereafter analyze several scenarios to determine by who the IWT is due.

(i)  the building is rented out and the rental agreement stipulates that the IWT is chargeable to the tenant

According to the administrative commentary on Article 251 BITC92, a tenant can never be the legal debtor of the IWT (Com. IB., nr. 251/3). A tenant can never be qualified as the «holder» or «possessor» of real estate in the meaning of this article. The tenant temporarily uses the property owned by someone else and he is only allowed to use that good under the terms and conditions of the rental contract.

The owner, and not the tenant, is the legal debtor of the IWT.

However, it is possible that the rental agreement stipulates that the tenant is required to pay the annual IWT. In that case it is not a legal requirement, but a term of the rental contract and a payment condition of the rental price. The owner remains the legal debtor of the IWT and any payment made in this respect by the tenant to the owner will be qualified as an immovable income for the latter (Article 7 BITC92).

(ii)  shared ownership real property

The IWT assessment is in principle sent out to the owner mentioned first in the registers of the Belgian Office of Land Registry.

If a building is owned by several owners, at their request, the IWT due can be split up amongst them in proportion to their share. The IWT due by each co-owner depends on his share of the property. If one co-owner paid the total IWT due for the building, he will get a relief as soon as he requested a split-up of the IWT assessment. Every co-owner has the legal right to appeal against the other co-owner who failed to pay his part of the IWT.

(iii)  the building is leased out and the lease contract stipulates that the IWT is chargeable to the lessee

A lease is a contract between the owner of real estate (lessor) and a tenant (lessee). It is a contract to transfer the lessor’s rights to exclusive possession and use of the property to the tenant for a specified period of time. The lease establishes the length of time the contract is to run and the amount the lessee is to pay for the use of the property.

In effect, the lease agreement combines two contracts. It is a conveyance of an interest in the real estate and a contract to pay rent and assume other obligations. The lessor grants the lessee the right to occupy the real estate and use it for purposes stated in the lease. In return, the owner receives payment for use of the premises and retains a reversionary right to possession/assign the option to buy after the lease term expires.

As a result, the lessee will remain to be owner until the lease term expires and thus will be the legal debtor of the IWT even if the lease contract explicitly stipulates that the IWT is chargeable to the lessee (similar as for the tenant).

(iv)  the building is sold during the taxable year

As Article 255 BITC92 stipulates, it is always the situation on the 1^st of January of a given assessment year on which the IWT due is assessed and the taxpayer liable to pay is determined. The owner on the 1^st of January will normally pay the total IWT for that income year.

Real estate sales contracts normally provide that the IWT is due by the new owner as from the moment he moves in the newly purchased building. If the new owner moves in in the course of the taxable year, the IWT already paid by the previous owner for that year is then taken into account at the finalization of the contract before the notary.

In general, any settlement in this respect depends on what the seller and the buyer agree to.

(v)  when the real estate sale contract is dissolved

Under the terms and conditions of the contract, the seller and/or the buyer might pursue to dissolve the sale agreement. In that case the transfer of the real estate is deemed never to have taken place. It would be logical to say that in that situation the former owner remains the legal debtor of the IWT. However, the opposite is true.

The Belgian Tax Administration can only base itself on the information it has at its disposal. As all sale contracts are required to register, this registration is the basis to determine who is the owner and thus the legal debtor of the IWT. The tax authorities are not required to investigate whether these documents are final or not.

If the new owner obtained the dissolution of the contract and was previously required to pay the IWT, he will not be able to get a refund as a result of the dissolution of the contract. The Court of Appeal of Antwerp recently confirmed this in a decision of 1 December 2009 (1998/FR/466, Fiscoloog 2010, Nr. 1189, p. 13).

However, the new owner always has the right to address the former owner (who returns to be the owner after the dissolution) is liable to restitute all damages and unjustified expenses to the buyer resulting from dissolving the sale of the real estate.

(vi)  the tenant benefits from certain IWT reductions

There are several situations in which the legal debtor can benefit from a reduction of the IWT and this as a consequence of a disability of the tenant, a disability of his partner or one of his family members, the «modest» character of the dwelling (i.e. the unindexed CI is smaller than EUR 745) and so on (Article 257 BITC92).

As some reductions are granted automatically, some of them need to be requested at the authorized department of the Belgian Tax Administration. There are also differences depending on the region in which the building is located (e.g. Flemish, Brussels-Capital or Walloon). Each reduction of IWT must be asked by means of a protest letter against the IWT assessment the taxpayer receives. The period of filing such a claim expires each year at the earliest on 31 March, but in principle after 3 months following the reception of the IWT assessment note.

As the owner is the legal debtor of the IWT, it would be a normal consequence that the latter (and not the tenant) is entitled to the aforementioned IWT reductions. However, Article 259 BITC92 provides that these reductions can be deducted from the rental price. It has always been the goal of the Belgian legislator to let the resident enjoy the different IWT reductions and not, as such, the legal owner.

If the tenant is indeed eligible for a specific IWT reduction, the reduction will be granted to the owner, but the latter can then deduct this from the rental price. The tenant will be notified of this by the authorized department of the Belgian Tax Administration. Private tenants are required to complete and return a special statement (Flemish Region). If the IWT reduction for the tenant is not mentioned on the tax assessment, the owner is required to file a protest letter to the tax authorities.