You may be entitled to the ‘abattement’ when buying a house in Belgium. Our guide explains how homeowners in Belgium can qualify for a tax exemption.
Recently one of our readers contacted us regarding the so-called abattement or tax allowance that taxpayers can benefit from when buying a house in Brussels. He wanted to know what the legal conditions are to be able to benefit from it. Gregory Goossens, expat finance expert at tax advisors Taxpatria gives an overview on his most important findings.
Finding your way around the many tax codes, exemptions and deductions available can be a challenge for foreigners who need to file in Belgium, especially as most information is only available in French, Dutch or German. To assist you, Taxpatria provides expat-focused financial services, including an updated (unofficial) English version of the tax return.
1. What is the abattement?
When purchasing a house in Belgium, the buyer is normally required to pay a transfer tax on the purchase price due the passing of title to property from the seller to the buyer. In the Flemish Region, real estate can be registered at a flat rate of 7-10% (depending on the property), while the tax rate amounts to 12.5%. in the Brussels-Capital and in the Walloon Region.
However under certain conditions, in the Flemish and in the Brussels-Capital Region part of the purchase price is exempt from this transfer tax. Indeed, in Brussels the first €175,000 of a property’s price is exempt from tax (up from the previous level of just €60,000).
For obvious reasons we will hereafter only focus on the Brussels’ ‘abattement‘. The conditions for the Flemish tax allowance are similar, but not exactly the same. Feel free to email us if you would consider buying a dwelling in the Flemish Region and would require additional information in this matter.
Abattement on land purchases
A different allowance is applicable when buying building land. This applies to the first € 87,500 in Brussels.
Filing US taxes from Belgium
Despite the fact that every US citizen and green card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so. Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. You do! For more information and help filing your US tax returns from Belgium, contact Taxes for Expats and see our Guide to taxes for American expats.
2. What is the actual benefit?
If the first €175,000 of the purchase price will be exempt from the 12.5%. transfer tax, the actual benefit will be €21,875 (i.e. €60,000 x 12.5%.).
If you’re buying land, you’ll be able to save up to £10,937.50
3. Who can benefit from the abattement?
Only private individuals who buy property in the Brussels-Capital Region are entitled to benefit from the Brussels’ abattement. The nationality of the individual is not relevant. So it can be foreigners as well.
The dwelling can be bought by one or several owners, but it is always required that it are private individuals. Companies or legal entities cannot benefit from this tax allowance.
4. For what kind of property?
The abattement is granted for the purchase of real estate property used or intended for habitation. Evidently, for the Brussels’ tax allowance, it should be located in the Brussels-Capital Region. Mainly houses and apartments are envisaged that are immediately (or after the necessary repairs) ready to be used as a dwelling (e.g. an old warehouse that is to be transferred to a loft).
It is not required that the property exclusively serves a habitation purpose. The taxpayer who buys a shop on top of which a small apartment is located is also entitled to the abattement. The law explicitly excludes all unbuilt land (this is, for example, different for the Flemish Region).
The benefit is only applicable for the dwelling that serves as the taxpayers’ main residence. It is the location where he actually and mainly resides. The registration in the local population register is an important indication but is as such not sufficient. The actual use of the dwelling is the crucial element.
The taxpayer has a period of two years as from the date of the purchase agreement to locate his main residence there (i.e. register in the local population register). Under certain conditions, this period can be extended to three years. There is also a legal requirement regarding the length of the period for how long the main residence should remain located there. In principle, this is a five year period as from the registration in the local population register.
5. For which kind of transfers?
Normally only in case of the sale of a property.
The abattement is only granted in case of a sale of property (i.e. transfer of full ownership). As a result, the tax allowance is not applicable in case of transfer of naked property or usufruct, exchange of real estate, the acquisition of property as a result of the liquidation of a company and so on. The law conforms that only the sale of property will make the abattement applicable.
If the taxpayer is already the full owner of another residence that serves as his main dwelling, the abattement cannot be granted a second time. If the property is bought by several individuals, this condition should be met by each of them individually and jointly. In the situation where they would already be usufructuary or bare owner of a dwelling, the abattement can nevertheless still be granted.
Where a first residence is bought by several individuals, the benefit of the transfer tax allowance will be pro rata divided among them according to their part in the property (1/2 – 1/2; 1/3 – 2/3 or accordingly). It is not relevant what the legal relationship is between these individuals (e.g. married, legally living together, roommates, etc.)
6. Does VAT exclude the benefit of the abattement?
Yes, it does.
According to Belgian VAT legislation, the supply of immovable property (i.e. land as well as buildings) is in principle exempt from VAT. The transfer of real estate in Belgium is normally subject to the transfer tax.
When a registration tax is levied, the transfer cannot be subject simultaneously to VAT. The supply is thus VAT exempt, except for the supply of a building (or parts of it) that is considered to be ‘new’ under the terms of the Belgian VAT Code. The seller has the choice to subject such a supply to VAT (of 21%) and not to the transfer tax.
In the event that VAT is applicable on the sale of new property, no transfer tax will be levied and thus no exemption from it can be granted.
7. What is the moment of appreciation of this ownership?
Whether or not the taxpayer is already the owner of a dwelling where his main residence is located, is appreciated on the date of the deed of purchase before the notary or when the preliminary sale/purchase agreement is signed (the so-called compromis). If the taxpayer still owns another house at the date of the deed of purchase, normally the abattement cannot be granted.
In the Brussels-Capital Region, this problem can be solved with the so-called abattement a posteriori. With this procedure, you can claim the transfer tax allowance at a later date (i.e. at the moment in which the previous house was sold and the main residence is now located at the newly purchased property).
The taxpayer will have to address the Tax Administration himself by means of a motivated request to get a refund of the paid transfer tax and this within a two year period as from the registration of the purchase agreement.
8. No abattement when you already own a house abroad?
According to the Belgian Tax Administration, you are not allowed to have another house in Belgium or even abroad.
We just stated that if the taxpayer is already the full owner of another residence that serves as his main dwelling, the abattement cannot be granted a second time. The Belgian Tax Administration is of the opinion that this does not only apply to property in Belgium, but also to property located abroad.
As a result, many expatriates who already own a house in another country will lose the benefit of the abattement if they come to live in Belgium temporarily and not rent but decide to buy a house here. In our opinion, this administrative point of view does not correspond with what is laid out in Article 46bis BTTC. This article does not explicitly mention ‘in Belgium and abroad’ and thus cannot be considered to be a legal requirement.
The Belgian legal profession is of the same opinion as we are.
Being the owner of a house abroad should not result in losing the benefit of the abattement when purchasing a first dwelling in Belgium. The application of Article 46bis BTTC should only be looked at from a Belgian perspective.
9. How the abattement should be requested?
There is a difference between the request for an immediate abattement and the abattement a posteriori.
For the normal procedure (the immediate abattement ), the official deed of purchase agreement signed before the notary (or the preliminary sale agreement, if there is no intervention of a notary) should mention three elements:
(1) “None of the purchasers is, at the date of the purchase agreement, full owner of another property in whole or in part, intended to serve as their main residence; if the purchase is made by several people, they may not separately or jointly be the full owner of another property wholly or partly intended to serve as their main residence”;
(2) “The purchasers are committed to establish their main residence at the location of the purchased property within two (or three) years after the date of the deed of purchase”;
(3) “The purchasers are committed to keep their main residence at the location of the purchased property for a period of no less than five years as from the date on which the main residence was located there”.
For the Flemish version it is also required that the deed of purchase stipulates that ‘The purchasers request the application of Article 46bis of the Transfer Tax Code’. For the Brussels’ abattement this is not required.
Abattement a posteriori
In the event that the abattement is requested a posteriori, there are different conditions that should be fulfilled. The formal request for a refund should be send to the Tax Administration where the original deed was registered and should mention the following elements:
(1) The overview of the registration details of the real estate property for which the abattement is requested a posteriori;
(2) The cadastral details of all real estate property that prevented the purchasers from immediately requesting the abattement;
(3) The date on which the deed of sale (not purchase) of the property that initially prevented the purchasers from immediately requesting the abattement, was registered;
(4) “The purchasers are committed to establish their main residence at the location of the purchased property within two (or three) years after the date of the deed of purchase”;
(5) “The purchasers are committed to keep their main residence at the location of the purchased property for a period of no less than five years as from the date on which the main residence was located there”.
The request for a refund should be made within six months as from the date of registration of the original deed of purchase for which the transfer tax allowance is requested.
10. Is there a penalty if the abattement is requested unjustly?
Yes, the taxpayer can be fined.
If the Belgian Tax Administration would investigate the taxpayers’ situation and would discover that the abattement was requested wrongfully (e.g. already being the full owner of another house), an additional transfer tax (according to the tax exemption granted under the abattement) will be levied. This will normally amount to the €7,500 initially exempted.
Furthermore, the same amount will be due by way of a penalty. So, if the tax benefit of the abattement would be €7,500, an additional €7,500 will be due as a penalty. If you have a good reason for it, you can always request the Tax Administration to cancel the penalty. If a purchase is made by several individuals and one of them made a false statement, the other owners will jointly be held responsible for the transfer tax and the penalty due. It is therefore advisable to check each other’s intentions.
In the event that the taxpayer would, for example, not succeed in establishing his main residence at the location of the newly bought property, such failure could be – in some situations – qualified as force majeure. In that case only the transfer tax, but not the penalty will be levied.
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Gregory Goossens is an attorney at Taxpatria, an independent service provider for the international community working and living in Belgium. Taxpatria is an alternative to the classic Big Four companies, and its aim is to establish a personal relationship with each client. On their website you can find a list of possible business-related expenses. Feel free to contact them for any related questions you have or see their example of a Belgian tax return in English.Contact Gregory