The new VAT regime for demolition and reconstruction: latest updates

Considering the various extensions and specifications that have taken place over the past months, it seems useful to revisit and outline the main principles of this new regime.

Scope of application and recent extension

The new permanent regime, which applies to the entire territory of Belgium, was introduced by the Program Law of 22 December 2023 (Dutch/French) and extended by the Law of 12 May 2024 on various tax provisions (Dutch/French). For a brief introduction to this new regime, check out our earlier newsflash.

In summary, the new regime applies to three specific scenarios:

1. the demolition and reconstruction of a private dwelling by a builder (individual), where certain 'social' conditions must be met for five years. These conditions are: (i) the property must have a maximum total living area of 200 m²; (ii) it must serve as the sole and main residence of the builder; and (iii) it must be registered as the builder's domicile.
2. the demolition and reconstruction of a dwelling intended for a long-term (i.e. at least 15 years) social rental by the builder (individual or legal person) to a social rental agency or recognized housing association, or whereby the dwelling is rented out under a 'management mandate' granted by the builder to these institutions. Since 1 June 2024, this provision is extended to direct rental to - or rental via a management mandate granted to - other public or private legal entities with a social purpose.
3. since 1 June 2024, the demolition and reconstruction of a dwelling, with a total living area not exceeding 200 m², that is rented out long-term (i.e. at least 15 years) and directly by the builder (individual or legal person) to one or more consecutive private individuals who establish their domicile there without delay. It is important to note that this arrangement does not apply to the transfer or sale of the designated real estate. Builders can apply the 6% VAT rate provided certain formalities are fulfilled, including the submission of an electronic declaration prior to the works. This declaration must confirm that the building being demolished and rebuilt is intended to be rented out as a residence to an individual who will immediately establish their domicile there. Therefore, the extension does not apply if the building is intended for sale and only rented out later if no buyer is found. Moreover, in case one of the conditions is no longer met, the builder must file a new form with the tax administration and repay (part of) the rate advantage.

One of the biggest changes, compared to the old regime, is the abolition of the reduced VAT rate of 6% for the sale of dwellings that have been rebuilt after demolition. This means that project developers must apply the standard rate of 21%, which significantly increases costs for buyers and reduces the attractiveness of such projects (see however the transitional regime below).

Extended transitional arrangements

In addition to the aforementioned three permanent regimes, there are two transitional arrangements in place, both relating to the abolition of the old regime.

These measures ensure that projects initiated before 1 January 2024 can benefit from the favourable VAT rate and conditions that were in effect under the old regime. They can be summarized as follows:

• The first transitional regime relates to the old temporary regime which applied to the entire territory of Belgium, and concerns the delivery of rebuilt dwellings:

(i) with a total living area not exceeding 200 m2, to a private individual using it as his sole and own home; or

(ii) without surface restriction, to a buyer who designates the property for social rental to a social housing agency or recognized housing association.

Taxpayers can make use of this transitional measure provided that the environmental permit for the reconstruction of the dwelling was submitted before 1 July 2023.

• The second transitional regime pertains to the old permanent regime that had been in effect in 32 specific city areas since 2007 (without social conditions). Under this regime, the 6%-rate applies to demolition and reconstruction works (excluding subsequent sales) regarding private dwellings or dwellings intended for rental, carried out by builders with the aim of providing (private) housing.

To apply this scheme, the environmental permit for the reconstruction of the dwelling needed to be applied for before 1 January 2024.

Initially, these transitional measures were set to expire at the end of 2024. However, due to delays caused by prolonged rainfall since October 2023, which affected construction timelines, a 6-month extension was implemented. This extension aims to prevent financial burdens on buyers and builders. Consequently, pursuant to the Law of 10 December 2024 (Dutch/French), these provisions can now be applied to VAT due no later than 30 June 2025, instead of 31 December 2024.

Finally, it should be noted that an appeal is pending before the Constitutional Court, initiated by the Professional Association of the Real Estate Sector (UPSI-BVS) and others. This appeal seeks to annul the temporary limitations of the first transitional regime (supra), aiming to make the (old) temporary regime for the delivery of rebuilt dwellings de facto permanent.

In case of questions, please do not hesitate to reach out to your regular contact within the Fieldfisher Belgium tax team. 

Authors: Geoffroy Galéa & Stefanie Hardy