New tax regime for foreign homes
After two European convictions, Belgium has adapted its tax system for foreign real estate. You have until the end of 2021 to determine the value of the income of the foreign real estate via a special declaration. After that, you may have to pay tax on it.
Belgium was condemned by the European Court of Justice in 2020 for taxing foreign real estate higher than domestic ones. This has to do in particular with the valuation of the income of this real estate.
For Belgian real estate, the annual income is estimated on the basis of the 1975 standards. The actual value of the real estate does have an influence, but it is certainly not decisive. If you construct a new building today, the taxable income is determined on the basis of the rental value of that building... in 1975 (although followed by a substantial index adjustment).
For foreign real estate, the actual rent or actual rental value is considered. In practice, this is considerably higher.
After these convictions, Belgium was therefore obliged to treat foreign and Belgian real estate in the same way.
As from 2021
As from 2021, the foreign real estate income is therefore also determined on the basis of the standards that apply to Belgian real estate. In other words, foreign cadastral income. This only applies to Belgian residents and persons subject to RPB (such as not for profit organizations) with a right in rem to a foreign property.
These rights in rem are ownership, leasehold, building and usufruct.
So no foreign cadastral income is set for real estate belonging companies since they are not taxed on it anyway.
Foreign cadastral income
The rules to determine the cadastral income are changing and also apply to foreign real estate. Cadastral income will now be determined in 3 consecutive steps.
Step 1: the tax authorities look at the "normal net rental value" on 1 January 1975 of the building itself or of an "appropriate reference parcel". If that doesn't work, we go to step 2.
Step 2: the tax authorities apply 5.3% to the normal sales value of the lot on 1 January 1975. If that fails (and this is new), we go to step 3.
Step 3: the tax authorities use the current normal sales value divided by an annual "correction factor" and multiplied by 5.3%. For the year 2020, this correction factor is 15.036 and for 2021: 15.018.
So there are two novelties: first, the way in which the taxable base of foreign real estate is determined, and second, the introduction of the correction factor, which is also new for Belgian real estate.
From now on you are also obliged to declare, within 4 months, any "acquisition" or "disposal" of a right in rem on foreign real estate.
Anyone who owned a foreign property on 31/12/2020 can (probably) file a declaration via MyMinfin as from June.
If you are building or renovating a house abroad, then, just as for Belgian buildings, there is an declaration obligation (of the commissioning and the end of the work). You only have 30 days for this declaration.
There are severe sanctions when not filing this declaration: an administrative fine of minimum 250€ and maximum of 3.000€. Not only is this fine new for foreign real estate, but it is also an important increase in the fine for those who do not declare the new construction or renovation of Belgian real estate.
But is Belgium allowed to levy taxes?
You rightly wonder whether income from real estate abroad is taxable in Belgium at all. The answer to that is: in most cases not. After all, the double tax treaties that Belgium has concluded to avoid double taxation always provide that the taxation of real estate accrues to the country where the real estate is located.
Nevertheless, this new arrangement is important. Although Belgium may not levy taxes on foreign real estate income, it may take this into account when determining the tax rate on your income. As a result of the increase in your foreign income, you will in practice pay more taxes on your total income.
These novelties come into effect as from this year. Anyone who declared real estate in previous years will receive a letter from the tax administration with further explanation in a few months. The first time you must declare it is in the 2022 tax return.