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Optional VAT regime on immovable lease – New Royal Decree establishing the modalities of the option

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28 November 2019

As from 1 January 2019, taxpayers may opt to charge VAT on the letting of immovable property for professional use. On 25 November, the new rules fixing the timing and modalities of the “option” have been published. 
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As from 1 January 2019, taxpayers may opt to charge VAT on the letting of immovable property for professional use (the Optional VAT Scheme). This new Optional VAT Scheme enables the lessor to deduct any input VAT. It has been established to solve problems related to VAT leakage on the letting of immovable properties.

The Optional VAT Scheme is subject to strict conditions laid down in article 44(3)(2)(d) of the VAT Code. One of the conditions of the Optional VAT Scheme is that both the lessor and lessee must, together, opt to subject the lease to VAT.

On 25 November, a new Royal Decree dated 7 November 2019 has been published fixing the timing and modalities of such option via the insertion of a new article 7quater into the Royal Decree n°10.

According to the new article 7quater of the Royal Decree n°10:

  1. Such option must be formalised through a declaration dated and signed by both parties at the latest upon the entry into effect of the lease agreement between the parties.
  2. The declaration must contain the following information:

    a) The name, address and VAT identification numbers of the parties
    b) The identification of the building or the part thereof (including the land) that is subject to VAT
    c) The expression of willingness of the parties to subject the lease to VAT
    d) The date upon which such election takes effect

  3. The inclusion of the above information within the lease agreement (pro fisco clause) constitutes a valid declaration.
  4. On the tacit renewal of a lease agreement subject to VAT, no additional declaration is required.

It is essential that lessors and lessees who wish to benefit from the new Optional VAT Scheme comply with the abovementioned requirements.

The abovementioned requirements enter into effect retroactively as from 1 January 2019. However, parties who entered into a lease agreement already into effect and are in the legal conditions to do this, can regularise their situation. They must do so by no later than 29 February 2020, either via an “ad hoc” declaration or via an amendment to the lease agreement.