New developments in vat legislation

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EY Belgium Tax
20 Dec 2021
Subject Tax alert
Categories Indirect Tax
Jurisdictions Belgium

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The Belgian Parliament will adopt new legislation regarding various provisions on Value-Added Tax (VAT). The new legislation includes changes to the VAT exemption for certain non-profit organizations, the supply of furnished accommodation, the deduction of VAT based on the actual use method, the abolition of a flat-rate VAT scheme and VAT refunds for companies based outside the EU.

In addition, the Belgian Minister of Finance, Vincent Van Peteghem, has issued a new policy note on various matters, including the reduced VAT rate of 6% on demolition and reconstruction of private dwellings, mandatory e-invoicing of B2B transactions, the VAT exemptions for furnished accommodation as well as for medical services and an expected update on the circular letter regarding the concept of a fixed establishment.

The key highlights of the new Belgian VAT legislation and policy note are summarized below. 

New legislation regarding various provisions on VAT

The new legislation includes the following topics:

  • VAT exemption: Furnished accommodations of hotels, motels and other establishments providing paid accommodation used to be excluded by the VAT exemption of Article 44, §3, 2° of the VAT Code, which foresees in an exemption for the leasing and letting of immovable property. However, with the new legislation, a quantitative criteria has been introduced which leads to the fact that VAT is only applicable on the supply of furnished accommodation by hotels, motels and other establishments having a similar function for a period of less than three months. Consequently, the long-term letting (i.e. more than three months) should in principle be VAT exempt as from 1 July 2022.
  • VAT deduction: Mixed taxable persons do not have a full right of deduction and need to determine their right to deduct VAT on the basis of the general pro rata figure or on the basis of actual use. Whereas in the past a permit had to be granted by the VAT authorities to apply for the actual use method, the new legislation facilitates the process to deduct VAT by amending article 46, §2 of the Belgian VAT Code. As from 2023 a prior notification will be sufficient to deduct the input VAT in accordance with the actual use method. The prior notification has to be submitted electronically at predetermined dates.
  • VAT refund: Whereas the procedure to refund Belgian VAT is already electronic for EU based companies, companies based outside the EU still need to reclaim the Belgian VAT on paper. The new legislation anticipates in the digitalization of the VAT refund arrangements for taxable persons established outside the EU. This should make it possible to handle applications more efficiently, which will be necessary in view of the expected significant increase in applications due to the Brexit.
  • Other: The new legislation also provides for certain other amendments. In order to implement Directive 2006/112/EC correctly, article 44, §2, 11° of the VAT Code has been amended. The application of article 44, §2, 11° of the VAT Code, which exempts certain non-profit organizations from VAT, is now subject to the condition that the exemption cannot lead to distortion of competition.

Policy note

Additionally, a new policy note has been issued by the Belgian Minister of Finance on various tax topics, including among others the following VAT matters:

  • Following the floods in Belgium during the past summer, the Minister of Finance, emphasizes that the reduced VAT rate of 6% on demolition and reconstruction of private dwellings will also be applicable on the natural disaster due to ministerial tolerances. This measure will play an important role in the reconstruction of the affected areas following the natural disaster.
  • Relating to the VAT gap, measures regarding mandatory e-invoicing are envisaged for B2B transactions.
  • The amended VAT exemption for medical services will enter into force as from 1 January 2022. Whereas the personal scope is being broadened, the material scope is being narrowed. The VAT exemption for medical services will be applicable on services of non-regulated medical professions, but will be limited to services relating to interventions and treatments with a therapeutic aim.
  • An updated circular letter concerning the concept of a fixed establishment, adapted to the case law of the European Court of Justice, is expected in the first half of 2022.
  • In order to avoid unfair competition in the hotel industry, suppliers of furnished accommodation subject to VAT are excluded from the scope of the VAT exemption for small enterprises.
  • The procedure regarding the non-submission of VAT returns will be automated and incentives would be introduced to encourage taxpayers to comply with the VAT obligations.
  • The VAT certificate to apply the 6% VAT rate on renovation works will be abolished as from 1 January 2022 and replaced by a statement on the invoice.

For additional information with respect to this VAT alert, please reach out to the below contacts.