The Belgian VAT authorities have always considered that VAT was due on the compensation granted by a landlord to a tenant when the tenant carried out ‘fit out’ work (renovation, refurbishment, improvement, and so on) in the rented building. The economic goal was to assess VAT on the 'fit out' work that (depending on the VAT treatment of the rental agreement) was not always deductible in the hands of the landlord.
Historically, the Belgian VAT authorities applied the so-called ‘commissionaire theory’, which basically meant that the tenant was presumed to have performed immovable work for the landlord in exchange for the compensation received (for example, cash, a free rental period, or temporary reduced rent).
In a judgment of 15 March 2013, the Belgian Supreme Court restricted the application of the ’commissionaire theory’ to the cases where the tenant was genuinely acting as an intermediary ordering construction/renovation work on behalf of the property owner.
A new administrative Circular Letter abandons this theory and distinguishes two scenarios: either the tenant bears the entire cost of the work or the landlord reimburses the cost of the work in one form or another. In the first scenario, no VAT becomes due considering that there is no taxable transaction. In the second scenario, if there is a ‘direct link’ between the works performed by the tenant and the compensation granted by the landlord, a VAT taxable transaction occurs. The level and timing of the compensation is irrelevant.
As before, contracting parties, especially if the rental agreement itself is not subject to VAT, have to be vigilant for adverse VAT consequences if the tenant receives compensation that can be linked to fit out work performed.
Mazen Al Haffar