FOR BUYERS WITH RESIDENCY IN BELGIUM: Belgium has chosen to export its way of taxing through a k.i. to foreign countries in order to avoid being obliged to tax the real rental income of those residences located abroad.
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KI foreign property
From this year, Belgians with property abroad will have to submit the cadastral income from it on their tax note. That amount has been granted to them in recent months. It has proved to be a convenient way to avoid having to tax actual rental income in our country.
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Our country has been repeatedly taken to task by Europe in the past for tax discrimination against second residences held abroad by Belgians. These were, until this year, taxed in a different way from second stays in the country. The tax for the latter consists of the widely known cadastral income - k.i. for short - while foreign second residences were taxed on their possible rental value.
To eliminate this disparity, this year the Belgian tax authorities granted KI to all those foreign second residences. In total, it did so for more than 150,000 properties. Last year, their owners had to file a declaration of these by declaring the address, year of purchase, purchase price or current sales value, among other things. On this basis, the FPS Finance calculated the new k.i. to be filled in on the tax return from this year.
Belgium remains an outlier
However, there is little transparency on how these new k.i.'s were arrived at. Using the current sales value or the value and date when someone bought a property, the FPS Finance calculated the property's sales value in 1975. "Before that, it used a coefficient, but there is no clarity on how that was determined and why that is the right one to calculate back to that 1975 base year value," says Michel Maus, professor of tax law at VUB.
It did turn out to be a convenient way to solve the problem of European condemnation for tax discrimination, the tax lawyer said. "Belgium chose to export its way of taxing via a k.i. to foreign countries in order to avoid being obliged to tax the real rental income of those residences located abroad," he argues. Most European countries do tax these. Our country is an outlier with the k.i.
That was immediately the big relief for those owners, according to Katelijne D'Hauwers, tax expert and director at United Owners, the interest association of property owners in our country. "After the condemnation by Europe, we were particularly worried that in order to get rid of this discrimination, our country would introduce a tax on actual rental income. So our Our relief was great that a k.i. on foreign residences was coming. And so far, all our members are very happy with the amount granted on it," she says.
Foreign k.i. always higher
But it seems that new inequalities have been created with this new rule. First, there are cases where two identical foreign residences were awarded different k.i. "It seems that the FPS Finance focused mainly on the purchase value and much less on other things that determine the value of a property, such as its location or rental potential," says Carl Vorsselmans, real estate agent at New Construction in Spain.
As an example, he gives a flat previously purchased for a lower price that has a lower k.i. than the exact same flat purchased at a later date for a higher price. "It also raises questions about resale. What if you sell a foreign property at a higher price, do those new owners get a higher k.i.?" he says.
There are also differences between the k.i. of Belgian and foreign properties. "I have put to the test several times and compared the k.i. of a Belgian property with that of a property located abroad with the same sales value and the k.i. of the foreign property is invariably higher. A French or Spanish flat always has a higher k.i. than a similar Belgian flat," explains Michel Maus.
Owners who do not agree with this new k.i. may lodge an objection. They have two months after receiving the k.i. to do so. "I definitely advise people to do that if they want to. They would do well to do so as reasoned as possible with as many reference points as possible showing why they do not agree with it," says Carl Vorsselmans.
After such an objection, however, a legal vacuum beckons, warns Michel Maus. "If you file an objection, you enter into a dialogue with the tax authorities with the intention of reaching an agreement. If that fails, an assessor must be appointed before the Justice of the Peace to settle the matter, but that is all legislation that applies to disputes over Belgian property. It does not apply to stays abroad. So far, there is no new framework for that," he explains.
The k.i. for foreign residences serves to calculate people's overall tax rate and, in most cases, will have a minimal impact on the total taxes owed. "In most cases, we are talking about a few tens of euros per year," says Michel Maus.
However, tax is always due on that property in the countries where those second residences are located. "Belgium has a treaty with most other countries which avoids double taxation," argues the tax lawyer.
Source: De Trends - Jef Poortmans, Trends editor