Belgium: Renovation vs. Construction - VAT rate

It is not always easy to determine whether the work done in a private dwelling must be regarded as work for the purpose of processing or renovating an old building, may benefit from the reduced rate of 6% or as work aimed to build a new building subject to the normal rate of 21%. This is a factual situation which must be considered on a case by case basis.

The doctrine considers that the administrative work of transformation are both the outer transformation of a building and its rehabilitation notably the inner transformation of the building or expansion by adding new parts and extension of existing parts. It operates, in addition, the following distinction:

- Are considered renovations eligible for the reduced rate of 6%, the works that rely significantly on old load-bearing walls, including exterior walls, and more generally on the essential elements of the structure of to renovate the building. It can be seen that this condition is met when at least half of the former load-bearing walls is preserved after the execution of works.

- Are, however, considered the construction work subject to the normal rate of 21%, reconstruction after demolition of a building, even if the maintenance of foundations and cellars of the old building and related components its structure such as the only crane in front of street maintained for reasons of integration into the urban fabric.

News
A taxpayer renovate a wing of the building - originally made up of a dairy, barns and stables - and transforms it into private homes equipped with the comfort level electrical and sanitary. The question before the court of first instance of Liège is whether this work can benefit from the reduced rate of 6% or must be subjected to the normal rate of 21%.

The court agreed with the taxpayer. For the judge, the subject of the work consists of the simple transformation of an existing building and not the erection of a new building after demolition work since at the time, the building was not in ruins, destroyed or and had retained all its exterior walls and bearing walls. The magnitude of the work, ultimately, following the discovery occurred during construction, is justified only by the age of the building and geotechnical constraints at the origin of the poor condition of existing walls.

It follows from these that the purpose of work is to provide an improvement to the existing building with the sole intention to enhance the architectural heritage it represents, and assign it to private dwellings. The legal requirement for renewal must be understood in the sense of development of the property remains as such.

Comments
Disputes over the application or not the reduced rate of 6% on the renovation of old buildings are common.

The court of Liege reminds us again that administrative circulars are not legally binding and that the interpretation given by the Administration is only temporary. In other words, administrative decisions are not binding and are only recommendations to be assessed on a case by case basis.

Source
First instance court of Liege - October 4, 2007