Belgium was recently condemned for the different method of taxation between domestic property and foreign property. Indeed, residential property located in Belgium is treated more favourably than residential property abroad. The intention now is for the tax authorities to assign cadastral income (KI) to property located abroad. Of course, this is not straightforward. How will tax on foreign property work in practice? This article explains more about foreign KI.
How is the estimation of CI for real estate in Belgium done?
First of all, we need to understand how the administration determines KI today. Below, we explain the three methods.
1. Valuation based on perequation
The first method is perequation. This involves re-estimating every property in Belgium every 10 years based on its potential rental income. You understand that this is quite an undertaking. That is why perequation has not been common since 1975. No doubt our Belgian officials will be willing to start estimating homes in Saint-Tropez, Marbella or Ibiza. But we fear that the federal government does not have those budgets available....
(Perhaps next perequation will be digital based on mandatory registration of leases and place descriptions)
2. Valuation by comparison
The second method is to compare a property with surrounding properties in a similar region. A rate per square metre is then applied to this. Again, this method is not obvious for foreign properties. This is because the rate is based on a perequation.
3. Valuation based on sales value
Finally, the legislation provides in Article 478 CIR92 to estimate residential properties at the normal sale value of a plot at the reference time of the last perequation. This means we have to convert the sales value to the 1975 sales value. From this, we take 5.3% to obtain the KI.
Choice of bill for foreign KI
The latter method is the most realistic from a practical point of view. Therefore, the choice is the valuation on sales value. Thanks to automatic data exchange, Belgium already has a lot of information about your property abroad. The authorities will also be able to easily request supporting documents, such as the notarial deed of sale, invoices of renovation works, etc.
So you will have to prove the current sales value. Perhaps based on the deed of sale for more recent purchases. Specifically for Spain, we may be able to rely on the minimum tax value of the property. After all, Spain applies not only the valor catastral also a minimum sales value. However, based on the declaration form, this route seems unlikely for the acquisition of foreign property by purchase.
Once we have an assumable sales value, we convert this value to the 1975 value. On this amount, we take 5.30% to obtain the final KI.
How is the recalculation done?
The recalculation to 1975 is based on a correction factor obtained by the 10-year linear bond interest rate. The correction factor for income year 2020 is 15.036.
Specifically, the KI in 2020 of a €300,000 home is then: 300,000/15.036 *5.3% = €1,057.46.
Perhaps the recalculation will be automated.
You will then have to declare this amount in your tax return. If Belgium has a double taxation treaty (e.g. Spain, Portugal, France), this KI is exempted with progression reservation.
From when will the new scheme apply?
The new scheme applies from fiscal year 2022, for income earned in 2021.
However, if you are owners on 31 December 2020 of foreign property, you should file a declaration with the Surveying and Valuation Administration (better known as "the land register") by 31 December 2021. Possibly, the tax authorities will also contact you for this purpose. On 15 June 2021, we at Confianz received the invitation to declare the foreign KI via Myminfin or by post. We opted for the declaration via MyMinfin.
If you as of 1 January 2021 become the owner of foreign property, you must file a tax return within 4 months of acquisition. You can download this form via the relevant page of the FPS Finance.
What if you disagree with your foreign KI?
Based on the information you provide, the land registry will determine the KI and notify you by registered letter. If you disagree with this, you can file an objection within two months of service. An objection is only admissible when:
- it was sent by registered post in a timely manner;
- addressed to the official in charge of fixing the CI (service with the address given on the first page on letter, top);
- It should mention a counter-proposal for the KI.
Failure to cancel service does not affect the validity of the CI. It is only in cases of force majeure that you can request to be re-served.
Concrete impact on your taxes
Belgium may not simply tax your second residence abroad in accordance with the double taxation treaty. However, income from foreign property is eligible to determine the progressive personal income tax rate. This is the progression proviso. So the KI will be used along with it to calculate your personal income tax rate.
For owners who rent out their second residence abroad to individuals, the new foreign property tax regime is a good thing. They no longer need to declare their actual rental income, but rather the foreign KI * 1.4.