As announced before, from income year 2021 (tax year 2022) onwards, Belgian tax residents who own real estate abroad are required to provide detailed information to the authorities about their foreign property, irrespective whether it is rented out or not.
Taxpayers who submitted their report no later than 31 December 2021, should have received feedback from the authorities by now confirming the cadastral income (CI) of their property abroad.
- Calculation method
Since properties in Belgium are in general taxed on a cadastral value, the Belgian authorities have now assessed – based on the information provided by the taxpayer – a (fictitious) cadastral income for the foreign property on the same basis as for properties located in Belgium. The CI represents the net annual rental value of such real estate back in 1975. Yes, 1975. That is the last time the authorities did a general valuation of the CI of every Belgian property. Since then, the amount is indexed every year instead.
In absence of such value, the CI of any property abroad is now determined as follows:
current normal market value / correction factor x 5.3 %
The current ‘normal’ market value represents the sale price of the property that one could have obtained under normal conditions at the time of submitting the report. Such value is then divided by a correction factor, which is a specific coefficient provided by the Belgian authorities (Circular Letter nr. 2021/C/21). This will result in a (fictitious) market value the property had in 1975. This amount is then multiplied by 5.3% to adjust the market value to a ‘rental value’. It is important to mention that the foreign CI is always a net income, therefore the taxpayer is not allowed to deduct any expenses or foreign taxes from it.
- What if you disagree?
In case you do not agree with the assigned CI, it is possible to challenge the amount. An appeal should be submitted by registered mail within a period of two months as from the date of notification of the new CI by the tax authorities. Similar to the procedure if you would challenge the CI calculated for a Belgian property, the taxpayer will need to assess the CI that he believes should instead be allocated to the foreign property.
Different from the Belgian real estate market, foreign real estate is often subject to more significant fluctuations in value. The taxpayer can also request the tax office to review the assigned CI if the value decreases because of the local economic or political situation abroad.
It is important to repeat that the taxpayer will normally not be required to pay tax in Belgium on the CI of the foreign property as communicated by the tax office. The amount should nevertheless be reported in the Belgian income tax filing for income year 2021 (tax year 2022).
If the country where the property is located has a double taxation agreement (DTA) in place with Belgium, the CI will be ‘exempt with progression’. This means that no income tax is due on the amount, but it does count towards determining the tax bracket on the taxpayer’s other taxable income. If the country where the property is located has no DTA with Belgium, the income tax due is reduced by half.
- What if you forgot to report?
If you have not yet reported your foreign real estate, it is advisable to do so as soon as possible. Those who fail to properly report their foreign real estate, risk being fined with penalties as high as €3.000,00.