09/11/2015

Real Estate Quarterly – Q3 2015: VAT taxable leases of warehouses: new Ruling

Real Estate Quarterly

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VAT taxable leases of warehouses: new Ruling

By Hélène Bourleau

As opposed to a standard lease of immovable property, which is, in principle, exempt from VAT, the lease of storage space / warehouses can, under certain conditions, be subject to VAT. This, consequently, gives rise to a right to deduct input VAT in the hands of the lessor. The Ruling Commission has rendered an interesting Ruling regarding the conditions under which leases of warehouses qualify as VAT taxable.

Administrative tolerance in the case of office space in warehouses: 10% rule based on the surface areas.
According to administrative guidelines, VAT only applies to leases of separate premises specifically equipped and exclusively used for the storage of goods. If the building is used not only for storage, but also as office space, or for the sale of the stored goods, the Belgian VAT authorities consider that the lease, as a whole, qualifies as a VAT exempt lease of immovable property.

However, in accordance with guidance on what the authority will tolerate, the lease is still subject to VAT if (i) the office space is used by the persons responsible for the management of the stored goods and (ii) the surface of the office space does not exceed 10% of the total surface of the building (10% rule). Note that if the registered office is located in the leased premises, the Belgian VAT authorities tend to consider that the office space is also used for other purposes (e.g. the meetings of the shareholders and the board of directors) so that the lease should be VAT exempt.

New Ruling extends the tolerance: 10% rule based on volume
Despite the office space exceeding the 10% threshold, the Ruling Commission has accepted, in a recently published Ruling nr. 2015.035, that the lease in question should be subject to VAT since the volume of the office space did not exceed 10% of the total volume of the building.

This decision shows that the Authorities can adopt a more flexible interpretation of the criteria to assess whether a warehouse/office lease qualifies as a VAT taxable lease. Furthermore, since storage space commonly has a higher ceiling than office space, it should be easier to avoid exceeding a 10% volume threshold rather than a 10% surface threshold.

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