VAT and renovation works on a partly professionally used building

VAT and renovation works on a partly professionally used building

Renovation works can, when a number of conditions are met, be subject to a 6% VAT rate. Professionally used building cannot benefit from this reduced rate. What should we then do with mixed used buildings?

The general conditions

The reduced 6% rate for renovation works is subject to three main conditions:

the building is older than 10 years;

the renovation works (transformation, renovation, improvement, repair or maintenance, except cleaning) are invoiced directly to the end user (e.g. owner, usufruct holder, tenant);

the building is exclusively or mainly used as a private house.

Do you renovate a building which you use for professional purposes, then you do not have right to the reduced VAT rate.
When you are a VAT payer, this is not that important, since for 'immovable works' (the legal term for renovation, new constructions, ..) you will use the reverse charge rule. This means that no VAT is charged on the invoice, but that you, when filing your VAT return, should report the VAT due, and at the same time the deductible VAT. When the works are 100% for professional use, you can recuperate immediately all the VAT.

But for entrepreneurs which are not subject to VAT, this can make a huge difference. Imagine doctors, dentists, physiotherapists, .. A renovation of a dentist practice is subject to 21% VAT, without the possibility to deduct this VAT, except as professional expenditure for income tax purposes.

Mixed used buildings

Often such free practitioner has its professional activity in his own house. Renovation of such building can relate to the private part, the professional part, or both (e.g. a new roof).

When renovating a mixed used building, the following rules apply according to the tax authorities:

is the building used for private purposes and only additionally for a professional activity, and to the extent that renovation works are performed to the complete building, the reduced VAT rate of 6% can be applied on all works;

do the works relate only to the professional part (e.g. doctor renovates his waiting room), VAT is due at 21%, since these works do not relate to the house in the strict sense.

A practical case

These rules seem simple, but in practice it is often more complicated. As it was the case in a judgment of the Liège Tribunal of 5 November 2019.

A doctor builds an extension to his family house. It concerns a garage for private use and a doctor's office on the first floor with a waiting room, toilet and entrance hall. The new part is connected with the old part by a door. Since the building was older than 10 years, the 6% rate was applied.

The tax authorities contest the application of the 6% rate, since the renovation works could be concerned as relating to the private house.

The tribunal opined that the old and new part of the building are attached to each other and are not separated. The doctor's office is accessible from the private living room. Heating and meters are common. The roof of the annex connects with the terrace's canopy. A partition between both parts is in fact impossible. Even the fact that the doctor rented a part of her house to a separate company (own doctors company) does for the tribunal not mean that the building is divisible. After all, the tribunal also puts the argument that the new part cannot be used for private purposes aside.

The extension of the building with this professional part is, given its limited surface, accessory and the new part is also fully integrated in the building. The building keeps its character as a private house. Therefore, the tribunal allows the application of the reduced rate of 6%.

Appeal lodged

The tax authorities have lodged an appeal against this judgment. The key argument is that the extension forms an 'independent entity' which is mainly used professionally.

This argument was rejected by the tribunal: it was of the opinion that renting the extension separately is only theoretically possible. Therefore, the extension is no independent entity.

Wait to see whether the Court of Appeal also thinks like this.