Tax treatment of furnished rental of foreign holiday home
Many owners of a foreign holiday homes rent out this home - usually furnished - to maximize the return on their investment. The Belgian tax administration has this in its sights and tries to tax a portion of the rental income. However, this violates double taxation treaties, which has now also been confirmed by recent case law.
General principle
Holiday homes located abroad are often rented out furnished (whether or not through an online platform, such as Airbnb). Based on Belgian legislation, in a furnished rental, 60% of the rent is for renting the building (immovable income) and 40% is for renting the furniture (movable income).
Thus, for a Belgian property that is rented out furnished, you must declare part of the rent as immovable income and part as movable income.
As a Belgian resident, you are required to declare your worldwide income. Therefore, you must also declare rental income from a (vacation) home located abroad in your tax return.
When Belgium has a double tax treaty (further mentioned as “DTT”) with the country where the property is located, this income is taxable on the basis of this DTT in the country where the property is located. You must declare this income in your Belgian personal income tax return, benefiting from an exemption from Belgian taxes subject to progression.
However, the exemption of the movable part (the furniture) is now under discussion with the Belgian tax administration.
As a Belgian resident, you are required to declare your worldwide income. Therefore, you must also declare rental income from a (holiday) home located abroad in your tax return.
Control actions by the Belgian tax administration
Since 2021, online platforms (such as Airbnb) have been required to report data on the rental of (holiday) homes on an income sheet 281.48. On this basis, the Belgian tax administration has launched an audit action for furnished rentals.
As we explained above, income from real estate based on various DTTs is taxable in the country where the property is located. However, the Belgian tax administration takes the position that the rental of the furniture is movable income, and therefore does not fall under the article on immovable income, but rather the residual article. This residual article then reassigns tax jurisdiction to the country of residence (Belgium).
Belgian tax administration’s position violates double tax treaties
When defining elements included in the DTT, the internal legislation of the source state (read: the country where the property is located) must always be considered. If the source state determines that the rental income from a furnished rental should be considered in its entirety as immovable income, Belgium must follow this qualification, and the entire rental income will have to be exempted in Belgium.
It is therefore very important here to always consider the qualification the income enjoys in the source state. If you rent furniture together with a property, where the furniture becomes immovable by destination in order to preserve the economic unity of the operation, then our country will have to respect this.
This position was confirmed by a first judgment in favor of the taxpayer. However, the Belgian tax administration appealed against this ruling, so the Court of Appeals will have to rule on the matter.
A ruling by the Court of Appeal may be some time away. Meanwhile, the Belgian tax administration maintains its position. This leads to Belgian taxation on 40% of the rental income received. However, we recommend objecting to this, taking into account the primacy of the tax treaties.
If the source state determines that the rental income from a furnished rental should be considered in full as property income, Belgium must follow this qualification and the entire rental income will have to be exempted in Belgium.
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