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Tax Insights May 2020 - COVID-19: Reduction of property tax due to unproductivity

In the wake of the Coronavirus pandemic, Belgian federal and regional authorities launched a series of measures aimed at softening the financial impact of the crisis, providing companies some well-needed breathing room in the form of various tax filing and payment deadline extensions.  

The Flemish tax authorities recently announced the postponement of issuing the property tax assessment notices for legal entities, and this in principle until September 2020. This leads to a de facto deferral of immovable property tax payments from spring to autumn for companies active in the Flemish Region. 

Aside from the various temporary crisis measures, this month’s Tax Insights aims to focus more in-depth onto the reduction of immovable withholding tax due to unproductivity. Reason being that unoccupied buildings and inactive equipment and machinery, which due to the pandemic ceased to generate any income, give cause to a reduction of the property tax in proportion to the period of unproductivity and inactivity. 

The specific requirements for claiming a  reduction of property tax due to unproductivity vary not only per kind of property, but also differ from one region to another. In the Brussels-Capital Region, however, this measure has been abolished as of assessment year 2017.  

iNACTIVE MACHINERY AND EQUIPMENT

Both in the Flemish and Walloon regions, a proportional reduction of property tax can be granted for material and equipment (e.g. machinery and installations) provided that the following cumulative conditions are met. The reduction specifically targets machinery and equipment representing at least 25% of the cadastral income which remained, either partially or completely inactive during the assessment year for a period of at least 90 days. 

In other words, in the event that at minimum 25% of the company’s machinery and equipment was brought to a standstill as a result of the coronacrisis, a reduction of the immovable withholding tax will be granted in proportion to the period of inactivity, calculated on this inactive part of the cadastral income. 
 

UNOCCUPIED AND UNPRODUCTIVE BUILDINGS

Full exemption or a proportional reduction of property tax can be granted in case a non-furnished building remained entirely and voluntarily unoccupied or unproductive for a certain minimum period during the assessment year. Prerequisite is that said building did not generate any income whatsoever during this standstill period. The minimum unproductivity period in the Walloon region is 180 days, in contrast to 90 days in the Flemish region.

Notwithstanding the fact that only non-furnished buildings are eligible for a reduction of withholding tax on immovable property, and provided that all other conditions are met, the presence of machinery still left in the building deemed necessary for the usual operational activities of the company, does not per definition prohibit the reduction.

The involuntary nature of the unproductivity of these buildings as caused by the coronapandemic is at first glance rather obvious, In practice, however, the Administration will presumably still watch closely over the fulfillment of this requirement with utmost suspicion. It might therefore be advisable to keep the invoices for e.g. gas, electricity and water consumption during this period of unproductivity as supporting documentation. After all, the burden of proof that the property during this period remained entirely unoccupied and empty, not even as a temporary storage space for (discarded) goods, rests solely on the shoulders of the taxpayer claiming the reduction. 

In line with material and equipment (supra), the exemption or proportional reduction of property tax due to the unproductivity of non-furnished buildings is double proportional, meaning both in function of the duration of the actual unproductivity and calculated on the inactive part of the cadastral income. In practice, the exemption or proportional reduction will be granted by first reducing the taxable income with the unproductive part of the cadastral income, after which the immovable withholding tax will finally be calculated. 

PROCEDURE

The proportional reduction must be claimed by filing a tax complaint to the competent regional tax authorities. Claims for the reduction of property tax due to unproductivity can be submitted until March 31st of the year following the assessment year during which the assessment was issued.

In case you would like to receive additional information on this matter, the tax team of RSM Belgium remains at your disposal: [email protected]

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