A second residence abroad

Who doesn’t dream of buying a second home abroad? A place to escape to when the winter days become too short and cold here. An oasis of peace to enjoy the endless summer evenings with your friends. Be prepared and well informed about the tax aspects involved. Here are a few points of interest.

What do the tax authorities think?

When purchasing foreign real estate as a private individual, the Belgian tax consequences must not be forgotten. The income from foreign property is taxable in the country where the property is located. In Belgium, this income is exempt, but it’s taken into account to determine the tax rate applicable to the other taxable income (the so-called “progression reserve”). The declaration of the foreign real estate income will consequently increase the tax burden on the other income. However, the ordinary interest deduction can be applied to this foreign property income.

Rented versus non-rented

The distinction that is made for real estate located in Belgium with regard to whether or not the tenant uses the real estate for professional purposes, is not made for real estate located abroad. The following distinction must be made in the personal income tax return: If the foreign real estate is rented out, then the annual gross rental income, less the foreign tax, is reported in the declaration.

For non-rented foreign real estate, you have two possibilities:

→ You declare the theoretical rental value.

This is the average annual rental income that you could have collected if you had rented out the property, minus the foreign tax.

→ You indicate a (fixed) value determined or approved by the foreign government.

This value can consist of an estimated or fixed gross rent that serves as a basis for taxation in that country.

However, the use of the foreign assessed or flat-rate gross rent is not an obligation. You may always use the legal criterion of the ‘actual rental value’. Only the net rental income or net rental value (= the declared amount minus 40% fixed costs) is taxable.

Reduction

The Federal Public Service Finance has drawn up an internal instruction detailing the correct flat-rate valuation of a non-rented foreign property located in France, the Netherlands, Spain and Italy. The question may arise which foreign taxes may be deducted from the rent or the rental value.

Only the foreign tax that meets the following characteristics may be deducted:

1. The foreign tax must concern the tax on real “income”. This means that some taxes are not eligible for deduction, such as the tax on holiday homes, wealth tax, property tax, etc.
2. The foreign tax must have been effectively paid in the year for which it is charged as a deductible expense. Tax due but not paid does not qualify.
3. The foreign tax has to be a tax levied on “effectively” received income from real estate. Consequently, taxes on e.g. fixed or presumed income are not deductible.

To conclude

Ready for the adventure? Don’t take any chances and inform yourself well before making any concrete investment. With detailed planning you are already halfway to your destination. A well-informed person is worth two.