VAT guidance concerning the provision of furnished accommodation
The Belgian Tax Authorities published on 15 June 2022 a new FAQ concerning the VAT treatment of the provision of furnished accommodation (see: NL / FR - hereafter: ‘new FAQ’). The new FAQ provides guidance and clarifications about the amended scope of the exception on the VAT exemption, effective from 1 July 2022.
Additionally, the Belgian Tax Authorities also published an FAQ concerning the temporary application of the reduced VAT rate of 6% for solar panels, heat pumps and solar water heaters (see NL / FR). This FAQ is outside the scope of this news item. For background information on this temporary measure, see our earlier news item here.
The renting of immovable property is generally exempt from VAT under Article 44, §3, 2o of the Belgian VAT Act. An exception to this rule applies to the provision of furnished accommodation in hotels, motels and similar establishments. In order to be able to clearly distinguish between VAT taxable and VAT exempt provision of such accommodation, the above provision of the VAT exemption was amended in December 2021, with effect from 1 July 2022 (see our news item here).
The amendment introduced a quantitative criterion of maximum three months for the VAT taxable provision of furnished accommodation. At the same time, it also set a qualitative criteria of “related services” in relation to establishments similar to hotels and motels. Accordingly, the provision of accommodation is VAT taxable when it concerns the provision of furnished accommodation for a period of less than three months in hotels, motels and establishments with a similar function where accommodation is commonly provided for consideration for a period of less than three months, unless these establishments do not provide any of the following closely related services: reception, daily breakfast, weekly renewal of bed linen (hereafter generally referred to as the “new rules”). For hotels and motels only the criterion of three months has to be validated as they always provide the closely related services.
The new FAQ
The new FAQ provides guidance and clarifications for the scope of application of the new rules. Most importantly, it covers the following aspects:
- Criterion of three months: The provision of furnished accommodation by hotels, motels and establishments with a similar function can only be VAT taxable if the period of stay is shorter than three months. However, the provision of furnished accommodation for less than three months by establishments with a similar function as hotels and motels where accommodation is commonly provided for consideration for a period of less than three months, can only be VAT taxable if the establishment also meets the qualitative criterion of “related services” (see below).
The provision of furnished accommodation longer than three months is always VAT exempt (i.e., regardless the type of the establishment, incl. hotels and motels). As an example, the rental of student accommodation for longer than three months with cleaning services, remains VAT exempt. The provision of unfurnished accommodation also remains VAT exempt, regardless of the rental period.
- Related services: The provision of furnished accommodation for a period of less than three months by establishments with a similar function as hotels and motels, is only exempt when they provide at least one of the related services, as listed in the legislation. These include reception, weekly renewal of bed linen, and daily breakfast. If none of these related services are provided, the provision of accommodation by such establishments is exempt from VAT. Consequently, the new rules have no implications for passive rentals (g., rental of an appartement at the see where only the key is handed over).
It is not relevant whether the related services are included in the total price of the accommodation or are charged separately. However, the actual supply of one of the listed services is decisive (i.e., the service offering itself is not sufficient for a VAT taxable provision of furnished accommodation).
- Commonly provided: In principle, it is presumed that an establishment with similar functions as a hotel or motel qualifies as an establishment where accommodation is commonly provided to guests against consideration for a period of less than three months, provided that the annual turnover derived from paid stays shorter than three months, is more than 50% of the total annual turnover derived from paid stays.
- Effective date: In general, the new rules apply with respect to VAT chargeable as from 1 July 2022 (typically, date of payment or invoice). However, as an administrative tolerance, the Belgian Tax Authorities accept that the new rules apply to the provision of furnished accommodation which is booked as from 1 July 2022.
- Other aspects: The FAQ includes further clarifications regarding the calculation of the three months period (incl. extension) and the interpretation of the listed related services (e., reception, daily breakfast, weekly renewal of bed linen). The clarifications contain also some more concrete examples.
How can KPMG help you?
The FAQ is helpful in distinguishing between VAT taxable and VAT exempt provision of furnished accommodation. Nevertheless, real life is always more complex and may involve arrangements whereby the VAT treatment cannot be unambiguously determined under the new rules.
If you provide furnished accommodation, we advise you to consider the implications of the new rules to your rental arrangements and, if necessary, ensure a smooth transition in your VAT administration to avoid later disputes with the Tax Authorities. It may also open the opportunity of recovering historic VAT. If you have any questions in this regard, feel free to contact us and we are happy to assist you.