Belgium fined €2 million over taxation of rental income

The European Court of Justice (ECJ) has ordered the Belgian state to pay a fine of €2 million for ignoring a 2018 judgement on the taxation of rental income.

The original case dealt with the way Belgium taxes income from property rental differently depending on whether the property is situated in Belgium or in another member state of the EU.

Belgium is the only member state of the union that does not tax rental income on the basis of the amount of money received, but rather on the cadastral income – a notional figure based on a number of factors such as the floor area and the estimated rent the property could achieve.

So in fact an estimated rental income is used to calculate the tax due on a real rental income, which may differ to a greater or lesser extent.

The EU Commission, which brought the original case, has no issue with what system Belgium uses within its own borders, but objected to the discrimination involved in using a different taxation calculation for properties in other countries.

A Belgian taxpayer who had rental properties in Belgium and the Netherlands, say, would then pay tax based on real income from the Dutch property, and another tax based on cadastral income from the Belgian property, which is likely to be less, as cadastral incomes are still based on 1975 rents, albeit indexed annually. Meanwhile real rents have risen more steeply.

The ECJ in 2018 agreed, and Belgium was ordered to bring its legislation into line with the ruling as soon as possible.

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