Note: here you can find more information on the new regime Belgian taxes on foreign property.
If you own a second residence in Portugal, you are required to declare the rental value in Belgian personal income tax. However, the Belgian tax authorities are not clear what they mean by the term 'gross rental value'. Therefore, this article will explain the Belgian taxation of property in Portugal.
Principle: no double taxation
The double taxation treaty stipulates that real estate located in Portugal, can only be taxed by Portugal. Belgium may therefore not tax any income from property in Portugal. However, there is a progression proviso. This means that income from Portuguese property counts to determine the progressive rate of Belgian personal income tax.
For that reason, you should use the gross rental value of Portuguese real estate. To determine the gross rental value, we distinguish between non-rented properties and rented properties. We discuss this in more detail in the following sections.
You do not rent out your second residence in Portugal
Basically, the gross rental value is then the average annual gross rent that you could get, in case of letting. This takes into account local customs and location.
You understand that it is not easy to determine what the annual rent could be. For countries such as France, Italy and Spain, the Belgian tax authorities provide more clarity with a circular* using examples. For Portugal, this is not the case.
The circular indicates that you can use an approved value determined by the foreign government. However, Portuguese law does not have a cadastral income or a similar system of flat-rate income.
What Portugal does have is a cadastral value per property (valor patrimonial tributario). You can calculate this value yourself via a online calculation module from the Portuguese government. For Spain, which has a similar valuation system, you may apply a percentage to the cadastral value to arrive at a 'cadastral income'. This is, for example, 1.10% or 2.00%, depending on the date of the last revision. You can use a similar method for Portugal.
Note: the above method is by no means fixed for properties in Portugal. Because of the lack of a recognised valuation method for Portugal, you always run the risk of challenge by the Belgian tax authorities.
Once you have determined the gross rental value, you may apply a cost flat rate of 40%. Normally, you can also deduct personal income tax paid in Portugal from the gross rental value. However, there is no personal income tax payable in Portugal for unrented properties, but you can deduct IMI, for example.
An example: you have an annual gross rental value of 1,000 euro. You may then declare 600 euros in code 1130/2130 of Box III of the Belgian return.
You rent out your property in Portugal
If you rent out your second residence in Portugal, the gross rental value consists of the actual rental income. From this, you may deduct the personal income tax paid in Portugal.
Read more about property taxes in Portugal.
Discrimination by Belgian lawmakers
The Belgian tax regime for income from second homes located in Belgium is considerably more favourable than for second homes located abroad. Indeed, for Belgian second residences rented out to residential tenants, you pay taxes based on cadastral income plus 40%.
Belgium was convicted of this with a European Court of Justice ruling. Therefore, the Liège Court of Appeal also ruled in a judgment that the taxpayer may take 22.50% of the actual rental income as gross rental value.
However, this regulation is not generally binding. You can opt for this method of calculation if you do not wish to comply with the discriminatory regulations. But then you risk challenge by the Belgian tax authorities....
Update: Belgium was placed on 12 November 2020 sentenced again. This time there is a fine and a penalty of 7,500 euros per day for as long as the discrimination persists. Perhaps this will be the prick to revise the legislation. Meanwhile, a new bill is on the table. Find more information here.
Do you have any questions about investing in Portugal or Belgian taxation for real estate in Portugal? Then feel free to contact on.
*Circular AAFisc No. 22/2016 (No. Ci.704.681) dated 29.06.2016
