Have you invested in property, or are you considering doing so? To forecast the return on your investment as accurately as possible, you need to understand how your rental income will be taxed.
When letting a property for private use:
The tax is calculated on the basis of the indexed Net Cadastral Income*, increased by 40%. The resulting amount is added to your income and is therefore subject to the personal income tax rates. You are generally exempt from this tax if you personally occupy your property.
*The cadastral income is indexed each year. As an indication, the indexation coefficient for 2018 is 1.7863.
Example
|
You let a flat to Jean-Marc, who pays €1,050 per month, excluding charges. The cadastral income of this flat is €1,500. The Indexed Cadastral Income is therefore 1,500 x 1.7863 = €2,679.45 You are therefore taxed on this amount increased by 40%, i.e. 2,679.45 x 1.4 = €3,751.23 |
Letting to an individual or legal entity that uses the property for professional purposes.
The taxation method is different in this case: it is no longer based on the cadastral income, but on the rent received + rental benefits* obtained.
*Rental benefits are expenses that would normally be payable by the landlord but are imposed on the tenant, such as carrying out certain repairs (see our article on works and repairs payable by the landlord).
The tax is based on the net rent, i.e. the rent after deducting a flat-rate allowance of 40%.
However, there is a small caveat: the taxable amount (i.e. the net rent) can never be lower than the indexed cadastral income increased by 40% (i.e. the taxable amount if you were letting to a private individual, as in the previous case)!
Another caveat: the 40% flat-rate allowance deducted may not exceed two-thirds of the Revalued Cadastral Income*.
*But what is the Revalued Cadastral Income? It is the NON-indexed Cadastral Income multiplied by what is known as the revaluation coefficient, which is set according to changes in commercial leases. The revaluation coefficient for 2018 is 4.39.
Example
| Jean-Marc is self-employed and uses the flat exclusively as an office.
The deductible 40% flat-rate allowance would theoretically be 1,050 x 12 x 0.4 = €5,040 except that this amount exceeds two-thirds of the Revalued Cadastral Income, which is 1,500 x 4.39 = 6,585; two-thirds of 6,585 = €4,390. You will therefore only be able to deduct €4,390 from the rent received. The net rent: 1,050 x 12 – 4,390 = €8,210 is, in this case, higher than the increased indexed cadastral income, which is €3,751.23 (see example 1) You will therefore be taxed on an amount of €8,210 |
When letting to an individual who makes ‘mixed use’ of the property
Mixed use simply means that part of the property is used for professional activities and another part for private purposes. Taxation is simply apportioned according to how the property is used. However, the tenancy agreement must be registered AND must specify the split between private and professional use..
Where a property is let to a legal entity whose director is the landlord
There are two possible scenarios:
- If the rent does not exceed 5/3 of the revalued cadastral income (mentioned above), taxation will be the same as where a property is let to a legal entity whose director is NOT the landlord.
- If the rent exceeds 5/3 of the revalued cadastral income, matters become more complicated! The portion exceeding 5/3 of the revalued cadastral income is considered remuneration. This means that this portion is taxed as remuneration and is also subject to social security contributions !
Example
| Returning to our example, the revalued cadastral income is €6,585; 5/3 of this amount = €10,975; however, the annual rent charged is €12,600, which means that the amount exceeding €10,975 (€12,600 - €10,975 = €1,625) will be considered remuneration. |
Letting to a legal entity other than a company that makes the property available to an individual
A property rented by a legal entity that is not a company (non-profit association) and which makes the property available to an individual for private use is taxed in the same way as a straightforward letting to an individual for private use, namely the indexed cadastral income increased by 40%.
Example
| An owner who lets to a non-profit association that accommodates one of its employees in the property is taxed in the same way as if the employee in question rented the property directly. |
Letting a furnished property:
Read the article dedicated to this subject
Do not overlook the property tax, which is also payable! You will find all the necessary information in our article on this subject !
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