New reporting obligations for housing costs deduction

A draft law of 19 October 2023 relating to miscellaneous tax measures would require a new annex to individual income tax returns for income year 2023 for tenants claiming a deduction for rent paid as an itemised business expense.

Current individual income tax regime

There is currently a significant difference in the individual income tax regime between private and professional rental arrangements:

• Where a property is rented to a private individual, the annual taxable base for the landlord is the indexed notional rental value of the property, increased by 40%.
• If the property is used for professional purposes, the annual taxable base for the landlord is the actual rent paid, less a fixed deduction for expenses of 40% of the rent paid, subject to a minimum of the indexed notional rental value increased by 40%.

The tax authorities have increasingly noticed a discrepancy between the tax returns of individual tenants who deduct part of the rent they pay as an itemised business expense (e.g., for a home office), and those of landlords who report the rental income as received from a lease to a private individual. 

Proposed new requirements

The draft legislation aims to:

• Ease the compliance burden of the tax authorities by identifying and linking the owner and tenant in a digitized and automated way; and

• Avoid incorrect reporting of the income by the landlord as private rental income (which may also happen where the landlord is unaware of the status of the tenant).

This would be achieved through a new annex to the individual income tax return of the tenant. According to the draft legislation, details of the following would need to be provided in the annex:

• Rental property;

• Rental contract;

• Rental benefits (or fees for rights in rem); and

• Parties to the rental agreement.

Both resident and nonresident taxpayers who are tenants would be required to complete the annex to the return.

A deduction for professional costs would not be permitted for rental agreements which are registered free of charge, which is only possible in case of private use. An exception would be granted for housing made available free of charge by companies under a legal or contractual obligation to one or more of their employees or directors, intended exclusively for their and their families’ accommodation, provided that the employee/director files the annex with their tax return.

The tax authorities will publish the sample format of the annex if the draft law is approved.

Where a taxpayer fails to comply with the new requirements, if enacted, housing expenses, including fees for the business use of real estate ( e.g., leasehold, superficies, usufruct, or easements) would be considered as nondeductible professional expenses.