Demolition – Reconstruction: In Which Cases Can the 6% VAT Rate Apply?

The Programme Law of 18 July 2025 introduced a permanent regime, applicable as from 1 July 2025, allowing, in certain cases, the application of the reduced VAT rate of 6% both to construction works and to the sale of a reconstructed dwelling.

Given the complexity of the regime and the significant number of conditions to be verified, our firm has developed a tool enabling a rapid assessment of whether a project may benefit from the 6% VAT rate in the context of demolition and reconstruction.

In order to better understand how this tool operates, it is appropriate to briefly recall the different applicable regimes.

1. VAT Regimes Applicable to Construction Works

Where the works involve the demolition of a building followed by the reconstruction of a dwelling, the 6% VAT rate may apply in three situations.

1.1 Reconstruction Intended for the Owner’s Own Occupation

The first regime concerns the situation in which a natural person has a building demolished in order to reconstruct their own dwelling.

The reduced rate may be applied provided, in particular, that:

• the dwelling is used as the sole and principal residence of the owner;
• the owner establishes their domicile there without delay;
• the habitable surface area does not exceed 200 m²;
• these conditions are complied with until 31 December of the fifth year following that of the first occupation or use of the building.

This regime primarily targets private individuals who rebuild their home on land containing an existing building.

1.2 Reconstruction Intended for Letting Under the Social Housing Policy

The 6% VAT rate may also apply where the reconstructed building is rented out within the framework of the social housing policy.

In this case, the developer (natural or legal person) must lease the dwelling, for a minimum period until 31 December of the fifteenth year following that of the first occupation or use of the building, to a social housing operator, such as a social rental agency, a public housing company, or another organisation recognised under the social housing policy.

No maximum surface area condition applies under this regime, which is primarily intended for investments in social housing.

1.3 Reconstruction Intended for Long-Term Private Rental

A third regime applies to the reconstruction of a dwelling intended for long-term private rental.

In this case:

• the dwelling must be rented directly to a natural person who will establish their principal residence there;
• the habitable surface area must not exceed 200 m²;
• the lease must be maintained until 31 December of the fifteenth year following that of the first occupation or use of the dwelling.

This regime is mainly aimed at long-term rental investment projects.

2. VAT Regime Applicable to the Sale of a Reconstructed Dwelling

Following the reform that entered into force on 1 July 2025, the 6% VAT rate may also apply to the supply (sale) of a dwelling reconstructed after demolition, in particular within the framework of real estate development projects.

In this case, the purchaser must allocate the dwelling to one of the following uses:

• personal occupation (sole and principal residence);
• letting within the framework of the social housing policy;
• long-term private rental.

However, an important distinction must be highlighted: in cases of personal occupation or private rental, the maximum habitable surface area is limited to 175 m² at the time of the supply of the dwelling.

3. A Regime Subject to Several General Conditions

In addition to the conditions specific to each situation, the application of the reduced rate is subject to compliance with several general conditions.

Among the main conditions are:

• the existence of an actual demolition followed by reconstruction;
• the execution of the project on the same cadastral parcel;
• the allocation of the reconstructed building to private residential use;
• compliance with the surface area and use conditions specific to each regime.

The application of the reduced rate is also subject to the fulfilment of certain administrative formalities. In particular, a declaration must be submitted to the tax authorities via forms 111 available on MyMinfin, before VAT becomes chargeable on the relevant transaction.

Depending on the intended use of the reconstructed building, different forms must be used:

• 111_1-01/07/2025: own residence;
• 111_2-01/07/2025: social rental;
• 111_3-01/07/2025: supply (sale);
• 111_5-01/07/2025: long-term private rental.

Conclusion

The VAT regime applicable to demolition and reconstruction has become an important fiscal instrument for real estate projects; however, its application remains technical due to the numerous conditions set out in the legislation.

The tool developed by our firm allows for a rapid preliminary assessment of the potential application of the reduced 6% VAT rate.

Our firm remains, of course, at your disposal for any specific questions relating to the application of the reduced VAT rate in the context of a demolition–reconstruction project.