The city of Brussels could be taken to court over its strict home sharing rules after the European Commission said such rules are disproportionate.
The move was welcomed by US home-renting company Airbnb.
Cities around the world have taken steps to regulate short-term lettings and sites such as Airbnb to discourage landlords from withdrawing their properties from the long-term market in favour of short-term stays.
Regulators on the other hand want to strike a balance between promoting the collaborative economy and keeping the integrity of local communities.
The rules imposed by the Belgian capital do not differentiate between professional or private rentals, large hotels, small bed & breakfasts and the private rental of rooms, the EU executive said.
"The Belgian regulatory framework imposes disproportionate requirements that are not compatible with the Services Directive," the Commission said.
It said a simple central online registration system for accommodation providers would have sufficed.
It sent a letter of formal notice to Belgian authorities, the first step in a procedure that could lead to court action and fines.
Airbnb, which has more than 1,000 listings in Brussels, said the city should follow other regions in Belgium with clear rules.
"While both Flanders and Wallonia have adopted progressive and simple rules for home sharing, Airbnb hosts in Brussels currently face a confusing and burdensome administrative process, that doesn't fit with how people share their homes in modern Brussels," it said