New VAT Real Estate Decree

15/12/23

The new VAT Real Estate Decree contains many new components and important clarifications. This can have important consequences, especially for project developers and landlords of real estate. Below you can read the most important changes for practice. It is recommended to map out and coordinate the exact consequences together with your tax advisor.

The Ministry of Finance published the new VAT Real Estate Decree on December 14, 2023 (Besluit onroerende zaken omzetbelasting, nr. 2023-26908).

Service costs

In the previous version of the Real Estate Decree it was stated - in short - that service costs charged for the rental of homes follow the VAT regime for the rental. When renting commercial real estate, service costs were usually charged with VAT. To assess whether the service costs follow the VAT regime of the rental (are for VAT purposes considered to be included in the rental), it is relevant whether (i) each tenant individually or the tenants jointly can choose the service provider and (ii) the service costs are mentioned separately on the invoice. If this is the case, the service costs are considered the remuneration for a separate service and the recharge of the service costs is in principle subject to VAT. According to the Decree the service costs are VAT taxed if the landlord charges costs for the heat and cold actually consumed by the tenant, even if the tenant is obliged to purchase this heat and cold from the landlord. Whether service costs are taxable should be assessed on a case-by-case basis. This may result in, for example, VAT taxed service costs for private tenants of homes. To give landlords the opportunity to make any changes, they may continue the current practice until 1 January 2025.

Formal defects in the option for VAT taxed rental

The rental of immovable property is in principle VAT exempt. Under certain conditions, parties can opt for a VAT taxed rental if the tenant uses the rented property for activities that allow the tenant to deduct at least 90 percent of input VAT. If the parties opt for a VAT taxed rental a number of formal conditions must be included in the rental agreement. If these conditions are not included in the rental agreement, the rental is in principle VAT exempt and the lessor cannot deduct VAT on costs attributable to the rental. The Real Estate Decree approves that the rental remains subject to VAT if not all formal conditions have been met, but parties acted as if they correctly opted for a VAT taxed rental. In that case it is important that (i) the tenant has actually used the rented property for services hat enables him to deduct at least 90 percent of input VAT and (ii) the landlord and tenant have acted as if a valid option was made for VAT taxed rental. The last condition can be derived from the fact that the landlord actually charged VAT and that the parties accept the legal consequences attached to the option for a VAT taxed rental. The formal defect must be repaired within a reasonable period after discovery. In our view, this is a very welcome approval for the practice.

New constructed real estate after renovation

The supply of new immovable property is in principle VAT taxed and exempt from RETT. For buildings that have been extensively renovated, the question often arises whether this major renovation leads to a new immovable property ('essentially new construction', first use). The Real Estate Decree refers to the judgment of the Supreme Court of 4 November 2022, in which, in short, it was decided that only changes in the construction are relevant to answer this question.

In our view, it is wrongly stated that case law of the European Court of Justice (Kozuba) is not relevant in answering this question. In our view, on the basis of European case law it can be stated that a very major renovation is more likely to lead to a new immovable property than on the basis of the Dutch case law of the Supreme Court mentioned in the Decree. We expect that in 2024, more clarity will emerge from case law according the question to what extent the judgments of the Court of Justice Kozuba and Promo 54 give rise to a different interpretation of the term ‘essentially new construction’ than that given by the Supreme Court and the Decree.

Fit-out work results in first use

Contrary to previous case law and current practice, the Ministry of Finance states that fit-out work by a (future) tenant of an immovable property results in the (first) use of this immovable property. The current practice is a property is taken into first use when the immovable property is actually used for the first time and in a sustainable manner in accordance with the objective purpose of the property. In a commercially rented building, this is often the moment that activities are carried out from the building and the tenant actually delivers goods or provides services from the rented property. In practice, this moment often coincides with the commencement date of the rental. The moment of first use is relevant when transferring a new immovable property, whereby a RETT exemption applies if the transfer takes place within 6 months after the first use (or 24 months for VAT exempt exploitation). As a result of the position taken in this Decree, a (part of) a building will be deemed to be taken info use more quickly and therefore the chance that the so-called RETT concurrence exemption does no longer apply increases.

Brick pavement

In practice, the question regularly arises whether brick pavement qualifies as a built land for VAT purposes. According to the Real Estate Decree, brick pavement qualifies as a built land if it is part of a whole where, for example, the top layer has been excavated and further consists of drainage and site lighting. Easily removable brick pavement, which is not part of a whole, does not qualify as built land for VAT purposes. This has to be assessed on a case-by-case basis. This position is not entirely new, as it also appeared from a recently published position of the DTA knowledge group, but it is included in the Real Estate Decree for the first time.

Rental of a home with non-integrated solar panels

According to the Ministry of Finance, the rental of non-integrated solar panels when renting a home is an additional service that - just like the rental of the home - is VAT exempt. A transitional arrangement applies to landlords who have deducted VAT on the purchase of solar panels before 2023. These landlords may assume a VAT taxed rental of the non-integrated solar panels until the end of the VAT revision period.

Transactions with respect to rights in rem

The establishment, etc., of rights in rem qualifies as a supply for VAT if the compensation including the capitalized value of the ground rent and VAT is at least equal to the fair market value of the immovable property. The fair market value of the immovable property is deemed to be at least the cost price including VAT. If the compensation is lower than the fair market value, the establishment, etc. qualifies as a rental service that is in principle VAT- exempt. The qualification as a VAT exempt rental service results in an undesirable outcome in certain situations. In this context, the Real Estate Decree includes an approval that - under certain conditions - the establishment, etc. still can be treated as a supply if due to market conditions this takes place below cost price including VAT.