VAT

Property

VAT and property


Main principles


The taxable person for VAT purposes is the entrepreneur. Any person exploiting immovable property is deemed to be an entrepreneur. Immovable property transactions are in principle subject to the standard rate of 21%. The reduced rate is 6%. For immovable property transactions, the reduced rate is only relevant in the hotel sector. The taxable amount is in principle the consideration.


From a VAT perspective, a distinction is made between the supply of immovable property and letting and leasing of immovable property. The following is amongst others considered as a supply of immovable property:

  1. transfer of legal title by agreement;
  2. hire-purchase contract;
  3. works of construction if this work leads to “newly constructed” immovable property;
  4. the expropriation of immovable property;
  5. transfer of economic ownership;
  6. finance lease;
  7. self supplies;
  8. the establishment, assignment, alteration and cession of rights in rem to immovable property, provided that the taxable amount, increased with VAT, is not lower than the fair market value of the property (which is deemed to be at least the cost price). Rights in rem include usufructs (“vruchtgebruik”), servitude (“erfdienstbaarheid”), emphyteusis (“erfpachtsrechten”), right of superficies (“opstalrecht”) and apartment rights (“appartementsrechten”).

Letting and leasing is not defined in the Dutch VAT Act. According to Civil Law, letting and leasing means that:

  1. the lessor supplies the lessee with the right to use a certain good or property or part thereof;
  2. during a specified period; and
  3. at a certain price.

Letting and leasing includes every other. The following is amongst others considered as the letting and leasing of immovable property:

  1. operational lease;
  2. the establishment, assignment, alteration and cession of rights in rem to immovable property if the taxable amount, increased with VAT, is lower than the fair market value of the property.

Supply of immovable property


The main rule is that the supply of immovable property is exempt from VAT. No distinction is made between the supply of a building (including the land on which a building stands) and the supply of land. VAT is, however, chargeable on the supply of immovable property in the following two situations:

 

  1. When the supply takes place before, on or within two years after the day on which “newly constructed” immovable property was first put into use (VAT is due by virtue of law). The term “newly constructed” is based on a decision of the EC Court of Justice (Case 139/84). “Newly constructed” means the constitution of a good that did not exist before. The new good has a different function than the materials used (function or use of immovable property changed or (re)construction costs are high in itself and high in comparing to the value of the immovable property). The condition that it must concern “newly constructed” immovable property applies for both buildings and land.
  2. If before the supply of the immovable property a joint request by the entrepreneur and the recipient has been filed to the tax authorities to tax the supply (VAT is due by virtue of an option).

Option for taxed supplies of immovable property

 

To opt to tax a supply of immovable property is only possible if the recipient is entitled to at least 90% deduction of input VAT incurred during the period elapsing between the time of the supply and the end of the calendar year (accounting year) following the year in which the supply took place. For travel agencies, real estate agents (brokers) and employers’ organizations the percentage of 90 is reduced to 70.

 

If the exemption is waived the recipient is liable to pay the VAT due to the Netherlands tax authorities under the self assessment method. A deduction of (almost) the same amount is possible. Hence, no or a VAT liability up to a maximum of 10% (or 30%) remains.


If afterwards it appears that the recipient did not comply with the 90%-criterion during aforementioned period, the taxable supply is reverted into an exempt supply. If so, the recipient is liable to VAT due by the supplier as a result of an adjustment of input VAT, if any.

 

The supplier may also be held liable, unless he acted in good faith.


Self supply of immovable property


To avoid distortion of competition, a self supply occurs when an entrepreneur puts into use manufactured or produced goods (i.e. immovable property), resulting in “newly constructed” immovable property, in his own business where the entrepreneur is not wholly entitled to deduct input VAT incurred when he would purchase the immovable property from a third party. This self supply rule also applies in case of immovable property constructed from goods (including land) entrusted by the principal. Under current legislation no distinction is made between the self supply of buildings and land.

 

Letting and leasing of immovable property


Letting and (operational) leasing of immovable property is exempt from VAT. A number of exceptions on this main rule exist. The following transactions are subject to VAT:

 

A. by virtue of law:

  1. Letting of machinery equipment and business installation;
  2. Lettings in the furtherance of a hotel, boarding and guesthouse, camping and holiday business to persons staying only for a short period of time;
  3. Letting or leasing of parking space for cars;
  4. Provision of berths and sheds for boats;
  5. Hire of safes.

B. by virtue of option:

  1. Lessor/landlord and lessee/tenant elect to opt to tax.

Option for taxable letting or leasing


An election to tax letting and leasing (income) is possible for all immovable property (including rights in rem which are treated as a supply of services) unless it concerns the letting and leasing of dwellings. The election must be signed by both the lessor (landlord) and the lessee (tenant). The election may have retroactive effect for a maximum of three months.

 

Since March 31, 1995, 18.00 hours, the possibility to tax the letting and leasing is only possible if the lessee is entitled to at least 90% deduction of input VAT. The percentage of 90 is for specific tenants reduced to 70 (see above).


A transitional measure exists to minimize the disadvantages for lettings and leases existing on March 31, 1995, 18.00 hours whereby the tenant/lessee is not entitled to a deduction of input VAT for at least 90%. Consequently, these leases can be continued subject to VAT during the remaining adjustment period even if the lessee does not comply with the 90%-criterion.


Deduction of VAT


Input VAT incurred on the acquisition and exploitation of immovable property is recoverable if and insofar the property is used for taxable activities. If an immovable property is used for both taxable and exempt activities, VAT can be recovered on the basis of the ratio between taxable and exempt turnover, unless the actual use of the immovable property differs for more than 10% of this ratio. The adjustment period for immovable property is the period elapsing between the moment of the taxable supply and nine calendar years following the year of the supply.


Law proposal on supply of land


In current legislation, no distinction is made between the supply of buildings and the supply of land. This means that the supply of “newly” constructed land is subject to VAT by virtue of law.


Supply of building land


There is no specific definition of building land. However, the Supreme Court has decided that building land means improved land. Land is improved if -with a view to building- one of the following conditions has been fulfilled:

  1. work has been carried out on that land; or
  2. infrastructures have been installed which exclusively serve that land.

Supply of land which has not been built on other than building land


The supply of land which has not been built on other than building land might also be subject to VAT by virtue of law if it is “newly constructed” (e.g. agricultural land that has been ploughed to land to be used for the floriculture).


However, the Supreme Court ruled that the supply of land other than building land, as referred to in Article 13B (g) Sixth Council Directive, should always be exempt from VAT (unless the taxable person (entrepreneur) and the recipient waived their right to the exemption), even if it concerns “newly constructed” land. Consequently, the supplier of land, other than building land, has the right to choose for application of the national legislation (21% VAT is due; no transfer tax) or the Sixth Council Directive (no VAT and consequently 6% real estate transfer tax is due).


Law proposal


Law proposals are pending to change the national provisions as such that national legislation is in accordance with the Sixth Council Directive. Thus, the supply of building land is taxable and the supply of land other than building land is than exempt from VAT. To avoid difficulties whether or not land is improved, a definition of the word “building land” will be included in the national legislation.

 

Building land shall mean land which has not been built on whereby -with a view to building- one of the following conditions have been fulfilled.

  1. work has been carried out on that land;
  2. infrastructures have been installed which exclusively serve that land;
  3. infrastructures have been installed in the neighbourhood of that land;
  4. a building permit has been granted.

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