Update of the Dutch Real Estate VAT Ordinance – Sales Taxes: VAT, GST

On 14 December 2023, the Dutch Ministry of Finance published an updated version of the Dutch VAT set for real estate. This decree sets out the policy of the Ministry of Finance for aspects of VAT related to immovable property. The Ordinance has been updated to reflect changes in case law, legislation and government policy. This publication highlights several key changes:

Option to rent taxable with VAT

The rental of real estate is exempt from VAT by default, unless the parties decide on a rental subject to VAT. In practice, this option is usually included in the lease agreement and the parties should meet certain formal and material requirements in order to successfully opt for a lease subject to VAT. A material condition is that the lessee is entitled to at least a 90% VAT refund.

The decree contains specific conditions for considering the possibility of a taxable lease with VAT for the entire duration of the lease, when all formal conditions have not been met. The main condition is that the material condition was fulfilled by the lessee throughout the duration of the lease agreement and the parties acted in such a way that the lease agreement subject to VAT was included in the lease agreement (e.g. VAT was charged on the invoices).

Please note that formal omissions in the contract should still be resolved within a reasonable period of time, for example through a revised version of the rental agreement.

Service charges

In the previous version of the decree, service charges were generally subject to VAT for commercial real estate and exempt from VAT for residential real estate.

The decree considers the services for which the fees for (services) are invoiced, in principle, to be independent and subject to VAT (i.e. they do not follow VAT on rent). An important element for this conclusion is whether the tenants have an option under the lease to choose the contractor, regardless of whether they exercise that option. In the case of utilities, there is a separate service, usually VAT chargeable (apart from rent), if tenants are free to determine their use of utilities (eg heating, cooling, etc.), with individual meters and billing. based on current usage.

To allow landlords to determine the impact on a case-by-case basis and adjust their service charge policies in line with the Ordinance, this aspect of the Ordinance is applicable from 1 January 2025.

First use of the new property

The first use of the new property is, among other things, decisive for the application of the RETT exemption from competition and whether the sale of the property is subject to VAT by default. The decree considers the first use to be the actual and permanent use of the property in accordance with its intended purpose. For example, the preparation of the (future) lessee of the leased space for its future use qualifies as the first use is already considered the first use. In practice, this moment is often before the start of the tenancy agreement. Therefore, it is important to properly document this moment in order to avoid any discussion about the application of, for example, the RETT competitive exemption.

Property transformation

The decree includes Dutch Supreme Court cases that have been issued since 2013. The conclusion is basically that, based on this case law, the transformation will not quickly lead to new properties. As such, only significant changes in the construction of the building could lead to new properties. We also link to ours prior warning on this topic.

It could be argued that based on the jurisprudence of the European Court of Justice, the conditions set by the Dutch Supreme Court are too strict. Whether this is actually the case will probably become clear in the near future. For the time being, the Dutch tax authorities will follow the line set out in the decree.

Non-integrated solar panels

According to the decree, the rental of separate (non-integrated) solar panels on the roof or near the dwelling is subject to VAT when renting the dwelling (i.e. exempt from VAT) even if the lessor is the same party. . This deviates from previous practice where this was considered a separate service subject to VAT. The decree includes an agreement that if the rental of solar panels started before 2023 and VAT was charged, this VAT regime can be applied until the end of the solar panel review period. From 2023, the purchase and installation of solar panels is subject to a 0% VAT rate, so this approval only applies to the period before 2023.

Other topics

Other topics covered by the decree and which we did not deal with in detail above are, among others: clarification of the VAT adjustment when granting a limited right below the market value, VAT qualification of a plot of land with paving and short-term rental of accommodation.

A&M says

With this new decree, a long-awaited update has been released that could affect how parties deal with certain activities. Therefore, it is strongly recommended to assess the impact of the (new) opinions on current and future indirect taxation of real estate activities.

We note that the decree should be understood as the view of the Secretary of State for Finance, which is in principle authoritative for the Dutch tax authorities, but based on existing case law, different views / differences of interpretation may still be possible for market participants.

Originally published on December 21, 2023.

The content of this article is intended to provide a general guide to the issue. Professional advice should be sought regarding your particular situation.

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