If you rent a commercial property to an entrepreneur, you can often opt for VAT-taxable rentals. You then charge VAT on the rent. But why would you do that? Why pay tax on something that's actually exempt?
To opt
A reader who wants to rent his commercial property to an entrepreneur was advised by his real estate agent to opt for VAT-taxable rentals. Why should he choose this? Why would he want to "voluntarily" charge VAT when he doesn't actually have to?
Why choose taxable rental?
Deduction
A business owner who purchases goods or services can deduct the VAT charged by their supplier. They must then use the goods or services for taxable transactions. Most businesses are subject to VAT. A business owner who purchases commercial property can normally deduct the VAT.
Ten years
From the moment the property is put into use, the Dutch Tax and Customs Administration will continue to monitor the property for ten years. If, within this period, the property is no longer fully used for VAT-taxable services, a proportionate portion of the VAT must be repaid. For example, if the property is fully used for exempt services for two years, 20% of the VAT must be repaid.
Rental
Renting out a property is exempt from VAT and would therefore lead to a VAT refund. This can be avoided by renting out the property subject to VAT. Hence the real estate agent's advice. Together with the tenant...
Option request
Opting for taxable rental is always a joint request from the landlord and tenant. Whether VAT-taxable rental is advantageous for the tenant depends, among other things, on their VAT position. The option request can be included in the lease agreement, but you can also submit a request to the Dutch Tax and Customs Administration.
What to do?
The VAT you charge on rent as a landlord must be declared in your VAT return. If you are (still) only a landlord, you are considered an entrepreneur for VAT purposes.
Terms and Conditions
The following conditions apply to the VAT-taxable rental of real estate. The tenant must be a VAT-registered entrepreneur and use the property for at least 90% for activities subject to VAT. The property must be independently exploitable, for example, with its own entrance and facilities. Please note: a residential property can never be rented subject to VAT.
90% statement
The tenant must declare in writing that they are using the property for at least 90% for activities on which they are liable for VAT. This declaration must be included in the lease agreement or in the option request. Tip: For some sectors, a lower percentage is sufficient. Discuss this with your rental agent.
Penalty clause
If the tenant doesn't use the property enough to generate VAT-taxable turnover, they are obligated to report this to their landlord and the Dutch Tax and Customs Administration. The right to taxable rent will then lapse, meaning you may have to repay VAT to the Dutch Tax and Customs Administration. Tip: Include a penalty clause in the lease agreement to recover the damages from the tenant.
Taxable leasing makes the VAT on the purchase of a property and related costs deductible, and also prevents you from having to repay the VAT deducted on the purchase. However, the tenant must use the property for at least 90% for services that qualify for VAT deduction.
