On 14 December 2023, the Dutch Ministry of Finance published an updated version of the Dutch VAT decree for immovable property. This decree sets out the policy of the Ministry of Finance for VAT aspects related to immovable property. The decree has been updated to account for changes in case law, legislation and government policy. This publication highlights several key amendments:
The lease of real estate is by default VAT exempt, unless parties opt for a VAT taxable lease. In practice the option is usually included in the lease agreement and parties should fulfill certain formal and material requirements to successfully opt for a VAT taxable lease. The material condition is that the tenant is entitled to at least 90% VAT recovery.
The decree includes specific conditions to still consider an option for VAT taxable lease valid for the whole period of the lease agreement when not all formal conditions were met. The main condition is that the material condition has been met by the tenant during the full length of the lease contract and parties acted like a valid option for a VAT taxable lease was included in the lease contract (e.g., VAT was charged on the invoices).
We note that the formal omissions in the contract should still be resolved within a reasonable term, for example via a revised version of the lease agreement.
In the previous version of the decree, the position was that for commercial real estate, service charges were generally subject to VAT and for residential real estate VAT exempt.
The decree treats services for which (service) charges are invoiced in principle as independent and subject to VAT (i.e., not following the VAT treatment of the lease). An important element for this conclusion is whether under the lease contract the tenants have the option to choose a supplier, irrespective of whether they exercise that option. In the case of utility services, there is a separate, usually VAT taxable, service (in addition to the lease) if tenants can freely determine their use of utility services (e.g., heat, cold, etc.), with individual meters and billing based on actual usage.
To allow landlords to determine the impact for each individual case and amend their service charge policies in line with the decree, this aspect of the decree is applicable as of 1 January 2025.
The first usage of new real estate is decisive for among other the application of the RETT concurrence exemption and whether the sale of the property is by default subject to VAT. The decree considers the first usage is the actual and sustained utilization of the property in line with its intended purpose. As an example, the preparation by the (future) tenant of the leased space for its future use qualifies as first usage is already considered as first usage. In practice, this moment is often before the start of the lease agreement. Therefore, it is important to properly document this moment to prevent any discussion on the application of, for example, the RETT concurrence exemption.
The decree incorporates the Dutch Supreme court cases that have been issued since 2013. In essence, the conclusion is that based on this case law a transformation will not quickly result in new real estate. As such, only significant changes in the construction of the building could lead to new real estate. We also refer to our previous alert on this topic.
It might be argued that on the basis of case law from the European Court of Justice, the conditions set out by the Dutch supreme court are too strict. Whether this is indeed the case will likely be clarified in the near future. For the time being, the Dutch tax authorities will follow the line as set out in the decree.
According to the decree, the lease of separate (non-integrated) solar panels on the roof or in the proximity of dwellings follows the VAT treatment of the lease of the dwelling (i.e., VAT exempt) also in case the lessor is the same party. This deviates from the current practice, where this was considered as a separate VAT taxable service. The decree includes an approval that when the lease of the solar panels started prior to 2023 and VAT has been charged, this VAT treatment can be applied until the end of the revision period of the solar panels. As of 2023, the 0% VAT rate applies on the purchase and installation of solar panels, therefore this approval only covers the period prior to 2023.
Other topics covered by the decree that we have not discussed in detail in the above are among others: clarification on the VAT treatment of granting a limited right below market value, VAT qualification of ground with paving and short-stay lease of accommodation.
With this new decree a long-awaited update has been issued that could have an impact on how parties have treated certain activities. Therefore, it is strongly recommended to assess the impact of the (new) positions on the current and future indirect tax treatment of activities in relation to real estate.
We note that the decree should be seen as the point of view of the State secretary of Finance which is in principle leading for the Dutch tax authorities, but different points of view could still be possible for market parties on the basis of existing case law / interpretation differences.