The letting of property is exempt from VAT. Only where the let property is used for 90% or more for supplies in respect of which the tenant is entitled to deduct VAT may the tenant and landlord jointly opt to charge VAT on the rent. (the “taxable letting option”, which can be incorporated into the tenancy agreement). lettings to private individuals and to businesses exempt from VAT are therefore always exempt from VAT.
Included in VAT after all
Under VAT legislation, the right to deduct VAT on input supplies is linked to taxable supplies. It may therefore be very advantageous to explore ways of ensuring that the provision of immovable property does not qualify as a VAT-exempt letting.
In the case of sports facilities (for example, in new-build projects or the installation of artificial turf pitches), this is achieved by expanding the scope of the service in such a way that it qualifies as the provision of opportunities to take part in sport. There is an additional VAT benefit in that the service is taxed at the reduced VAT rate (6%).
The letting of other immovable property is not covered by the exemption if the supply can be reclassified in such a way that, for the purposes of VAT, it constitutes more than simply letting (this is also referred to as Rental Plus, subject, of course, to VAT at the standard rate of 21%).
Rental or Rental Plus
The question of whether ‘verhuur plus’ applies is addressed in a ruling by Court of Appeal of ‘s-Hertogenbosch. This involves the letting of storage units to private individuals and businesses. Shipping containers and wooden containers have been placed in a former stable rented by the operator, and these are available for hire. The operator is responsible for the security of the premises, and users may make use of a delivery van or trailer free of charge. Users are only permitted to enter the premises for loading and unloading, and opening hours are restricted. The tenant may not make the storage space available to third parties.
The Court of Appeal concurs with the District Court of Zeeland-West-Brabant in its ruling that, for VAT purposes, the service qualifies as a VAT-exempt letting of immovable property (rather than a VAT-taxable ‘letting plus’). The Court notes that the agreement concluded with the users essentially provides for the storage of the users’ goods by granting them the right to the exclusive use of a separate, demarcated space. The restriction of access to the rented premises to the specified opening hours does not detract from this essential nature of the agreement. The Court classifies other services as ancillary services, which do not result in the supply being classified as anything other than VAT-exempt letting of immovable property (the supply does not qualify as Rental Plus).