The letting of residential properties is exempt from VAT. However, operations carried out as part of a holiday accommodation business are not. And for short-stay lettings, the reduced VAT rate applies.
Exemption
A tax exemption naturally sounds appealing. However, there is one major drawback to a VAT exemption: you are not entitled to deduct the VAT charged on the goods and services you purchase (input VAT). If you have had new houses or flats built, converted a former office building, or are expecting substantial maintenance costs, it may well be worth operating as a VAT-registered business so that you can deduct the input VAT. This is certainly the case when VAT can be paid at the reduced rate of 9%.
Short stay
Renting out property subject to VAT is possible where the letting takes place as part of a holiday accommodation business. This is the case when tenants stay for only a short period: a short stay. Case law indicates that, under this scheme, a stay of up to 6 months is still considered a short period. For most people, a 6-month holiday is quite a long time!
Project development
The Arnhem-Leeuwarden Court of Appeal has recently ruling This relates to a case involving a property developer who, in 2013, claimed VAT input tax on 13 flats purchased. The intention was to sell the flats to private individuals or investors, but it was ultimately decided to let them out instead.
According to the Court, this does not constitute short-stay letting. A key factor in this regard is that, under the terms of the tenancy agreement, the tenants were responsible for the costs of minor repairs and for cleaning their own flats. The tenants are registered in the population register at the address of the flats, they receive municipal tax and water board charges directly, and they do not have any other accommodation.
Furthermore, most tenants have rented their flat for a period longer than 6 months. The tenancy agreement includes a best-efforts obligation to enter into a new six-month tenancy agreement upon expiry of the temporary tenancy agreement, provided the property developer has not yet sold the flat. A number of tenancy agreements also include a right of first refusal to purchase.
The Court of Appeal has upheld the District Court’s ruling: the letting of the flats is exempt from VAT because it does not constitute short-stay letting. The tax authorities were right to make a subsequent assessment of the input tax that had been deducted.