VAT on purchased goods and services is deductible if, and to the extent that, these supplies are used by businesses for VAT-taxable activities. Is VAT deductible when a property is not in use for some time (vacancy)?
Intended use
As long as a purchased good or service has not yet been actually used, VAT may be deducted on the basis of its intended use. As soon as the goods or services are used, the VAT must be reassessed to determine whether it is deductible. If the actual use differs from the intended use, the deduction must be reversed or the VAT may still be deductible.
However, there are also goods and services that are consumed immediately upon acquisition. Examples of such services include the maintenance costs of vacant property (such as heating costs) and the costs incurred in finding new tenants.
Detailed explanation
The general rule is that the letting or hiring out of property is exempt from VAT. However, if the tenant uses the let or hired property for 90% or more for supplies subject to VAT, an option may be exercised to treat the letting or hiring out as subject to VAT.
For the purposes of deducting VAT in respect of property intended for letting, it is therefore important whether the landlord intends to let the property subject to VAT.
The Supreme Court has recently ruled that, to substantiate this intention, it is sufficient that the possibility exists of letting the property subject to VAT. Consequently, VAT may also be deducted where letting subject to VAT is possible, even though the likelihood of this is small.