Voluntarily foregoing a tax exemption may sound strange, and most people will certainly immediately feel uncomfortable.
In principle, landlords are entrepreneurs in the VAT sense. In this respect, the VAT view differs from the income tax view. Rental income is subject to turnover tax, but a tax exemption applies. Accordingly, no input tax can be claimed. In certain cases, however, the exemption can be waived.
Does it make sense to waive the tax exemption?
If the rental turnover is tax-exempt, no input tax can be deducted in return. Input tax refers to the turnover tax on incoming invoices that an entrepreneur can normally have refunded by the tax office as part of the advance return. Thus, the tax on repair and maintenance work commissioned does not represent a cost. i
In return, turnover tax must be paid on rental income, which is normally added to the rent, so that it does not represent an additional economic burden.
Requirements for the option
The property must be rented to an entrepreneur for his business. The entrepreneur may only use the property for transactions that do not exclude the deduction of input tax. The tenant pays the rent, which is subject to VAT. However, he himself has the input tax deduction from it, i.e. he gets the VAT refunded by the tax office. Thus, neither the tenant nor the landlord is economically burdened by the VAT.
The following requirements must be met in order to claim the VAT option:
In the case of larger houses, it is also possible to waive the exemption from VAT only for individual parts of the property.
A property is rented to several parties. There are 3 shops on the ground floor, a general practitioner on the first floor and various flats. The tax exemption can be waived for the part on the ground floor. However, it is not possible to opt for the doctor’s practice, as the doctor carries out tax-exempt transactions.
Accordingly, the input tax for the EC can then also be reclaimed from the tax office.
Example: If repairs amounting to 11,900 euros gross are carried out for the shops on the ground floor, the landlord can have 1,900 euros of tax refunded by the tax office and thus ultimately only has 10,000 euros instead of 11,900 euros in costs.
The waiver of the tax exemption is also possible for transactions that fall under the Real Estate Transfer Tax Act (sales of real estate).