Rental of immovable property can have various consequences for sales tax (see also the articles on our website; link and link). In short, this may involve:
- Exempt rental; this is the main rule when renting real estate.
- Taxed rental; for example if you opt for taxable rental.
Mixed use real estate and sales tax
In one building, for example an office building, there may be exempt and taxed rental. For example, with multiple tenants. It is possible that you cannot opt for taxed rental for all tenants. Or as with a ruling this year by the Amsterdam Court of Appeal when renting out storage boxes to private individuals (exempt rental) and entrepreneurs (taxable rental; if opted for). The mixed use affects the sales tax deduction for the lessor.
Allocating costs for mixed-use real estate
For example, if the landlord has the entire building painted, it is important to determine how much sales tax can be deducted. The Turnover Tax Act stipulates that VAT deduction is possible to the extent that the goods and services are used by the entrepreneur for taxable transactions. Therefore, no VAT deduction is possible for exempt rentals. If the costs only relate to the taxed rental, this is the case. This is different for costs for the entire property or when it concerns (general) costs that are not attributable to taxed or exempt rental. In that case, it must be examined what can be attributed to the taxed rental.
The main rule is an allocation based on the turnover ratio. The taxed rental compared to the total rental amount is then the ratio for the VAT deduction (also known as a pro rata calculation). Actual usage may not match this pro rata calculation. For example, if the amount of the taxed or exempt rental income is not in proportion to the actual use of the property. In that case, the VAT deduction must be determined on the basis of actual use. For rented real estate, this can be done, for example, based on the use in square meters. An important condition is that the actual use must be based on objectively and accurately determined data. The determination of actual use must therefore be objective and accurate (see, among others, Supreme Court 11 November 2022, ECLI:NL:HR:2022:1608).
For example, this did not go well in the aforementioned judgment of the Amsterdam Court of Appeal. It was possible to determine which storage boxes are used for private individuals and entrepreneurs. Something went wrong with the allocation of the general areas used by both customers. The statement that these spaces only serve to attract entrepreneurs was to no avail. Not even the data from the access systems. Furthermore, the taxpayer had not provided accurate and objective data to determine the actual use of the general areas.
This only concerns costs that are not attributable to the taxed or exempt rental. For example, for costs of the entire building and general costs. For example, if an office building consists of parts that can be used/rented independently, these parts must be taken into account. Suppose a independently rentable floor of an office building is intended for taxable rental. Maintenance costs are only incurred on this floor. Then these costs relate to taxable rental and are deductible. Please note; it is not permitted to use multiple distribution keys for mixed-use goods and services (see, among others, Supreme Court 23 April 2021, ECLI:NL:HR:2021:645).
Note on mixed-use sales tax
If the tax/untaxed turnover ratio does not properly reflect the actual use of a property, it may be advantageous to examine whether the actual use can be used as an allocation key for the advance deduction of VAT. You must be able to determine the actual use objectively and accurately. In addition, it may be wise to check whether the building has areas that can be used independently. Are these parts entirely intended for taxable rental? Then the VAT on the costs relating to that part can be fully deducted.
Mixed use real estate source
Supreme Court 11 November 2022, ECLI:NL:HR:2022:1608).
Supreme Court April 23, 2021, ECLI:NL:HR:2021:645).
Amsterdam Court dated May 25, 2023 ECLI:NL:GHAMS:2023:1500