VAT: a high-volume tax with case-by-case risk

Option to tax under Section 9 UStG

Letting real estate is generally exempt from VAT — but this means no input VAT can be deducted on construction, refurbishment and maintenance costs. Section 9 of the German VAT Act (UStG) allows the exemption to be waived under certain conditions. The key requirement is that the tenant uses the property exclusively for transactions that do not exclude input VAT deduction; for tenants such as medical practices, insurers or banks, the option is usually ruled out.

When a property is sold, the waiver can only be declared in the notarised purchase agreement; according to the case law of the Federal Fiscal Court, a later declaration is invalid (Section 9 (3) UStG). For every lease and purchase agreement, we check whether the option is possible and economically sensible, and draft the necessary clauses.

Input VAT deduction and adjustment for real estate

Input VAT deduction for real estate is not decided once and for all but monitored over an adjustment period of ten years (Section 15a UStG). If circumstances change — for example, when a taxable tenant is replaced by a tenant with VAT-exempt use — the input VAT deduction must be adjusted proportionately. We set up ongoing monitoring so that changes of use are identified in good time and reflected in liquidity planning.

Reverse charge under Section 13b UStG

For construction services, building cleaning, supplies of certain metals and services by foreign businesses, the recipient owes the VAT. The most common sources of error: VAT wrongly shown on the incoming invoice, incorrect classification of the service, missing evidence of business status — each of these errors can cost the input VAT deduction. We analyse your typical transactions and establish robust rules for your accounting.

Cross-border supplies

Intra-Community supplies, chain transactions, the place of supply of services, documentary evidence, EC Sales Lists and registration obligations abroad: we advise across the entire cross-border supply relationship.

VAT representation of foreign companies

Foreign businesses with taxable transactions in Germany need a tax registration and ongoing returns. We handle everything, including correspondence with the tax authorities and VAT refund procedures.

Special VAT audits and corrections

When a special VAT audit has been announced, preparation determines how it goes: we review critical issues in advance, prepare the documents and support you during the audit. If you identify an error yourself, a prompt correction is the right course — it avoids the allegation of intent and limits the consequences to back payment and interest.

Frequently asked questions

When is it worth opting to tax rental income?

When significant input VAT arises from construction or refurbishment costs and the tenant is itself entitled to deduct input VAT. For tenants without that entitlement — doctors, banks, insurers — the option is generally ruled out.

What happens if a subsequent tenant uses the property for VAT-exempt purposes?

The original input VAT deduction must be repaid proportionately for the remaining years of the adjustment period. For real estate, this period is ten years from first use (Section 15a UStG).

Who owes the VAT on construction services?

If a business provides construction services to another business that itself regularly provides construction services, the recipient owes the VAT under Section 13b UStG. In practice, this is evidenced by a certificate from the tax office.

What should be done if there is an error in a VAT return?

Anyone who subsequently discovers an error must, under the conditions of Section 153 of the German Fiscal Code (AO), notify the tax office and make the necessary correction without delay. We also examine possible criminal or administrative penalty consequences and the requirements for a voluntary disclosure under Section 371 or Section 378 (3) AO. A prompt correction does not automatically rule out criminal or administrative penalties.