VAT on Rental

Small business owners with a net turnover of up to a maximum of EUR 35,000 per year (until 31.12.2019: EUR 30,000) must take the following into account as landlords:

• Exempt from VAT (non-genuine exemption) – 0% VAT;
• Rental invoice without VAT – 0% VAT;
• No possibility of input tax deduction;
• Option to opt into standard taxation.
• For the purpose of determining the turnover threshold, 'ancillary transactions' including the disposal of a business and certain tax-exempt transactions (e.g. services provided by residential property owner associations, VAT-exempt freelance transactions) are not to be taken into account.
• A one-time exceeding of the turnover threshold of EUR 35,000 by 15% within 5 calendar years is irrelevant.

The small business owner is only required to submit this if

its turnover – excluding turnover from ancillary transactions including the disposal of a business – exceeds EUR 35,000, or it is required to pay value added tax for the assessment period (note: for other reasons). What if the landlord lives abroad?

If a small entrepreneur resident abroad generates turnover from the rental of a domestic property, that turnover is exempt from tax provided the entrepreneur operates their business domestically. According to the view of the Federal Ministry of Finance (BMF), it is not sufficient for the operation of the business domestically if a domestic property management company carries out the management of the properties.

This depends on the type of rental. The table below provides an overview of the applicable tax rates according to the type of service:

• Rental for other purposes (office, commercial premises) – option pursuant to § 6 para. 2 VAT Act 1994 possible 0% *) 20%
• Rental of land for residential purposes (excluding own use) 10%
• Rental of operating equipment etc. 20%
• Rental of movable furnishings (e.g. furniture) 20%
• Accommodation in furnished residential premises etc. 10%
• Rental of garages and parking spaces 20%
• Rental of land for camping purposes 10%
• Various services provided by residential property owner communities for property shares used for residential purposes 10%
• Heat supply (also as an ancillary service) 20%
• Rental to diplomats (genuine tax exemption upon confirmation by the Ministry) 0% Also exempt from tax is the rental and leasing of building rights.

Since 2017, short-term rental (of no more than 14 days) of properties is mandatorily subject to VAT if the entrepreneur otherwise uses the property only for transactions that do not preclude input tax deduction, for short-term rentals and/or to satisfy a residential need.

If the entrepreneur also uses the property for transactions that preclude input tax deduction, the short-term rental is tax-exempt unless the option to tax is exercised. As a result of the amendment, entrepreneurs otherwise entitled to full input tax deduction no longer need to distinguish, in the case of short-term rental, whether their customer is (almost fully) entitled to input tax deduction from this service.

In addition, the need to apportion input tax amounts or the possible need for an input tax adjustment is also eliminated, which previously arose from the fact that, for example, seminar rooms were rented on a daily basis to persons not (almost fully) entitled to input tax deduction.

Actual taxation and taxation of advance payments in private rental

In the case of private rental, one is obliged to remit VAT in accordance with the collection of payments if the total turnover from non-business income in either of the two preceding calendar years did not exceed EUR 110,000. What is relevant is therefore not the rent invoice, but the receipt of the rental payment. In the case of received advance rent payments and down payments, VAT is likewise to be remitted at the time of collection, unless a genuine loan is involved.

Entrepreneurs who generate income from agriculture and forestry and/or commercial operations must tax on the basis of payments received if the respective business is not subject to mandatory bookkeeping.

!TPA tax tip on VAT in rental! Businesses with self-employed income generally always pay VAT in accordance with receipts, regardless of the legal form.

Even if the landlord neither operates their business domestically nor has a domestic permanent establishment, the BMF is of the opinion that in the case of domestic rental to entrepreneurs entitled to deduct input tax, the reverse charge mechanism does not apply.

The foreign entrepreneur – provided they rent out subject to VAT – is treated as a domestic entrepreneur. Therefore, just as with rental for private residential purposes, VAT must be shown and remitted to the tax office responsible for the property's location. The question of whether the foreign entrepreneur is to be treated as a domestic entrepreneur in this case is currently pending before the ECJ. TPA Tax Tip for foreign landlords! Landlords who are not established within the Community territory must appoint a domestic fiscal representative for the remittance of VAT. Attention: Obligation to retain documents

Please note that all receipts, documents and records in connection with property ownership must be retained until 31.3.2012 under the rules of the UStG 1994 for at least twelve years after the end of the relevant calendar year.

For further questions and information, please feel free to contact me at any time!

Mario Guriguis [email protected] +43 676 930 9254 Homepage