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Change of valuation of leaseholds for VAT


For VAT purposes, as of 1 January 2015, the value of leaseholds on immovable property that are non-dependent of human-life, is set at the value of the underlying immovable property. This change does not just change the amount of payable tax, but also the sort of tax that needs to be paid. How does this work?

In Dutch VAT law, an anti-avoidance regulation states that a leasehold set at a price under its economic value, will be seen as a service for VAT. This is then a VAT exempt lease of the immovable property the leasehold is set on. In most cases, Real Estate Transfer Tax (RETT) will be due then. Because of the new valuation rules, in most cases the economic value-rule will be met, and the leasehold will be seen as the supply of the immovable property itself. If the immovable property is new, this means VAT will be due (and mostly RETT will not). This is good news if the immovable property is exploited VAT taxable, but not if it is used VAT exempt. In those cases, the leasehold will be taxable with 21% non-deductible VAT instead of 6% RETT!

Not in all situations the leasehold will be a VAT taxable supply. In cases where the costs of build of the immovable property is higher then the economic value, there will still be a deemed VAT exempt service. In most of these situations, RETT will be due.

There is a transitory regulation for agreements entered into before 1 July 2015. One can choose (explicitly in the agreement) that the old rules are taken into account. This only works if the leasehold is actually set ultimately 31 December 2016. If one does not take this option in the agreement, the new rules automatically apply. Until 1 July 2015, therefore, one can choose.

If you have any further questions on this matter, please contact our specialists.

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