Understanding the VAT implications on lease agreements for different types of premises in Germany, such as storage facilities, office spaces, and production facilities, is crucial for both landlords and tenants. This guide covers the basics of VAT on lease agreements, the conditions for VAT deduction, and the issuance of perpetual lease invoices.
VAT on Lease Agreements
General Rules Under German VAT law, the rental of immovable property is generally exempt from VAT (Section 4 No. 12 UStG). However, there are exceptions where VAT can be applied voluntarily, a process known as “opting to tax” (Section 9 UStG). This option allows landlords to charge VAT on the rent, which can be beneficial for tenants who are entitled to input tax deduction.
Opting to Tax (Section 9 UStG)
- Applicability: Landlords can opt to tax the rental income from leasing commercial properties like storage, office spaces, and production facilities.
- Requirement: The tenant must be a taxable person who uses the rented property for business purposes that entitle them to full input tax deduction.
Example Clause: “Both parties agree that the rental payments under this agreement are subject to VAT as per Section 9 UStG. The rent amounts specified are net amounts, and the applicable VAT rate of 19% will be added.”
Conditions for Input VAT Deduction
Formal Invoice Requirements (Section 14 UStG) To be eligible for VAT deduction, the invoice must comply with the formal requirements, including:
- Full name and address of the landlord and tenant.
- Landlord’s VAT identification number.
- Invoice date.
- A unique invoice number.
- Description of the rental service.
- Net rent amount.
- VAT rate and amount.
- Total amount payable.
Use of Property The tenant must use the rented property for business activities that allow for input VAT deduction. For instance, if the tenant uses the office space to run a taxable business, they can deduct the VAT paid on the rent.
Example Clause: “The tenant confirms that the rented property will be used exclusively for business activities that allow for full VAT deduction.”
Perpetual Lease Invoices (Dauermietrechnung)
For ongoing lease agreements, issuing perpetual lease invoices can simplify the VAT accounting process. A perpetual lease invoice is issued once and remains valid for a set period, typically a year, covering recurring rental payments.
Requirements for Perpetual Lease Invoices:
- Reference Period: Specify the period for which the invoice is valid (e.g., January 1, 2024, to December 31, 2024).
- Monthly or Quarterly Payments: State the amount and frequency of payments.
- Adjustments: Include provisions for adjustments if the rent amount changes during the invoice period.
Example Clause: “This perpetual lease invoice covers the rental payments for the period from January 1, 2024, to December 31, 2024. The monthly rental payment is €1,000 net, with an additional 19% VAT (€190). The total monthly amount payable is €1,190. Any adjustments to the rental amount will be invoiced separately.”
Practical Tips for Compliance
- Accurate Documentation: Maintain detailed records of lease agreements and invoices to ensure compliance and facilitate audits.
- Consult with Tax Advisors: Regularly consult with VAT experts to stay updated on regulatory changes and ensure that lease agreements and invoices meet all legal requirements.
- Clear Communication: Ensure that all VAT-related terms are clearly communicated and agreed upon by both parties to avoid disputes.
Role of WW+KN and Baker Tilly
WW+KN, a Baker Tilly Company, provides comprehensive support for businesses dealing with VAT on lease agreements. Our services include:
- Consultation: Offering expert advice on the VAT treatment of lease agreements.
- Documentation Review: Ensuring that lease agreements and invoices comply with all VAT regulations.
- Legal Representation: Baker Tilly Legal offers specialized legal support in tax law, providing robust protection against potential legal issues.
WW+KN acts as a single point of contact, integrating tax and legal expertise to deliver comprehensive service. For professional assistance, contact us at info@vat-germany.com. We help you navigate the complexities of VAT compliance, ensuring your lease agreements in Germany are fully compliant with tax regulations.
