New VAT property decree: three important changes for landlords

The updated property decree brings a welcome concession where the option to tax is defective, new policy on service charges and a changed position on letting solar panels.

The Dutch VAT property decree sets out the State Secretary for Finance's policy on the VAT consequences of supplying and letting immovable property. It was updated at the end of last year and took effect on 1 January. Below we pick out three changes relevant to landlords.

A defective option to tax

Letting immovable property is in principle exempt. Where the tenant uses the property at least 90% (70% is enough in some sectors) for taxable supplies, the parties can opt for a taxed letting. Besides that 90% test, formal conditions attach to the option:

• the choice is recorded in a written lease
• that lease describes the property with its address and land registry details
• that lease states the start of the tenant's financial year
• a declaration signed by the tenant, showing that it meets the 90% test, is included in or with the lease

Where not all the formal conditions are met, the option has not been validly exercised. The letting is then exempt and both parties must correct the VAT charged and deducted on the rent invoices. The landlord may also face non-deductible adjustment VAT, a loss it will recover from the tenant where the lease so provides.

Where the parties have acted as though the option was validly exercised, meaning the landlord charged VAT, the State Secretary considers those far-reaching consequences of a formal defect undesirable. He therefore accepts that, provided the 90% test was met throughout, the option takes effect on the commencement date stated in the amended written lease. The condition is that the defect is remedied within a reasonable period after the parties became aware of it. For practitioners that is a welcome concession.

Service charges and VAT

Under the previous decree, service charges on residential lettings in principle shared in the exemption. For commercial property such as shops, offices and logistics premises, the starting point was that VAT had to be charged, even where the letting itself was exempt, for instance letting office space to an insurer, bank or municipality. Services with residential lettings were therefore not separate supplies and were subsumed into the exempt letting, while with commercial property they were separate.

That policy has changed. From 1 January 2024 what matters is whether the tenants may choose the provider of the service themselves, for instance the cleaning or security company (note that the possibility is enough), and whether the landlord states the service charges separately on the invoice.

For landlords this means a good deal of work: leases and invoicing must be reviewed and where necessary amended. It is therefore welcome that there is a transitional rule. Landlords who applied the old policy may continue to do so until 1 January 2025.

Letting solar panels

The Dutch Tax Administration previously took the view that letting non-integrated solar panels on homes is a separate service subject to 21% VAT. The new decree takes a different line: that letting is not an independent supply alongside the letting of residential accommodation and is subsumed into it, and therefore into the exemption.

Landlords who deducted the VAT on buying such panels before 2023 benefit from a transitional rule. Until the end of the adjustment period for the panels they may treat the letting as taxed, so that the change of policy does not trigger a correction during that period.

Strikingly, the decree says nothing about letting non-integrated solar panels on property other than homes, such as offices. We assume that from 1 January such letting is likewise subsumed into the letting of the property itself. Where that letting is exempt, the landlord may face a correction of the deduction on the panels and possibly a restriction on deducting general costs. In our view it would be reasonable for the transitional rule to cover that situation too.