VAT revision period for real estate services

The Dutch government (again) considers introducing a VAT revision period for services related to real estate.

The law proposal is targeted at situations whereby VAT-taxable real estate owners fully deduct input VAT on services (i.e. renovation costs) on properties that are initially used for VAT taxable activities (for example short stay lease) but later on for VAT exempt activities (for example long stay lease).

The law proposal will likely result in an additional administrative burden for many VAT-entrepreneurial real estate owners. The main features of the draft law proposal are as follows:

  • Extension of the revision scheme to services related to immovable property;
  • A revision period of (effectively) five financial years starting from the financial year in which this service is first used, shall be introduced. The financial year in which the service related to immovable property is first used, is considered the first year of the five-year revision period. Revision then also occurs in the subsequent four financial years, each time for one-fifth of the input tax attributable to the relevant service related to immovable property;
  • A threshold amount of €30,000 excluding VAT per investment service is introduced;
  • These services include activities such as: renovation, enlargement, repair, replacement, and maintenance of the immovable property, as well as demolition work related to renovation;
  • The processing of materials, installations, machinery, and equipment that become part of the service or qualify as immovable property after installation or assembly are also covered by the provision;
  • The measure will enter into force on January 1, 2026;
  • An evaluation will take place after five years to assess the effectiveness and efficiency of the measure.

The potential implications of the introduction of the proposed legislation for VAT-entrepreneur real estate owners are as follows:

  • Entrepreneurs must consider a revision period of five financial years for qualifying services, leading to additional administrative burdens;
  • The current short stay practice (renovation, no newly built real estate, short stay lease, VAT deduction in year of use, following years VAT exempt lease) shall lead to revision VAT due;
  • The proposed VAT revision measure is beneficial in case renovated real estate is first used VAT exempt, but later used subject to VAT within the revision period, as the VAT-entrepreneur is then entitled to a (partial) VAT refund on renovation costs.
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