VAT consequences of sale and lease back (part 3)

Analysis

VAT consequences of sale and lease back (part 3)

Deloitte Real Estate - VAT-related attention points for the buyer.

What are the VAT consequences of sale-and-lease-back? The world we live in right now affects many real estate companies. By selling business assets and lease them back, Real Estate investors can increase their liquidity position. Deloitte Real Estate will focus on the most critical VAT-related attention points for the buyer in this article.

Points for attention for the buyer

The lease of immovable property is, in principle, exempt from VAT. Parties can opt for a VATtaxable lease if the tenant uses the immovable property for at least 90% for activities which entitle the tenant to recover the input VAT on costs incurred. For VAT purposes, it is considered lease when the owner of immovable property grants a tenant the right to use an immovable property exclusively against remuneration for an agreed period of time.
In the case of a VAT taxable lease, the lessor may recover all VAT charged in relation to the lease.

If the immovable property is leased (back) VAT-exempt, the lessor cannot recover VAT on the acquisition and the VAT on costs attributable to the acquisition or exploitation.

In the (rare) situation in which there is one composite transaction (we refer to our previous blogs on this topic), this transaction can qualify as a VAT exempt financial transaction in which the buyer acts as the financier. This results in a restriction of the right to recover VAT for the buyer unless the buyer is established outside the European Union.

Real Estate Transfer Tax

For the sake of completeness, we note that the purchaser of immovable property located in the Netherlands is liable to pay 6% transfer tax on the purchase price of the property of higher economic value (the 2021 Dutch tax plan announced an increase to 8% per 2021). A sale-and-lease-back transaction involving immovable property will result in transfer tax being levied at the level of purchaser unless a specific exemption can be applied (for example for newly constructed properties). Despite legislation introduced several years ago, it is still possible to substantially reduce the transfer tax due in relation to a sale-and-lease-back transaction. Seller could establish a right in rem (e.g. leasehold) on behalf of a group company, at least three years before the sale and supply of the bare ownership to the investor. The RETT taxable basis concerning the property's acquisition can in such case be reduced by the capitalized value of the future ground rent payments. As a result, real estate transfer tax is payable on a substantial lower amount.

VAT consequences of a sale-and-lease-back conclusion

The VAT consequences of a sale-and-lease-back transaction are not easy to identify and depend on the precise agreements between seller and buyer. If you consider such a transaction, we advise you to map out the VAT consequences in advance. If the transaction is correctly designed, and the transaction documentation is compiled with care, the transaction should not lead to adverse VAT consequences for the parties.

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