A new incentive for the real estate market: intention to rent out property is sufficient in order to deduct input VAT

08/03/18

In brief

The Court of Justice of the EU (“Court”) recently issued its ruling in case C-672/16 Imofloresmira. The ruling confirmed that real estate owners have a VAT deduction right for property purchases even if the property is not rented out immediately, as long as the owner is able to demonstrate in an objective manner the intention to rent it out.

 

In detail

Portuguese company Imofloresmira acquired real estate properties with the intention of renting them out (as taxed). The company opted for taxing the intended rentals, initiated actions to identify potential tenants and deducted input VAT for the purchase of the real estate. As the property remained unrented for the past two years, the tax authorities considered that the company would have been required to adjust the input VAT deducted for the purchase of the real estate, although it had proven the actions taken to find potential tenants.

The Court maintained the favourable position towards taxpayers adopted on other occasions in similar cases: the deduction of input VAT for real estate acquisitions is not conditional upon the immediate rental thereof, as long as the owner’s intention to do so can be proved in an objective manner.

[Source: Judgement of the Court of Justice of EU in xase C-672/16 Imofloresmira — Investimentos Imobiliários SA against Autoridade Tributária e Aduaneira, published on https://curia.europa.eu/ on 28 February 2018]

The takeaway

This Decision reiterates that real estate companies are entitled to maintain their right to deduct input VAT for purchases of immovable property, based on their intention to rent them out as taxed, as long as they initiate actions in this respect, proven in an objective manner, regardless of results.

This decision does not only apply to the real estate market, but also to any line of business whose specifics may involve (1) a time gap between the date of purchase of goods / services and the date of their use in a taxable activity or (2) the failure to use them at all in such an activity, for objective reasons.

 

For a deeper discussion of how these issues might affect your business, please contact:

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