REALWorld Law

Commercial leases

VAT on rent

Is VAT charged on rent?

Angola

Angola

VAT is expected to enter in force in Angola in October 2019 or January 2020. VAT will be imposed on commercial leases.

Australia

Australia

In Australia, VAT is called the Goods and Services Tax (GST) and the current rate of GST charged on taxable supplies of goods and services is 10 percent. The supply of a commercial or retail lease is deemed a taxable supply and the landlord will need to charge GST on the rent and other consideration received from the tenant and will then need to remit the GST received from the tenant to the Australian Taxation Office.

In the case of commercial or retail leases, tenants that are registered for GST are entitled to claim tax credits for the GST that they pay on the rent and other consideration to the landlord. However, this is subject to suitable provisions being contained in the lease and also subject to the landlord being registered for GST.

Belgium

Belgium

In principle, leases regulated by the Civil Code and those governed by the Commercial Leases Act or the Regional pop-up regulations, are exempt from VAT. As a result, the landlord cannot reclaim input VAT. If the landlord built the leased premises or acquired a new building and paid VAT on the acquisition, this VAT is not deductible.

Since 1 January 2019, in case of new buildings[1] or substantially renovated existing buildings[2] and in case of professional tenants and landlords, an optional VAT lease has been introduced. In such case, if the landlord built the leased premises or acquired a new building and paid VAT on the acquisition, this VAT is deductible. This regime applies to leases regulated by the Civil Code, those governed by the Commercial Leases Act and those regulated by the Regional pop-up regulations and have a duration of more than 6 months.

Since 1 January 2019, all short term leases with a duration up to 6 months, are subject to VAT.

For warehouse leases concerning existing buildings, VAT will be charged provided that (i) the warehousing space constitutes at least 50%, (ii) the commercial area (if available) may not exceed 10%. If these conditions are not met, the lease will be exempt from VAT, unless it constitutes a new building or substantially renovated building, in which case the VAT option mentioned above applies.

[1] A building is considered to be new under VAT legislation if no VAT has become due on the construction works before 1 October 2018.

[2] A building is considered to be substantially renovated under VAT legislation if (i) the renovation works substantially alter the essential elements of the structure of the building and/or (ii) the cost of the renovation works exceeds 60% of the sales value of the renovated building.

Bosnia-Herzegovina

Bosnia-Herzegovina

The standard rate of VAT is 17%, however, the following services are exempt: leases and subleases of residential premises, apartments and housing projects where the lease is for a period of more than 60 days, as well as the services involved in leasing agricultural land and forests registered in the land books (public registers of rights to real estate).

Canada

Canada

Canada has a federal VAT called the Goods and Services Tax (GST). The current rate of GST charged on taxable supplies of goods and services is 5%. The supply of a commercial or retail lease is deemed a taxable supply and the landlord will need to charge GST on the rent and other consideration received from the tenant and will then need to remit the GST received from the tenant to the Canada Revenue Agency. Certain provinces have harmonized their provincial sales tax regime with the federal GST regime, and in those provinces the landlord will need to charge the combined rate of GST plus the rate of provincial sales tax (generally 8–10%), which is referred to as the Harmonized Sales Tax or HST.

China

China

No VAT is charged on rent.

Croatia

Croatia

VAT is (currently) payable at 25% only if the landlord is a registered VAT payer.

Czech Republic

Czech Republic

Generally, renting real property is exempt from VAT except for short-term leases of real property, leases of parking spaces or areas, leases of security deposits and leases of machines and other attached equipment. However, in lease relationships between VAT payers, VAT may be charged on rent from commercial premises at 21 percent.

Denmark

Denmark

VAT at 25% will be payable only if the lessor opts to charge VAT.

France

France

The landlord can opt for one of two taxes to apply: VAT (at 20%) or CRL (Contribution sur les Revenus Locatifs – Contribution from Rental Revenues) amounting to 2.5%.

VAT can be recovered (totally or partially) by the tenant in the ordinary course of its business and if it uses the building for the purposes of a VATable business. CRL is not recoverable but is a tax deductible expense.

Germany

Germany

Generally, rental payments are exempt from VAT. The landlord can waive this exemption if the real estate is leased to an entrepreneur who uses the land for business purposes. This will entitle it to reclaim input VAT. In this case, VAT will be payable at the rate of 19%.

Hong Kong, SAR

Hong Kong, SAR

There is no value added tax in Hong Kong, instead, stamp duty is payable depending on the level of rent and the term of the lease. The responsibility for paying stamp duty is usually shared equally between the lessor and the lessee.

Hungary

Hungary

Generally, commercial leases are subject to VAT at a rate of 27%.

Ireland

Ireland

Landlords may exercise an option to tax subject to certain conditions. There is no option to tax residential leases.

Italy

Italy

Non-residential leases are exempt from VAT, unless the landlord opts for the VAT regime to apply and states this explicitly in the contract. The applicable rate of VAT is 22%.

Japan

Japan

Commercial leases of buildings are subject to Japanese consumption tax at a rate of 10%.

Residential leases and land leases (with the exception of parking leases) are exempt from Japanese consumption tax.

Netherlands

Netherlands

VAT applies at a rate of 21 percent and will be payable if parties agree to charge VAT and the premises are used for taxable purposes.

Nigeria

Nigeria

The Value Added Tax (VAT) Act as amended by the Finance Act 2019, forms the legal basis for imposition of VAT in Nigeria and provides that VAT is applicable at a flat rate of 7.5% on the supply of taxable goods and services, other than those exempted in the Law. By the provisions of the Value Added Tax (Modification) Order 2020 published in the Federal Government of Nigeria Official Gazette No. 18, Vol 107 of 4 February 2020, the First Schedule of the VAT Act as amended by the Finance Act was modified by expanding the list of goods and services exempted from VAT. Specifically, leases and rental of residential buildings are exempted from the incidence of VAT.

The Federal Inland Revenue Service (FIRS), has issued several circulars clarifying the scope of VAT exempt items and as commercial leases of land and buildings are not included in the list, there is the inference that rent accruable from the leases of land and buildings for commercial purposes is not exempt from VAT. We also note that the exemption of leases and rental of residential accommodation from VAT is limited only to persons and does not extend to leases and rent of residential accommodation by a company (corporate entity).

Norway

Norway

The landlord can opt to register as a VAT paying company or to register the property for VAT purposes. This allows VAT to be recovered on expenses, but also means the tenant must pay VAT on rent and common expenses. The VAT rate is currently 25%.

Poland

Poland

VAT is charged on rent at the rate of 23% in relation to leases of commercial property (including agricultural real estate). Rental of residential property as a dwelling is exempt from VAT.

Portugal

Portugal

Leasing is VAT free. However, when certain requirements are fulfilled, it is possible to ask Tax Authorities for a VAT exemption waiver.

The landlord may request the exemption waiver and charge VAT in order to recover VAT values supported with expenses. The exemption waiver may only be recognized if the tenant is also a VAT taxable person.

The current VAT rate for leasing purposes is 23 percent.

VAT exemption does not comprise, among others:

  • The provision of lodging services, done within the scope of the hotel activity or similar properties, including camping sites
  • The location of areas of collective shelter or parking of vehicles
  • The location of machines and other fixed installation equipment, as well as any other leases which result in the costly transfer of the commercial or industrial establishment operation
  • The leasing of safe deposit boxes
  • The leasing of spaces for exhibitions or publicity
Romania

Romania

The landlord can choose to be registered as a VAT company or to have the property registered for VAT purposes. This will entitle it to recover VAT on its expenses, but the tenant must then pay VAT on the rent and on common expenses. The VAT rate is currently 19% (5% applicable in the hotel sector or sectors with a similar function, including the rental of land for camping).

Russia

Russia

Rental payments are normally subject to VAT in Russia at the current rate of 18 percent. However, land rented from the state or municipal authorities is VAT exempt.

Foreign companies acting through branches or representative offices in Russia are not charged VAT on the rent of premises in Russia if the legislation of the relevant foreign state (or an international treaty with the Russian Federation) provides for a reciprocal exemption for Russian companies and citizens.

Slovak Republic

Slovak Republic

Leases of real estate are exempt from VAT, apart from leases of certain types of facility, such as short-term accommodation (for example hotels), parking lots and secure deposit facilities. However, a taxpayer who leases property or a part of it to a taxable person may decide not to have the lease exempt from the VAT.

Spain

Spain

Residential rent is generally exempt from VAT.

Lease agreements on commercial premises that are owned and leased by businesses are subject to VAT at the rate of 21 percent.

Sweden

Sweden

VAT at 25% is payable only if the landlord chooses to charge VAT. Landlords may choose to register for VAT in order to recover VAT on their expenses. Moreover, landlords can choose to register only part of the premises for VAT and leave other parts free of VAT.

Thailand

Thailand

No. VAT is charged on goods and services only.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

The United Arab Emirates introduced a VAT regime, on 1 January 2018.

VAT will be applied to leases concerning commercial real estate at the standard rate of 5 percent irrespective of where the parties are resident. If the property is partly commercial and partly residential, the rents payable on the residential are generally exempt but the rules can be complicated and advice should be sought.

VAT is due on each payment of rent as a separate supply triggered by the earlier of payment or the issue of a VAT invoice.

The Executive Regulations provide transitional rules to deal with contracts entered into prior to 1 January 2018. In the context of a commercial lease, according to the regulations, if a lease is:

  • Entered into prior to 1 January 2018, and
  • Is silent on how VAT is to be dealt with in relation to supplies made in connection with the lease

Then if prior to 1 January 2018, the landlord requested that the tenant confirm:

  • Whether the tenant would be registered for VAT as at 1 January 2018, and
  • The extent to which the tenant expects to be able to recover tax incurred on the supplies, and
  • The tenant responded to the landlord's request within 20 days of receiving the request

Then the landlord will be able to charge the tenant an amount of VAT equal to the amount the tenant is able to recover from its business.

If the tenant did not respond to the landlord's request within 20 days of receiving it, then the landlord may treat the rent payable under the lease as exclusive of VAT and request that the tenant pays VAT on top.

If the landlord failed to ask the tenant, then the rents are now inclusive of VAT, pending any variation of the terms. This means that the landlord has to pay the VAT to the Tax Authority out of the rents he receives.

For all commercial leases entered into after 1 January 2018 VAT is due on the rent at the standard rate of 5 percent and appropriate VAT clauses should be inserted into the lease.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

The United Arab Emirates introduced a VAT regime on 1 January 2018.

VAT is now applied to leases concerning commercial real estate at the standard rate of 5%, irrespective of where the parties are resident. If the property is partly commercial and partly residential, the rents payable on the residential are generally exempt but the rules can be complicated and advice should be sought.

VAT is due on each payment of rent as a separate supply triggered by the earlier payment or the issue of a VAT invoice.

The Executive Regulations provide transitional rules to deal with contracts entered into prior to 1 January 2018. In the context of a commercial lease, according to the regulations, if a lease is:

  • Entered into prior to 1 January 2018, and
  • Is silent on how VAT is to be dealt with in relation to supplies made in connection with the lease

then, if prior to 1 January 2018, the landlord requested that the tenant confirm:

  • Whether the tenant would be registered for VAT as at 1 January 2018, and
  • The extent to which the tenant expects to be able to recover tax incurred on the supplies

and the tenant responded to the landlord’s request within 20 days of receiving the request, then the landlord will be able to charge the tenant an amount of VAT equal to the amount the tenant is able to recover from its business.

If the tenant did not respond to the landlord’s request within 20 days of receiving it then the landlord may treat the rent payable under the lease as exclusive of VAT and request that the tenant pays VAT on top.

If the landlord failed to ask the tenant, then the rents are now inclusive of VAT, pending any variation of the terms. This means that the landlord has to pay the VAT to the Tax Authority out of the rents he receives.

For all commercial leases entered into after 1 January 2018, VAT is due on the rent at the standard rate of 5% and appropriate VAT clauses should be inserted into the lease.

UK - England and Wales UK - England and Wales

UK - England and Wales

VAT is not payable on rents unless the landlord makes an option to tax in relation to the property. If the landlord makes an option to tax, VAT will be chargeable in addition to the rents. The current rate of UK VAT (as at August 2020) is 20%.

UK - Scotland

UK - Scotland

Normally leases provide for the tenant to pay VAT where this applies. The standard rate of VAT is currently 20% and is payable if the landlord has elected to charge VAT in relation to the premises.

Ukraine

Ukraine

Yes, VAT is charged.

United States

United States

There is no value added tax on rents in the US. However, some city and other local governmental authorities do impose sales or occupancy taxes on rents. In some instances, such taxes are only levied against particular types of property. For example, some local governmental authorities may impose a tax if the lease term for a particular lease exceeds a certain length of time. Please consult with a local lawyer for details of the taxation applicable in any given locality.

Zimbabwe

Zimbabwe

VAT in Zimbabwe is 14.5%  and will not be chargeable on residential rentals but is however chargeable on commercial rent under the terms of the VAT Act [Chapter 23:12]

The Income Tax Act [Chapter 23:06] also states that where an individual is an informal trader, (ie  carries on a trade for his own account from which he derives a gross income of less than ZWL 48,000 (Approx US$ 585.00, as at 25 August 2020) ; has not in the most recent year of assessment for which he could have done so, furnished a return for the assessment of the income derived for his own account; hawker or street vendor; a person who sells articles at a place commonly known as a “people’s market” or a “flea market”; or a person who manufactures or processes any articles in or from residential premises) he must notify the Commissioner of his status as an informal trader in writing. A presumptive tax, equal to such percentage of the rent paid must then be paid to the Commissioner, unless the landlord is in possession of a VAT tax clearance certificate.