The author already pointed out in July 2021 in a blog post on ADVANT Beiten that the VAT treatment of a lease of a domestic property subject to VAT by an entrepreneur not established in Germany is not compatible with EU law. Since then, nothing has changed, and the risks of this situation remain.
In the opinion of the tax authorities in section 13b.11 (2) sentences 2 et seq. of the German VAT Guidelines (UStAE), an entrepreneur who owns a domestic property and rents it out subject to VAT is to be treated as resident in Germany and the transactions are to be declared in the general taxation procedure. A permanent establishment for VAT purposes is therefore assumed. However, the European Court of Justice (ECJ) ruled in the "Titanium" judgment of June 3, 2021 (C-931/19) that the letting of a property without its own staff does not constitute a permanent establishment for VAT purposes.
According to the German tax authorities, the entrepreneur based abroad must register for VAT in Germany, issue invoices to the tenant with German VAT and declare VAT and input tax to be offset in the general taxation procedure.
Under EU law, rents subject to VAT are subject to the tax liability of the service recipient/tenant in accordance with Section 13b of the German VAT law (UStG) and input tax must be refunded via the special input VAT reclaim procedure. For invoices issued with VAT, the issuer/landlord based abroad is liable for VAT in accordance with Section 14c (1) UStG; the tenant is not entitled to deduct input VAT so far.
Currently, there is protection of legitimate expectations vis-à-vis the tax authorities insofar as they must adhere to the administrative instructions. The risk is initially borne by the tenant, who does not declare VAT subject to reverse chare regime, although he would be obliged to do so under EU law. Under EU law, the tenant can still not claim any input VAT deduction from the landlord's invoices. If VAT issues relating to the tenant, which are not necessarily connected to the rental, go to court, these incorrect treatments under EU law may also be at issue, as the court will follow EU law and not the administrative opinion.
The landlord can remedy this by applying for a certificate in accordance with § 13b (7) sentence 5 UStG that the landlord is not treated as a resident abroad/other Community territory. With reference to VAT registration in Germany based on section 13b.11 (2) sentences 2 et seq. UStAE, the tax office of the landlord resident abroad should probably have to issue this certificate.
It would be desirable for the legislator to decide to enshrine the administrative opinion in law. Austria already did this in 2022 in response to the Titanium ruling. This can be done, for example, in an addition to Section 13b (6) No. 7 UStG, which states that Section 13b (1)-(5) UStG does not apply to the VATable letting of a domestic property.
In the meantime, to obtain legal certainty, in particular due to the risk for the tenant, the landlord should request a certificate in accordance with § 13b (7) UStG from the tax office responsible for VAT (form USt 1 TS) and present it to the tenant (without being asked).
Jens Müller
