Expanded range of real estate services subject to VAT in Germany

Out-Law Legal Update | 24 Jan 2018 | 2:26 pm | 1 min. read

LEGAL UPDATE: The German Federal Ministry of Finance (BMF) has significantly expanded the range of real estate services subject to VAT in Germany, with effect from 5 December 2017.

This means that numerous additional services provided in connection with German real estate will in future by subject to German VAT at a rate of 19%.

According to a letter published by BMF, the following services will now be classed as "services relating to real estate" under section 3(a) (3) No. 1 of the German Sales Tax Law (UStG):

  • drawing up a contract for the sale or purchase of a property (asset deal);
  • negotiation of the contractual terms and conditions as well as related consulting services (e.g. financing advice, preparation of due diligence);
  • advice on a tax clause in a land transfer agreement;
  • other advisory services in connection with a property (e.g. sale-and-leaseback contract, financing advice, etc);
  • conception and negotiation of rental and lease agreements for a certain piece of land;
  • review of existing rental or lease agreements with regard to the change of ownership in the context of a transfer of land.

The determination of 'place of service' as the location of the land plot is to be applied even if the underlying transaction leading to a legal change in relation to the land plot does not ultimately take place.

Services which are not closely related to a specific property, or for which the property is not a central and indispensable part, are not subject to the special provision of services set out in section 3a (3) No. 1 UStG. In our experience, unrelated services include:

  • advisory services in connection with the sale of shares of real estate companies (share deal);
  • advice on acquisition structures of a transaction (asset deal, share deal);
  • preparation of a general model lease agreement;
  • examination of the legal conditions of a property.

The BMF letter is applicable to all open cases.

Werner Geißelmeier and Veit Kachelmann are tax experts at Pinsent Masons, the law firm behind Out-Law.com.