Expanded range of real estate services subject to VAT in Germany

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.