Real estate leasing and VAT: mixed activity

Real estate leasing has its own VAT treatment. When a company carries out both taxable and exempt activity, VAT deduction is calculated proportionally — a frequent source of disputes and mistakes.

When a lease is exempt and when it is not

Real estate leasing is generally VAT-exempt; however, in certain cases the lessor may opt to charge VAT (to tax the lease) if the tenant is a VAT payer. The option has its own conditions and consequences for deduction.

Mixed activity and the deduction proportion

If a company carries out both taxable and exempt activity, input VAT related to both is deductible only proportionally. The proportion is determined by the share of taxable activity.

Annual adjustment

• a preliminary proportion applies during the year;
• at year-end, the deduction is adjusted based on actual data;
• for fixed assets, a multi-year adjustment may apply.

Correct calculation and adjustment of the proportion helps avoid over- or under-claiming VAT.