The outgoing Minister of Finance De Jager recently introduced a bill to amend the Dutch legislation in accordance with the European Union VAT guidelines, with effect from January 1, 2011. These guidelines aim to change the VAT treatment of the private use of real estate. The guidelines also aim to change the Community VAT regulations regarding imports and the place of delivery of gas and electricity.
Changes to the VAT treatment of the private use of real estate
An entrepreneur that purchases real estate, for both business and private purposes, can choose to treat this real estate solely as a business asset for VAT purposes. In such case, the VAT due on the purchase of this real estate, under the current regulations, is available for complete and immediate deduction. The actual private use of the real estate is then taxed each year during the 10-year review period applicable to real estate.
Under the new regulations, the VAT deduction for such private use is restricted as of the purchase. Furthermore, there is an adjustment mechanism for the deduction. This allows any changes in the business and private use of the real estate in question, to be taken into consideration during the 10-year review period. The explanatory notes to the bill give the following example.
Example
Suppose that an amount of EUR 38,000 is due in VAT charges on the purchase of a property, which is used for both living and working, but which is claimed solely as a business asset. The entrepreneur uses 80% of the property for business purposes – for which he has the right to a deduction of input VAT – and 20% for private purposes. Under the new regulations, the entrepreneur can immediately deduct EUR 30,400 (80% of EUR 38,000) on his VAT return. The remaining 20% (EUR 7,600) is thus excluded from the deduction.
If the private use then changes, the input VAT deduction amount must be revised. Suppose that the private use in the second year expands from 20% to 30%. The input VAT deduction that can be attributed to that year must then be revised. This means that 10% of the input VAT attributable to the second year must be revised, which is to say: 10% of EUR 3,800 (EUR 38,000/10 years). The revision for the second year thus amounts to EUR 380. The changes in the private use of the real estate thus are followed for a period of nine years after the year of purchase.
For other expenses in connection with real estate used for both private and business purposes – for example, for maintenance services such as painting and carpentry – the revision of the deduction only applies when the real estate is first being used, and at the end of the relevant calendar or financial year.
VAT treatment changes for imports and place of delivery of gas and electricity
As of 2004, VAT may be levied on imports and delivery of gas and electricity at the place where the purchaser – and not the supplier – is based. As a part of those regulations, an exemption has been created for the import of gas via the natural gas distribution system and the import of electricity. The regulations are being extended to delivery and imports of gas via any natural gas system in the territory of the European Union, or any distribution network connected to such a system. Furthermore, the regulations also apply to the imports and supplies of alternative heating and cooling methods, such as via hot and cold water distribution networks that are used to regulate room temperatures.