The first transfer for consideration following the completion of a building is subject to VAT if it takes place within five years from the completion. Taxable persons can deduct all or part of the VAT paid during the acquisition. However, the subsequent transfer which would take place before a period of 20 years may result in adjustments.
Concept of VAT liability on property sales
For the record, a person liable for VAT is a legal or natural person. It carries out an independent and usual economic activity of sales of goods or provision of services.
Be careful to distinguish between the concepts of subjugation and exemption. For example, a person on a basic franchise regime is liable but exempt from VAT. This means that it does not deduct VAT on its purchases and does not collect it on its sales. How? Make use of the 1099 tax calculator for proper calculation.
Sale of a building completed more than 5 years ago
A real estate transfer who takes place more than 5 years after the completion of the building is exempt from VAT; this is the common law regime regardless of the seller’s position; or the buyer with regard to VAT liability.
- Assignment by a taxable person who benefited from the deduction of VAT on asset transfers during the purchase
- A person subject to VAT can therefore, when buying a building within 5 years of completion, benefit from a right to partial or total deduction of this VAT.
- This is why the tax rules are strict concerning the retention of this right to deduct if this taxable person resells this good before the expiration of a period of 20 years. This is to avoid evading tax on real estate transfers.
Two solutions are possible:
Either the taxable person does not exercise an option for VAT on this transfer. As provided for in the ordinary law regime, he benefits from the exemption (no VAT to be collected) but must in return return part of the VAT that he was initially able to deduct.
VAT repayment =
- Initial VAT x (0 – VAT deduction coefficient) x Number of years remaining / 20 years
For example, the deduction coefficient is 1 if the building is used only for activities subject to VAT and not exempt.
- This calculation amounts to considering that the property does not open the right to deduction over the years remaining to run until the expiry of the 20-year period.
- In this case, when the taxable seller makes a VAT repayment, this allows the buyer if he is also liable to VAT to benefit from a transfer of the right to deduct proportional to the years remaining to run.
- Either the taxable person exercises an option to submit the sale to VAT, in this case he retains the benefit of the initial deduction or even an additional deduction if during the purchase he had not been able to deduct it entirely.
Let’s illustrate with an example
A SARL acquires for its operation a building in the process of being completed 360,000 € TTC (including 60,000 € VAT). It only performs activities in the field of VAT. This allows him to fully deduct the € 60,000. In N + 6, to cope with an increase in activity and with a view to relocating to larger premises, it resells this building to an SAS which also only exercises activities falling within the scope of VAT. No VAT option is exercised (1st scenario described above) on the sale, which means that there is no VAT to be collected.