VAT on Real Estate

The impact of VAT (Value Added Tax) can be significant. The sale price, leasing or the rental of real estate can be taxed or can free from VAT tax. In some countries, VAT are levied on real estate are higher, so it is important to buy most suitable structure for the real estate property. But it also depends on the construction date of the building and future condition of the building.

Every country has own method or rule to applying VAT on real estate.  In case of the house purchase which come under the category of main/ permanent resident of the purchaser and provided with it is not more than 250 sq.m VAT amount is refunded up to 10%. To get this amount refunded, you should pay full VAT amount to the authorities along with the proof that you are truly a resident in that property.

VAT is being charged only once after buying the property and then you can decide to sell the property. Even if you decide to buy the property which is never used, no VAT is paid, but later if you decide to sell the property then the original buyer of the property has to pay VAT, and if the person wants to claim the refund then the buyer has to stay for at least 10 years. But in between if the owner leaves the home in the 8^th year, than he must refund the VAT money to the authorities. But the owner leaves for the whole 10 years then he can also buy other property. VAT is not refunded in the case, if the building is used for commercial use.

The real estate carries a high risk, as anytime the rates can come down, so the VAT systems are familiar. This is the self –evident as one takes into account that real estate is concerned with high amount of money, which has resulted to VAT of 15-20% (Acc to EU rates). The reason is tax on transfer is being levied on transfer of real estate which can cause higher taxation.

If we look into Indian real estate market, the property developers had to pay added tax. The VAT has been increased according to the statewide. Before, real estate’s used to pay VAT only on actual cost of the construction, but now the rules are being changed as now the builders have to pay tax on the construction material.

In Germany, VAT can be recovered by the Indian companies through refund procedure and to get it, Indian companies have registers themselves and have declare at least one taxable turnover. Indian companies can show this turnover to Germany by importing some goods to Germany and then it can get the VAT return.

In most of countries VAT system in real estate keeps changing. The main reason is the increase or decrease in the rate of real estate. So the government also introduces new VAT scheme in the real estate world. There are many websites that provides whole information on VAT scheme on real estate.