The VAT adjustment rules for real property – how do they work?
Where a business has recovered VAT on constructing or substantially rebuilding commercial property, the use is tracked for ten years. If the use changes, one tenth of the deduction is adjusted per year. Selling the property before the period ends triggers as a starting point a full negative adjustment for every remaining year – unless the buyer takes over the adjustment obligation through an agreement made in time.
When do the adjustment rules apply?
A construction measure is as a general rule a capital item where it involves a new build, an extension or a conversion and the input VAT on the costs is at least NOK 100,000. Ordinary running maintenance and repair are normally not covered in the same way. The threshold is low enough that many ordinary conversions of commercial premises exceed it.
The adjustment period is ten years
The year of completion counts as the first year. A construction measure is normally treated as completed when a completion certificate or a temporary permit to occupy has been issued, or when the building is taken into use where such permits are not required. The completion date is therefore worth documenting when the work finishes – not reconstructing eight years later.
How is an annual adjustment calculated?
For real property, one tenth of the input VAT is subject to adjustment each year. Where a building carries NOK 5,000,000 of input VAT, one annual share is NOK 500,000. If 20% of the building moves from deductible to non-deductible use for a whole year, the adjustment is NOK 100,000. Where use changes mid-year, the average use through the year is used.
A change of tenant can trigger an adjustment
Where premises move from VAT-liable to out-of-scope use, previously deducted construction VAT may have to be adjusted. That means who you let to has a direct VAT consequence, year by year – see Voluntary VAT registration for letting property
Small changes do not trigger an adjustment
There is a 10 percentage point threshold. Where the deduction percentage changes by less than 10 percentage points compared with the starting point, no adjustment is normally made. The rule spares properties with small, ongoing fluctuations in use from an annual calculation.
What happens when the property is sold?
A sale of real property is as a general rule outside the scope of VAT. Where the property is sold with a construction measure subject to adjustment before the ten years have run, the transfer triggers as a starting point a full negative adjustment for the rest of the period. Example: the input VAT on the construction was NOK 5,000,000, so NOK 500,000 a year. On a sale in year 6, years 6 to 10 remain – five years. The total adjustment is 500,000 × 5 = NOK 2,500,000. Note that the year of the transfer itself counts. That is one reason the timing of a sale can be worth planning in its own right.
The buyer can take over the obligation
The large closing settlement can often be avoided where the buyer takes over the adjustment obligation. That requires the conditions to be met and the transfer to be properly documented. The transfer has to be documented by a written and signed agreement, and the agreement must as a general rule be made no later than the deadline for the VAT return for the period in which the transfer took place. That is a short deadline, and it runs from the transfer – not from the day somebody notices the agreement is missing. A forgotten adjustment agreement is one of the most expensive oversights in property transactions.
The documentation has to be kept a long time
Documentation under the adjustment rules has to be kept for five years after the last year of the adjustment period. For a construction measure completed in 2026 that means keeping documentation all the way to 2040. That is considerably longer than the ordinary retention period for accounting records, and it should go into the routine straight away.
Also on reorganisation and winding up
The adjustment rules follow the capital item, not the company. They therefore have to be considered in mergers and demergers, where a right or an obligation to adjust does not automatically follow the tax continuity, and on winding up and bankruptcy We can map the capital items, calculate the adjustment amount and document changed use or a transfer of the commercial property. The whole economics of letting, from capital income versus business to voluntary registration, is in Accounting for property letting For a housing co-operative or jointly owned property with commercial premises on the ground floor this is the most practical VAT question there is – see VAT for housing companies
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This is general guidance, not advice on your specific case. Deadlines, rates and amounts change – always check the current rules, or get in touch with us.
More on value added tax
- VAT registration – when does a business have to register?
- VAT deductions – what can you reclaim?
- VAT on services to and from abroad – how do you invoice correctly?
- VAT on imported goods – how it works
- Voluntary VAT registration for letting property – when is it possible?
- VAT exemptions for health, education and culture – what applies?
- VAT periods and deadlines – when is the VAT return due?
- The annual VAT return – when can you apply for an annual period?
- Bad debts – when can you recover the VAT?
- VAT on winding up and bankruptcy – what has to be settled?
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