Voluntary VAT registration for letting property – when is it possible?
Letting real property is as a general rule outside the scope of VAT, but a landlord of commercial property can register voluntarily where the premises are let to a tenant who is VAT-registered and uses them in its registered business. The rent can then be invoiced with VAT and the construction costs recovered. The registration follows the use of the premises – not just whose name is on the lease.
When can a landlord register voluntarily?
The most common case is a building or premises let to a business that is entered in the VAT Register, uses the premises in its registered business, and would itself have had a right to deduct if it owned them. The scheme can also cover letting to municipalities, county authorities and certain inter-municipal bodies entitled to VAT compensation.
Does the landlord have to apply?
Where the landlord is not already registered, the business normally has to apply for voluntary registration and meet the registration threshold. Rental income from qualifying tenants must as a general rule have passed NOK 50,000 within twelve months – see VAT registration Where the landlord is already registered, an individual qualifying tenancy can also become voluntarily registered by the landlord actually treating it as VAT-liable.
There has to be a real, identified tenant
There must as a starting point be a binding lease with an identified tenant, and it has to be sufficiently settled that the premises will be used in qualifying activity. An intention to find a VAT-liable tenant is not enough.
What if the tenant has both VAT-liable and out-of-scope activity?
Areas used only in VAT-liable activity can be covered in full. Areas used only for out-of-scope activity are left out. A mixed-use area, where the same tenant uses the same space for both VAT-liable and out-of-scope activity, can be covered in full by the landlord's voluntary registration. The tenant then apportions its own VAT deduction – see VAT deductions
Common areas are not the same as mixed-use areas
Corridors, entrances, stairs, lifts and other areas used by several tenants are common areas, not mixed-use areas. The right to deduct on costs for such areas has to be assessed from the use made by the tenants the area serves. The two concepts are often confused, and they give different answers.
What happens when premises stand empty?
Where a VAT-liable tenant moves out and the premises stand empty while future use is unsettled, the landlord does not normally have an automatic continuing right to deduct on new costs relating directly to the empty space. Vacancy alone does not normally trigger an adjustment of earlier construction VAT. Adjustment is assessed when the area is taken back into use – see The adjustment rules
Subletting needs an unbroken VAT chain
Where premises are sublet through several companies, there has to be an unbroken chain of voluntarily registered landlords down to the business that actually uses the premises in qualifying activity. If the chain breaks at one point, the basis falls away below it.
The six-month rule for new buildings
For construction measures covered by the adjustment rules, retrospective VAT settlement is as a general rule not given for construction VAT where the building or premises are not let within six months of completion. Where qualifying letting only starts after those six months, the deduction on the capital item has to be obtained through the adjustment rules instead – over ten years rather than at once. For a new building with substantial construction VAT that is a significant difference in cash flow, and it depends on the lease being in place in time. We can handle the voluntary registration, assess the tenants' use, set apportionment keys and follow up the VAT on the commercial property. Housing companies letting commercial premises meet the same rules, but with a residential part that never gives a deduction – 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
- The VAT adjustment rules for real property – how do they work?
- 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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