Input VAT deduction and deductibility of income-related expenses in the case of an intention to let
The intention to generate income from letting must be clearly demonstrated to the outside world.
A property owner began constructing a building in 2013 and, from that point onwards, annually claimed income-related expenses as well as input VAT deductions in connection with the property for tax purposes. The owner declared to the tax authorities the intention to generate income from letting and leasing; however, no binding agreement with potential tenants was concluded during the relevant period. Furthermore, orders for the installation of an air conditioning system were not placed until 2025.
In 2025, the final VAT and income tax assessments for the years 2013 to 2022 were issued, in which the claimed input VAT and income-related expenses were not recognized.
After the appeal lodged against these assessments was dismissed as unfounded by the tax authorities, the property owner requested that the Federal Fiscal Court (BFG) rule on the appeal.
No intention to let established
As the property owner had neither entered into a binding rental agreement nor taken any comparable action, the BFG concluded that, in the present case, there was no objectively demonstrable intention to let. Moreover, the BFG did not consider the owner’s conduct to be sufficiently decisive, as the installation of the air conditioning system, for example, was only commissioned 12 years after construction had commenced. Consequently, the income-related expenses were not deductible.
With regard to input VAT deduction, the BFG stated that the actual provision of services is not yet mandatory. However, it is required that the activity undertaken is genuinely directed towards the provision of services for consideration and that this intention is externally recognizable.
Accordingly, in the context of letting activities, input VAT may be taken into account for VAT purposes even prior to the actual generation of income, provided that there is a binding agreement or another comparable circumstance going beyond mere intention.
The existence of a building permit or the taking out of a loan alone is not sufficient to establish the status of a taxable entrepreneur for VAT purposes. The BFG therefore concluded that the property owner was also not entitled to deduct input VAT.