Input VAT apportionment for mixed-use real estate – BMF circular letter dated 20 October 2022

The permissible pro-rata key for input VAT on real estate that is only partially used for transactions entitled to input VAT deduction (mixed-use real estate) has been the subject of dispute for a long time. The tax authorities want to, as much as possible, replace the total turnover key (required by the VAT Directive, by default) with an area key. However, they are encountering an obstacle: the deviating case law of the ECJ and BFH (Federal Fiscal Court).


Entrepreneurs purchasing input services for mixed-use real estate can only claim the input VAT deduction to the extent that these input services are economically attributable to transactions entitled to an input VAT deduction. In principle, a direct allocation has priority; a pro-rata key can only be applied if this is not possible.  In this case, an appropriate estimate can be made. According to the wording of § 15 (4) of the German VAT Code (UStG), a turnover key can only be considered if no other economic allocation is possible. Since an allocation that uses an area key is always possible for mixed-use real estate, this would de facto exclude a turnover key – whereas according to Art. 173 of the VAT Directive the total turnover key should actually be the rule. According to ECJ case law, which the BFH has followed, Germany may therefore prescribe a key that deviates from the turnover key, but only if it is more precise than the turnover key. In this sense, § 15 (4) UStG must be condensed to conform with EU law.

Regulations outlined in BMF circular letter

The BMF first summarises the case law of recent years, then draws its conclusions from this and announces the amended wording of the VAT Application Decree (UStAE). This essentially results in the following principles:

  • A priority direct allocation of input VAT can only be made for expenses related to the use, maintenance, and upkeep, but not for the acquisition and production costs.
  • If no other, more precise keys can be considered in addition to the total turnover key, an object-related turnover key or (under certain conditions) the total turnover key can be applied.
  • A property-related area key is normally more precise than a total turnover key and, according to the BMF, should apparently continue to be the one used. In this respect, the tax office bears the burden of determination. However, if the taxpayer does not fulfil their duty to cooperate or if the available information is ambiguous, the tax office may assume that the area key provides the more precise results. In certain cases, however, it is not appropriate:
    • If the rooms are used for different purposes and the equipment in these rooms deviates considerably from room to room. However, this should only be the case if this deviation has also led to significant differences in construction costs. In this case, the object-related turnover key can be used.
    • For expenses that serve the entire enterprise, e.g., administrative expenses, a total turnover key can be considered.
    • For buildings that are used alternately for supplies allowing input VAT deduction and for supplies that do not, the key corresponding to the periods of use is appropriate.
    • If there are significant differences in the height of each floor, a key corresponding to the enclosed space can be used.
  • If there are several more precise and appropriate keys, the taxpayer has the choice and does not have to choose the most precise key.
  • The BMF provides further details, e.g., for photovoltaic systems, on which areas are to be included in the area key and in what way, and in which cases different equipment with different construction costs can be assumed.
  • The principles must be applied accordingly when allocating a mixed-use property to the entrepreneurial sphere.


The BMF letter must be applied in all open cases.  There are non-objection rules for two special cases.

No objections will be raised if taxpayers have permissibly made a direct allocation according to section 15.17, paragraph 7, sentences 6 and 7 of the VAT Application Decree (UStAE) in the previous version before the publication of this letter.

The principles of this BMF letter apply accordingly to the allocation of mixed-use real estate to the entrepreneurial sphere. In the case of photovoltaic systems, combined heat and power plants, and operating equipment, it is not objectionable if taxpayers relied on the regulations in the previous version of sections 15.2c (10) and 15.6a (3) UStAE before this letter was published. 

Once a key has been chosen, it must in principle be retained. However, this does not apply if it was not appropriate; in this respect, there is no protection of legitimate expectations.

The fact that the tax office (FA) may insist on the area key if the taxpayer does not provide sufficient information justifying a different key could allow the tax authorities to maintain the status quo. It is therefore strongly recommended that the circumstances justifying a different key be carefully documented from the outset.

15 November 2022

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