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Potential protective action needed before 30 September 2021 for Luxembourg property companies owning real estate assets in Germany

27/08/21

In brief

As a result of a recent EU decision, Luxembourg-based entities owning real estate assets in Germany may need to consider submitting VAT refund claims under Directive 2008/9/EC (previously known as the 8th Directive) to protect their entitlement to recover input VAT incurred in Germany in relation to the real estate properties they exploit there.

The potential risk that input VAT recovery is denied based on the German VAT returns filed relate to the year 2020. The deadline to file 8th Directive refund claims in relation to German VAT incurred in 2020 is 30 September 2021. It is therefore very urgent to take appropriate actions as the process to submit refund claims is not straightforward.

In detail

The Court of Justice of the European Union ("CJEU") recently ruled in the case Titanium C-931/19, that a foreign company has no fixed establishment in the Member State where it owns and exploits a property if it does not have human resources to exploit the property in that country.

As a consequence, certain non-resident landlords (i.e. landlords, who, in particular, have not established a fixed establishment or a place of management in the Member State where the property is located) might not be required to register for VAT purposes in that country to the extent this country implemented an "extended" reverse charge mechanism for land-related services (e.g. the renting out of a building).

Considering the current German VAT rules, this could have an impact on the VAT registration obligation of Luxembourg property companies letting real estate there, on the invoicing to tenants and on the procedure to reclaim input VAT.

Discussion with the German Federal Ministry of Finance

The German Federal Ministry of Finance ("BMF") is aware of the decision in the Titanium case. The further procedure is probably to be agreed with the federal states in the second half of this year (after the summer break). It remains to be seen whether a legal or administrative solution will be reached in the end. Favorable transitional arrangements seem to be within the realm of possibility. A non-objection regulation is therefore likely. If a new regulation enters into force, it is likely that it will only apply to future income. Nevertheless, it is unlikely that we will receive a final decision before 30 September 2021; hence after the expiration of the deadline relating to the VAT refund procedure under Directive 2008/9/EC for the German input VAT incurred in 2020 (nine months for EU landlords following the end of the fiscal year in question).

Action potentially to be taken before 30 September 2021

Unfortunately, and as outlined above, we have not received any final statements so far from the BMF as to whether there will be a non-objection regulation. Consequently, there is a residual risk that the input VAT amounts for 2020 will only be refundable under the Directive refund claim procedure for which the deadline expires on 30 September 2021. For this reason, one should consider submitting refund claims as a precautionary measure in addition to their regular German VAT filings. This would be worth considering, for instance, for companies with high input VAT amounts and for which there are no other legal reasons for a local VAT registration in 2020 (see below). 

Detailed position and additional analysis to be undertaken

1. For assessment periods up to calendar year 2019, the assessment procedure should remain applicable in any case, since the rental invoices (incl. any rental agreements with tax display) issued with VAT were subject to Section 14c para. 1 VATA and thus resulted in a corresponding tax declaration obligation (this is based on another decision of the Federal Fiscal Court). From 2020 onwards, this no longer applies due to the amendment of section 18 para. 9 sentence 3 VATA as part of the "Act on the Further Fiscal Promotion of Electromobility and on the Amendment of Other Fiscal Provisions".

2. For each entity concerned, it needs to be checked if there is another legal reason for a local VAT registration in the assessment procedure for 2020. A local VAT registration in Germany was in any case required in the following circumstances:

  • intra-community acquisitions of goods: for instance, due to the purchase of equipment delivered to Germany from other EU countries than Germany, or
  • a liability to reverse charge VAT in Germany on property related services: this applies when a non-German supplier (not VAT registered in Germany) performs property related services or work deliveries in Germany.

If one of the two above situations apply, the Luxembourg property company had to VAT register in Germany and the input VAT amounts could be declared in the regular assessment procedure. No further action is needed before 30 September 2021.

If not, it must be evaluated to what extent an application for VAT refund claim under the 8th Directive should be submitted for the year 2020 before 30 September 2021.

As a rule, it is only possible to claim input VAT once. If a VAT refund claim is submitted in addition to the regular German VAT filings, we recommend to inform the Federal Central Tax Office through a letter that you have declared input VAT both in the VAT returns and in a VAT refund claim as a precautionary measure resulting from the unclear legal situation. 

Submitting a VAT refund claim under Directive 2008/9/EC

VAT refund claims for Luxembourg property companies must be electronically submitted to the Luxembourg VAT authority via the online VAT refund portal.

Access to the online portal

Access to the portal is granted by way of a LuxTrust smart card pro or a LuxTrust signing stick pro.

The information must be uploaded manually on a line-by-line basis. It is not possible to upload an entire file directly into the system. In principle, there is no requirement to provide supporting documentation attached to the VAT refund request. Where invoices are submitted, all scanned invoices (PDF or "image") cannot exceed the limit of 5 MB. Germany does require submission of scanned invoices for all net amounts that are at least EUR 1,000 (EUR 250 for fuel purchases).

Minimum amounts to submit a refund claim and period

The minimum application for a refund must be (i) a minimum VAT amount of EUR 400 in the case of applications referring to periods of between 3 months and less than one calendar year or (ii) EUR 50 in case of applications referring to a calendar year or the remainder of a calendar year.

Refunds and appeals

After having confirmed that the company in question is indeed liable for VAT and that its activities do not impede with the eligibility requirements, the Luxembourg VAT Authorities will inform the applicant and transfer the application to the authorities of the Member State of refund. Pursuant to the time limits introduced by the Directive 2008/09/EC, the latter will confirm receipt of the application and communicate their decision directly to the taxpayer by email or post within 4 months of receiving the application.

Need further information and assistance?

Our VAT specialists in Luxembourg and Germany are available to help you further understand the impacts of this position on your business and assist with the submission of VAT refund claims.

1. PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with 2,800 people employed from 77 different countries. PwC Luxembourg provides audit, tax and advisory services including management consulting, transaction, financing and regulatory advice. The firm provides advice to a wide variety of clients from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region. The firm helps its clients create the value they are looking for by contributing to the smooth operation of the capital markets and providing advice through an industry-focused approach.

2. The PwC global network is the largest provider of professional services in the audit, tax and management consultancy sectors. We are a network of independent firms based in 155 countries and employing over 284,000 people. Talk to us about your concerns and find out more by visiting us at www.pwc.com and www.pwc.lu.

Contact us

Marie-Isabelle Richardin

Partner, PwC Luxembourg

Tel: +352 49 48 48 3009

Frédéric Wersand

VAT Partner, PwC Luxembourg

Tel: +352 49 48 48 3111

Stéphane Rinkin

VAT Partner, PwC Luxembourg

Tel: +352 49 48 48 2044

Chantal Braquet

VAT Partner, PwC Luxembourg

Tel: +352 49 48 48 4146

David Schaefer

VAT Partner, PwC Luxembourg

Tel: +352 49 48 48 3202

Robert Clemens Prätzler

Partner, PwC Germany

Tel: +49 69 9585-6712

Imke Murchner

Partnerin, PwC Germany

Tel: +49 89 5790-6779

Marcel Mies

Real Estate Tax Leader, PwC Germany

Tel: +49 211 981-2294

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