Background
The lease of buildings is as a rule VAT exempt but such VAT
exemption can be waived through the exercise of a VAT option under
certain conditions:
- both the lessor and the lessee must
qualify as taxable persons for VAT purposes; and
- the building must be used by the
tenant for the exercise of an economic activity allowing the tenant
to predominantly deduct input VAT on costs incurred (minimum
50%).
The main advantage of opting for the taxation of rents notably
lies in the granting of an input VAT deduction right to the
landlord on its construction and renovation costs.
In both cases brought before the Luxembourg Tribunal, the
landlords had opted for the application of VAT on the lease
(considering the use of the building for taxable activities) and
the VAT options were accepted by the VAT authorities. However, a
rent free period exceeding 6 months was included in the lease
agreements which led to a regularisation of the input VAT deducted
for
