The BFH has ruled that property developers no longer qualify as persons liable for VAT, because property developers do not render construction services within the meaning of the German VAT Act but rather supply developed land. Background: Under § 13b (2) sentence 2 UStG, the recipient of certain construction services owes the VAT. However, according to the recent BFH ruling of 22 August 2013 (Az. V R 37/10), published on 27 November 2013, recipients of services are only liable for VAT on the construction services they commission if they themselves use the services received to render such services. Property developers are therefore no longer liable for VAT on the construction services they commission, since property developers do not themselves render construction services. Specifically, according to the BFH, this means that property developers no longer qualify as persons liable for VAT under § 13b UStG, because property developers do not render construction services but rather supply developed land. This distinguishes property developers from so-called "general contractors", who render construction services to their clients and therefore also owe the VAT on the construction services they receive within a supply chain. For general contractors, however, a case-by-case assessment must be carried out. If, for example, a company operates both as a property developer and as a general contractor, the decisive factor is the use of the construction services it has received. In such cases, what matters is whether the entrepreneur uses the construction service for a VAT-exempt transfer of land as a property developer or for its own taxable construction service as a general contractor. The BFH ruling of 22 August 2013 thus ends the constant guesswork about whether a construction service rendered to a property developer should be invoiced with or without VAT, and whether the VAT liability shifts to the property developer as the recipient of the service. With regard to the so-called "reverse charge mechanism" under § 13b UStG, the entrepreneur providing the construction service will in future only need to clarify whether the recipient is a property developer (i.e. no application of the reverse charge mechanism under § 13b UStG) or a general contractor (i.e. generally application of the reverse charge mechanism under § 13b UStG) when invoicing for its construction service.
Frequently asked questions
Frequently asked questions
Are property developers liable for VAT under Section 13b UStG?
No. Under the BFH ruling of 22 August 2013 (V R 37/10), property developers (Bauträger) no longer qualify as VAT debtors under Section 13b UStG. The reasoning: property developers do not themselves provide construction services but deliver developed real estate. The reverse-charge mechanism applies only if the recipient uses the construction service received to provide a construction service of their own.
How does the BFH distinguish between property developers and general contractors for VAT purposes?
Property developers (Bauträger) supply developed real estate and therefore do not render construction services within the meaning of § 13b UStG. General contractors, by contrast, render construction services to their client and owe VAT also on the construction services received within the supply chain. Accordingly, the reverse-charge mechanism applies only to the general contractor.
How should mixed businesses (property developers and general contractors) proceed?
For companies operating both as property developers and as general contractors, a case-by-case review is required. The decisive factor is the actual use of the construction service received: if it serves a tax-exempt property transfer in the role of property developer, § 13b UStG does not apply. If it is used for the company's own taxable construction service as general contractor, the reverse charge mechanism applies.
What must the construction service provider check going forward when issuing invoices?
The performing entrepreneur must clarify whether the recipient is a property developer (Bauträger) or a general contractor (Generalunternehmer). For a property developer, the invoice is issued with VAT, as § 13b UStG does not apply. For a general contractor, the reverse charge mechanism generally applies, so the invoice is issued without VAT.
What condition must be met for the recipient of the service to become the tax debtor under § 13b UStG?
The recipient owes VAT on construction services under § 13b Abs. 2 S. 2 UStG only if they themselves use the construction service received to provide a construction service. According to BFH case law, merely qualifying as a construction contractor or using the service for supplies of real property is not sufficient.