The leasing of real estate occupies a special position within German Value Added Tax (VAT) law. While most entrepreneurial services are typically subject to tax, the law provides for a general exemption for transactions involving land. For landlords of commercial properties, this exemption can be a disadvantage, as it excludes the deduction of input tax. To ensure the profitability of investments, § 9 UStG allows for a waiver of this exemption. This article explains the legal requirements and pitfalls of this option as of August 26, 2026.
The Principle of Tax Exemption for Leasing Services
According to the statutory system, transactions resulting from the leasing and letting of land are generally exempt from VAT [1]. This applies to both residential and commercial spaces. The downside of this exemption is the exclusion of the input tax deduction (Vorsteuerabzug) pursuant to § 15 Abs. 2 UStG. Consequently, VAT amounts included in invoices from construction companies or service providers remain as costs for the landlord.
Particularly in new constructions or renovations, these non-deductible input taxes represent a significant financial burden. To manage the property on a net basis, the legislator grants the landlord the right to opt for VAT. By waiving the tax exemption, the leasing becomes a taxable transaction, establishing the entitlement to deduct input tax from all incoming services.
Prerequisites for Waiving the Tax Exemption
The waiver of the tax exemption is tied to the condition that the transaction is carried out for another entrepreneur for their enterprise [2]. An option for leasing to private individuals is therefore legally excluded. In practice, the option is usually exercised by disclosing the VAT in the lease agreement and in the monthly invoices. This is a unilateral declaration by the landlord requiring a correct legal basis.
The Restrictive Condition of Non-Prejudicial Use
The most significant hurdle for commercial landlords is found in § 9 Abs. 2 UStG. According to this provision, the option is only permissible insofar as the tenant uses the property exclusively for transactions that do not exclude the input tax deduction [3]. This is referred to as “vorsteuerunschädliche Verwendung” (non-prejudicial use for input tax).
If a tenant uses the premises for tax-exempt activities – such as a doctor or an insurance broker – an option for these areas is not possible. In buildings with various tenants, a precise allocation of space must be carried out. The landlord can only effectively opt for VAT for areas used by entrepreneurs fully entitled to deduct input tax. The VAT Application Decree (Umsatzsteuer-Anwendungserlass – UStAE) provides detailed specifications for the allocation of space [4].
Proof and Documentation Obligations in Practice
The landlord bears the full burden of proof for the option’s requirements. They must prove that their tenant actually uses the property for non-prejudicial transactions. In professional commercial lease agreements, clauses are usually agreed upon that oblige the tenant to disclose their activities and to provide information in the event of changes in use.
If the use by the tenant changes, the entitlement to the option may cease. This often leads to an input tax correction (Vorsteuerkorrektur) pursuant to § 15a UStG, where already refunded amounts must be paid back to the tax office. Continuous monitoring of the tenant structure is therefore essential for landlords.
Strategic Importance for Input Tax Deduction
The option under § 9 UStG is a central instrument of liquidity planning. By deciding in favor of VAT liability, landlords can claim the VAT from investment costs as input tax. This significantly reduces effective construction costs. Nevertheless, the risk of vacancies or tenant changes to non-deductible sectors must always be factored in, as this can nullify the tax advantages.
Conclusion
The VAT option offers commercial landlords significant economic advantages but is tied to strict legal requirements. The verification of the tenant’s use according to § 9 Abs. 2 UStG and seamless documentation are the cornerstones of legally secure implementation. Since the requirements are complex and errors can lead to high additional payments, a regular review of the lease relationships is required. In case of doubt, an individual tax assessment should always be carried out.
