Why is concurrence exemption beneficial?
You currently owe 21 percent VAT on the direct supply of new real estate and/or land. The concurrence exemption ensures that you do not have to pay both VAT and REIT. Since 2011, you may also apply the concurrence exemption to the acquisition of shares in a real estate rich entity (OZR) where the exemption would also apply to a direct acquisition of the real estate itself. It is currently possible to transfer new real estate and/or land (for VAT purposes) via a share transaction without paying taxes on it. This is because a transfer of shares in a company is exempt from VAT.
A share transaction involving new real estate and/or building land therefore usually results in a lower tax burden for VAT compared to when the VAT is a non-deductible expense. If a buyer is not entitled to deduct VAT, a share transaction is interesting. This is because the tax burden is then limited to the non-deductible VAT on, for example, construction and development costs.
With this concurrence exemption, you save tax. This can lead to inequality between market players. The government has therefore prepared a legislative proposal to abolish the concurrence exemption for share transactions. Following responses to the internet consultation on the draft bill, a number of changes have now been made.
Additional amendments to the concurrent exemption for share transactions
The announced additional amendments to the concurrent exemption for share transactions should prevent disproportionate taxation when the concurrence exemption is abolished:
- Exemption from REIT of share transactions involving new real estate for VAT. The condition is that you use them at least 90 per cent for VAT-taxed activities (e.g. hotels, logistics premises and supermarkets) within two years of acquisition.
- Four percent REIT on share transactions involving new real estate for VAT that you use less than 90 per cent for VAT-taxed activities (such as residential rental and healthcare real estate). This ensures a balanced tax burden between direct property transactions and share transactions, as the latter also involve non-deductible VAT at the property entity level.
- Introduce transitional arrangements for projects for which you have already concluded a letter of intent before Budget Day 2023 and where the delivery of the shares is planned before 1 January 2030.
The legislative proposal is expected to take effect from 1 January 2025.
What impact will this bill have on the construction industry?
These changes may affect you as an entrepreneur in the construction sector, such as:
Previously, you could use the concurrency exemption to save tax when acquiring new real estate and/or building sites. With the abolition of the concurrency exemption, you may face a higher tax burden. The change may also lead to rising prices in the construction sector.
We are closely following the further development of the legislative proposal and will of course keep you informed. For more information on this and other related topics, please contact one of our specialists. They are ready to help and advise you on your tax issues.