The interest for the seller is then to be able to deduct all of the input VAT paid for the construction of the building. Concretely, this is the VAT paid to the various trades for the construction of the building (architects, engineers, contractors, etc.) or, more simply, the VAT paid on the purchase price of the building, if the seller has previously acquired the building with VAT.
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For the seller, this right of deduction is generally favorable
- Let us imagine that Sandrine and Thomas acquired in 2011 a newly built apartment and the adjoining land for a price of € 200,000 + € 42,000 VAT.
- They are the first occupants and move into the building during 2011. In 2012, they decide to resell this apartment for 215,000 €.
- If this second sale can be subject to VAT, new buyers will have to pay € 215,000 + € 45,150 VAT, or € 260,150.
- Our happy sellers will then have the option of deducting from the VAT paid by the new buyers (€ 45,150), the VAT paid upstream (€ 42,000), only the difference to be returned to the Treasury, i.e. € 3,150.
However, in order to be able to take advantage of this advantage, they will need to ensure that certain conditions are met.
- First, the building put up for sale must be new for the purposes of VAT.
- A newly constructed building is, for a time, new for the purposes of VAT. Likewise, an old building which has undergone sufficient renovation is also new for the purposes of VAT.
- This would be the case, for example, of a former factory in which a contractor carries out work radically modifying the building in its essential elements (its structure, its nature and, where applicable, its destination).
This would also be the case for work which, without radically modifying the building, is sufficiently important and the cost of which, excluding VAT, of the material work, that is to say excluding the costs of the architect, engineers, etc., reach at least 60% of the market value of the building after work. It is not enough, however, that the works radically change the structure or that they are only significant.
Indeed, the works must involve a modification of the cadastral income and the owner must be able to prove their reality and their importance. For filing business taxes this is one important step for you.
Secondly, the sale of this new building within the meaning of VAT must take place within a specified period: no later than December 31 of the second year following the year in which the building is first occupied or used.
This option supposes:
- the filing of a special declaration prior to the sale;
- the obligation to inform the buyer of the application of VAT in the first act signed with him;
- the filing of a special declaration after the finalization of the sale.
If all these conditions are not met, VAT will not apply. If this would be good news for the new buyers, who would pay the right of sale and not the VAT, it would be very bad news for Sandrine and Thomas, who could not recover the € 42,000 of VAT paid upstream.