In residential real estate projects, it is common for the landowner and the owner of the structures to be different parties. This structure offers tax advantages, but recent case law shows that it is not without risks. In particular, the allocation of publicity and brokerage fees can lead to unexpected VAT costs. Find out how to stay prepared as a property developer.
Land and construction partnership: the basis of project development
In many real estate projects, land and structures are sold by different companies. This is often done through a right-of-way:
- The land company sells the land at the registration fee, usually lower than the VAT rate of 21%.
- The construction company sells the buildings to 21% VAT and enjoys the right to deduct VAT paid.
For the buyer, this means a lower tax burden than if one party sells both the land and the structure, where VAT would apply to the whole.
The issue of publicity and brokerage fees
In this setup, the construction company often bears all advertising and brokerage costs since it is entitled to VAT deduction. The land company does not have this right and would have to bear a VAT cost.
However, according to recent case law, this is not correct. The Court of Justice and the Ghent Court of Appeal have ruled that both the land company and the construction company benefit from these costs. This means that part of the publicity and brokerage costs must be mandatorily allocated to the land company.
The 'normal value' of shared costs
Costs allocated to the land company must be determined at the normal value. This is the price independent parties would pay for the same performance.
The tax authorities often calculate this value based on the ratio of land sales prices to constructions. Since land prices are typically assessed higher to maximize tax benefits, this can result in a significant VAT cost to the land company.
What can you do to avoid surprises?
To avoid discussions with the tax authorities and unexpected costs, it is essential to make clear arrangements in advance:
- Put agreements in writing between land and construction owner on the division of publicity and brokerage fees.
- Follow these agreements closely in practice to maintain a strong position in any audits.
- Anticipate controls: Don't wait for the tax authorities to impose obligations on you, as they often lead to higher costs.
The tax authorities are cracking down and are supported by recent case law. Thus, planning and making arrangements in advance is crucial to avoid unpleasant tax surprises.
Do you have questions about how to best structure your project? Titeca's experts are ready to guide you with tailored advice. Please contact us and find out how we can support your project.
