In a recently-published memorandum, the Swedish Tax Agency proposes extended the ability to apply voluntary tax liability regarding VAT on rental of non-residential premises. New rules under the proposal would greatly simplify matters for property owners and would lead to significant benefits for tenants engaged in activities that are not liable for VAT.
As a rule, rental of business premises is not liable for VAT, which means that there is also no right to deduct input VAT relating to the rental. However, under the current rules, voluntary liability for tax on rental of business premises is possible, provided that certain requirements are met. Under the current rules, the premises are required to be used on a permanent basis for an activity giving rise to liability for VAT. The rules are complicated and have over the years given rise to a large number of questions as to where the boundaries should be drawn.
The Swedish Tax Agency’s memorandum contains a proposal to abolish the requirement whereby the tenant must be engaged in activities liable for VAT or have a right to a refund. The change will make voluntary tax liability possible when renting to organisations such as non-profit associations, private schools and preschools as well as private healthcare providers.
The proposal also contemplates the possibility of voluntary tax liability when renting a specific area of a building. The tenant does not need to have an exclusive right to the leased area and nor does the rental need to be of any particular duration in order for voluntary tax liability to be applicable. It is therefore proposed that the requirement for permanent use by the tenant be abolished. The lessor can therefore apply voluntary liability for tax in cases where an area is rented to multiple tenants at the same time or where different tenants use the premises at different times of the day or night. This could make it easier to rent sports halls to schools during the daytime and to non-profit associations in the evening, for example.
Furthermore, the Swedish Tax Agency’s proposal means that there will no longer be any limit to the number of rental stages at which voluntary tax liability can exist and that voluntary tax liability will no longer be required at all rental stages.
In the case of residential accommodation, no changes to the rules are proposed and rental of residential accommodation will also not be possible with voluntary tax liability in future.
As a starting point, voluntary tax liability will be permanent. However, there are certain situations in which voluntary tax liability will cease. According to the proposal, voluntary tax liability for a particular area ceases if the area is changed to being rented out or used as a permanent residence if the lessor completely stops renting out the area and has no intention of renting it out again or if the area can no longer be used due to demolition, for example. It is already possible to enter into an agreement that the voluntary tax liability will cease in the event of transfer of the property. However, in other cases, it is not possible to withdraw from voluntary tax liability.
The Swedish Tax Agency considers it important for the changes to take place soon and therefore proposes that the rules should enter into force as early as 1 July 2023. Since both the business community and the Swedish Tax Agency are in favour of changes to the rules on voluntary tax liability, it is likely that the legislation will be extended.
There have been calls for the rules on voluntary tax liability to be adjusted for a long time, partly to make it easier for tenants whose business activities are not liable for VAT to rent suitable modern premises and partly to bring the rules into line with today’s more flexible rental conditions. At present, the rules are both complex and outdated and give rise to difficult questions when it comes to drawing boundaries and unwanted lock-in effects whereby the rental market has been affected to an excessive extent by landlords’ and tenants’ VAT status. Lindahl is therefore in favour of a modernisation and simplification of the rules on voluntary tax liability. New rules in line with the proposal will make it easier for property owners and other landlords to apply voluntary tax liability and for businesses that are not liable for VAT or that seek more flexible rental conditions to find suitable premises.
If you have any questions about how your company will be affected by the proposed extension of the rules on voluntary tax liability, you are welcome to contact one of our lawyers specialising in tax law.