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5 octobre 2015

Property dealers: timing of the recovery of VAT charged on acquisitions of properties intended for resale


Certain property dealers are currently facing an issue regarding the timing of VAT recovery since the French Tax Authorities consider that that a company acquiring a building completed more than five years ago and booking this property as an inventory is not in a position to recover and/or claim a refund for the VAT charged on the cost of the operation before the building is sold, and VAT charged, upon election by the property dealer upon resale

This issue particularly affects VAT charged on the acquisition of the property, and even renovation works where these do not result in a new building.

In practice, a property dealer who acquires a property completed more than five years ago for professional purpose (offices, commerce, business premises, etc.) and pays VAT (upon election exercised by the seller) should, according to the French Tax Authorities, wait until the property is resold with such sale subject to VAT (upon election made by the property dealer) in order to “recover” the VAT charged on the acquisition.

The French Tax Authorities’ position obviously generates financial costs for the property dealer, who has to bear the financing of this VAT throughout the course of the operation.

Note also that, under this approach, even if the property is rented out and the lease is subject to VAT (under the property dealer’s option in respect of the leasing of bare premises for professional purpose), the VAT charged on the acquisition may not be recovered as the purchase is for the purpose of resale and not for rental (property booked as an inventory rather than as a fixed asset).

The French Tax Authorities took this position in one particular case and, since then, tax reassessments have been made on this basis. At least one dispute has been brought before the courts, who were requested to assess the compatibility of this interpretation with the VAT directive and the principle of VAT neutrality.

An election mechanism, to be exercised “in advance” at the time of acquisition by the property dealer, was suggested to the authorities in order to allow recovery under the usual conditions: this proposal was however rejected.

As things stand, financing and the cost of carrying the VAT must be taken into account when calculating the profitability of an operation. Furthermore, where significant works are planned, it should, as far as possible, be ensured that such works result in a new building. This qualification gives a “reduced registration fees” regime on the resale and also allows to avoid this burdensome financial situation.


News written with Pierre Appremont and also published on


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