Sale of real estate without VAT? Check when the exemption does not apply – important ruling of the Supreme Administrative Court

What was the dispute about?

A company providing VAT-exempt financial services purchased undeveloped real estate from individuals. The transaction was not subject to VAT. The property was intended as an investment — the company made no improvements or upgrades.

Before selling the property, the company applied for an individual tax ruling, claiming eligibility for the VAT exemption under Article 43(1)(2) of the VAT Act. This provision exempts from tax the supply of goods used exclusively for VAT-exempt activities. The exemption applies if, at the time of acquisition, import, or manufacture, there was no entitlement to deduct input tax.

Position of the authorities and courts

This interpretation was rejected by the Director of National Tax Information, the Provincial Administrative Court, and ultimately by the Supreme Administrative Court (NSA).

The court emphasized that a key condition for applying the exemption under Article 43(1)(2) of the VAT Act is that VAT was charged on the purchase of the property and there was no right to deduct it. 

In this case, the lack of deductibility was not due to statutory limitations, but rather because the purchase was not subject to VAT. As the transaction was not taxed at the outset, the company cannot rely on the exemption at the point of sale.

Conclusions from the judgment – what do taxpayers need to know?

The absence of input tax on the purchase of real estate does not automatically entitle the seller to VAT exemption upon resale.

This serves as an important reminder for taxpayers – every transaction must be assessed individually, considering the specific nature of the acquisition and how the property is used thereafter.

How can we help?

Planning to sell real estate?
We encourage you to contact our tax advisory team. We’ll help you thoroughly evaluate the transaction, identifying not only VAT-related risks but also other critical legal and tax considerations. Before making any decisions, it’s worth consulting with experienced professionals.