News on the VAT treatment of landlord subsidies for commercial leases

An important practical issue in commercial leases is the correct VAT treatment of subsidies paid by the landlord to the tenant when concluding or extending leases. On the basis of recent case law and an unpublished technical information from the Hamburg tax authorities, there are now "guidelines" for practice. The key issue here is always to determine whether the subsidy is based on a service provided by the tenant that is subject to VAT or whether it represents a reduction in remuneration as a commercial measure to achieve a higher rent over the basic term. This distinction is presented in the article and practical consequences are shown.