Input Tax Allocation for Mixed-Use Properties
There has recently been an update to the Value-Added Tax Application Decree. The Federal Ministry of Finance (BMF) had issued a comprehensive letter on the matter, which set the tone for the changes. The changes primarily concern clarifications regarding the floor space allocation formula.
Input Tax Allocation Based on Allocation Keys
Whether an input tax deduction applies depends first and foremost on the nature of the expenses justifying the allocation of input tax. If the expenses relate to the use, maintenance, and upkeep of buildings, special considerations apply to the input tax deduction. Input tax amounts must generally be allocated directly to sales, with a distinction made between sales subject to VAT and those exempt from VAT. The question of which allocation formula to use for calculating input tax deductions becomes relevant when direct allocation is not possible. Only then can a breakdown be made according to the applicable allocation formula. This is where the update to the VAT Application Decree becomes particularly relevant for business owners.
Focus on the Area Allocation Key
In general, there is a hierarchy of allocation keys typically used for buildings. Among all other keys, the area-based key takes precedence. Only if this cannot be applied appropriately is it permissible to use other allocation keys. The total turnover key is at the very end of the sequence—it can only be applied if no other key applies.
In its statement, the Federal Ministry of Finance (BMF) primarily clarifies the application of the floor area allocation key as the primary allocation key. It explains in detail how the floor area allocation key can be determined and outlines its possible applications. For example, it states that significant differences in a property’s amenities should be assumed if construction costs varied significantly. The new VAT Application Decree also specifies which usable areas may be included in the calculation of the area-based allocation key.
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