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VAT deduction for renovation/reconstruction in connection with the rental of real property

  • A partnership (Spørger) intends to engage in the rental of real property, specifically a building housing a museum.
  • The Tax Council (Skatterådet) confirms that Spørger is considered a taxable entity when renting the property to the museum for consideration. Additionally, the Tax Council confirms that when Spørger incurs renovation costs for the buildings, there is a direct and immediate connection between the costs and outgoing VAT-taxable transactions.
  • Therefore, Spørger is entitled to deduct the VAT on the expenses according to section 37, paragraph 1, of the VAT Act.
  • However, the Tax Council declines to answer whether determining rent based on an average of 2-3 independent real estate agents’ assessments of market rent would constitute “commercial leasing,” as it involves a discretionary matter.
  • The legal basis for this decision is Skatteforvaltningsloven § 21, stk. 4, nr. 1, and references are made to relevant sections of the VAT Act and the Legal Guidance for 2023.


Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.


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