During the spring, the Swedish Tax Agency published a memorandum with proposals for significant adjustments to the current provisions of Mervärdesskattelagen regarding voluntary tax liability for VAT when renting out premises.

Rental of premises and other leasing of real estate is, as a general rule, exempt from taxation. However, a landlord may choose to become voluntarily liable to pay tax for such rental and add output VAT to the rent. The voluntary liability regime thus entitles the lessor to deduct input VAT on the costs incurred by him in renting out premises.

Under the current wording of the provisions on voluntary tax liability, several conditions must be met for a landlord to become voluntarily liable to tax. One such condition is that the tenant must conduct activities subject to VAT or be entitled to a refund. The Swedish Tax Agency has now proposed a relaxation of certain conditions, which entails expanding the possibilities for voluntary tax liability for renting premises. The main features of the proposed amendments are:

• The tenant does not need to conduct taxable activities in the premises or be entitled to a refund.
• The requirement for permanent use by the tenant is removed.
• The requirement for voluntary tax liability at the downstream rental stage and limitation on the number of rental stages is removed.
• Voluntary tax liability may apply to a certain area while other parts of the property are not covered. In such cases, all leasing of the voluntarily taxable area is taxable.
• It will be possible to have voluntary tax liability for premises occupied by several tenants at different times of the day.
• It will be possible to have voluntary tax liability for renting out space shared by several tenants at the same time.

The business community has long demanded changes to current regulation in accordance with the Swedish Tax Agency’s proposal because current regulations are not considered to be adapted to today’s business models and entail increased costs for companies. In addition, potential tenants, who do not carry out activities subject to VAT, have difficulty finding premises, while landlords who wish to be subject to voluntary tax liability have empty premises. If the rules are adjusted in accordance with the Swedish Tax Agency’s legislative proposal, this will probably lead to a more flexible local rental market for both the landlord and the tenant.

Do you have questions about what applies when renting out premises, or do you want to know more about tenancy law or real estate law in general? Contact us.