VAT treatment of the service charges per 1 January 2025

16/07/24

In December last year, the Dutch Ministry of Finance issued a new decree concerning the VAT treatment of the sale and rental of real estate. One of the most relevant topics is the amended VAT treatment of service charges starting 1 January 2025. These changes could affect the rental of both commercial and residential spaces. Given that the changes will take effect in 2025, we advise you to analyze the impact of these changes in a timely manner and to get in contact with your tenants.

Currently, service charges related to the rental of residential properties are generally exempt from VAT. Service charges related to commercial spaces are VAT taxed (even if the rental is VAT exempt). This policy may continue until 31 December 2024. The new decree nuances the policy. For both residential and commercial spaces, it should be assessed whether the service charges qualify as remuneration for an independent service that is – in principle – VAT taxed, or as a service that is "absorbed" into the rental and thus follows the VAT treatment of the rental (taxable or exempt from VAT).

VAT treatment of service charges as of 1 January 2025

Based on the new decree, service charges can be categorized as follows:

Costs that are settled based on actual consumption are, in principle, considered an independent service subject to VAT. For example, the use of utilities such as gas, electricity, water, heating, and cooling, where an individual meter is installed, and costs are based on actual consumption.
Costs for which each tenant individually or the tenants collectively have the authority to choose the service provider are, in principle, considered an independent service subject to VAT. In practice, we see that this decision-making authority often lies with the landlord, which means these service charges follow the VAT treatment of the rental service. For example, cleaning of common areas and security.
Other service charges are generally regarded as additional costs to the rental service and follow the VAT treatment of the rental.

What does this mean for your organisation?

The new regulation will particularly impact the exempt rental of commercial or residential spaces. With exempt rental of commercial spaces, certain service charges may become exempt from VAT, while with the rental of residential spaces, certain service charges may become VAT taxed under the new regulation.

We recommend assessing, for each lease agreement or property, which service charges are passed on to tenants and determining whether they constitute independent VAT-liable services or services that follow the VAT regime of the rental, and to contact the tenants on time.