The Umsatzsteuergesetz (UStG) makes a distinction between genuine and non-genuine tax exemptions. For genuine tax exemption, the right to
input tax deduction remains unaffected, such as, for example, in the case of:
- export deliveries to third countries (special regulations apply to ‘tourist exports’). Details can be found in the ‘Export deliveries/intra-Community deliveries’ section.
- handling and processing (‘contract processing’) of objects
In the case of non-genuine tax exemption, there is no right to an input tax deduction, such as, for example, in the case of:
- monetary and banking transactions (e.g. the granting of credit)
- sale of land
- services of an insurance agent
- medical services
- turnover of small company owners (details can be found in the section entitled 'Small company owners')
It should be noted that in the case of some non-genuine tax exemptions, such as, for example, the supply of immoveable property, there is a legal option to waive the application of this exemption and to treat own services/turnover as taxable through this option. The standard 20 per cent tax rate is to be used in this case and the input tax deduction is available in accordance with the provisions of section 12 of the UStG. The legal provision for waiving tax exemption is included in section 6 paragraph 2 of the UStG.
Exercising the option, which is possible for each individual sale, does not require any special declaration to the tax office. Appropriate treatment in the preliminary VAT return or in the VAT return suffices.
In the case of the letting or leasing of immoveable property and for commonhold associations (section 6 paragraph 1 (16) and (17) in conjunction with section 6 paragraph 2 of the UStG), the tax exemption option requires the tenant or lessee to use the property almost exclusively for turnover; this does not exclude the input tax deduction. Short-term rentals of immoveable property are no longer covered by this tax exemption and tax must therefore be paid (see the Abgabenänderungsgesetz 2016).
Abgabenänderungsgesetz 2016 (→ BMF)German text
- USP Editorial Staff
- Federal Ministry of Finance