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:
- turnover of small company owners
- monetary and banking transactions (e.g. the granting of credit) as well as the management of special funds
- sale of land
- certain commercial rentalsGerman text
- services of an insurance agent
- medical and paramedical services (e.g. services as a physician, midwife, psychotherapist, massage therapist, freelancers within the meaning of section 7 paragraph 1 in conjunction with section 1 (1) to (7) of the MTD-Gesetz)
- educational services provided by certain private schools and other general education or vocational training establishments
- certain sales of childminders or foster parents
- sales of hospitals, sanatoria, nursing homes as well es homes for the aged, homes for the blind and infirmaries
Option to waive the application of this exemption
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 (see section 6 paragraph 2 of the UStG). If the tax exemption is waived the standard 20 per cent tax rate is to be used and the input tax deduction is available in accordance with the provisions of section 12 of the UStG. Exercising the option 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 option to waive the application of tax exemption is only possible under certain conditions.
- Information on the option to waive the appliaction of tax exemption for renting and leasing and on the input tax adjustment period for real property (→ BMF)German text
- Abgabenänderungsgesetz 2016 (→ BMF)German text
Responsible for the content: Federal Ministry of Finance