Lending of residential premises to a family foundation without VAT (interpretation by the Director of the KIS of 12 June 2024, 0113-KDIPT1-1.4012.217.2024.4.RG)
In the interpretation in question, the Head of the KIS once again addressed the VAT implications of the transfer of real estate to a family foundation, but this time the authority assessed the free-of-charge lending activity.
The interpretation in question was issued at the request of an individual who was the owner of several dozen residential premises (the ‘Applicant’). The properties were rented as part of a sole proprietorship.
With effect from 1 March 2024, the Applicant assigned 4 residential premises (the ‘Premises’) to a so-called ‘private rental’. The Applicant was not entitled to deduct VAT in respect of the Premises.
The Applicant plans to establish a family foundation (the ‘Foundation’) as of 1 January 2025, of which it will be both the founder and the beneficiary. Accordingly, he intends to lend the Premises to the Foundation free of charge. The Foundation will rent the Premises and retain the profits therefrom.
According to the Applicant, by lending the Premises to the Foundation, he will not be acting as a VAT payer, but as a manager of private assets. Therefore, in the Applicant’s opinion, lending the Premises will not give rise to VAT consequences.
The Head of the KIS confirmed that the Applicant does not have to charge VAT on the lending of the Foundation’s premises, however for a different reason than the one indicated by the Applicant.
The Interpretation Body noted that since the Premises were leased by the Applicant for a fee, they cannot be qualified as private property for VAT purposes (for VAT purposes, lease is treated as business activity also in the case of the so-called ‘private lease’). Consequently, the Applicant will act as a VAT taxpayer in this case.
At the same time, the Head of the KIS pointed out that, in accordance with Article 8(2)(1) of the VAT Act, the free-of-charge use of goods constituting a part of the taxpayer’s enterprise for purposes other than his business activity constitutes an activity subject to VAT only if the taxpayer has the right to deduct input VAT with respect to these goods.
Given that the Applicant was not entitled to deduct VAT on the purchase of the premises, the prerequisites for the application of Article 8(2)(1) of the VAT Act were not met, and therefore the lending of the premises by the Applicant to the Foundation would not be subject to VAT.
The discussed interpretation deserves full approval. The lending of residential premises, in respect of which the lender was not entitled to deduct VAT, is therefore another example of a transfer of real estate to a family foundation which will not give rise to VAT consequences.