VAT: Taxable management services to real estate funds - new draft practice of the FTA

According to the previous practice of the FTA (VAT Sector Info 14), the management of properties for real estate funds constituted a service exempt from VAT pursuant to Art. 21 para. 2 no. 19 lit. f of the VAT Act.

At the end of July, the FTA published a first draft amendment to the VAT practice for management tasks for collective investment schemes. This draft is available under the following link.

The FTA's proposed change in practice would have far-reaching consequences for the real estate management of collective investment schemes with direct real estate holdings (and from 2025 also for investment foundations).

For example, property management services (such as compensation for administration, building commissions, purchase and sales commissions, valuation fees) would no longer be recognized as exempt management services. These services to a collective investment fund with direct and indirect real estate holdings would therefore now be subject to VAT.

If the real estate fund does not benefit from a full input tax deduction (if this includes residential properties, for example), it cannot claim this newly invoiced VAT as input tax. This would therefore mean a direct increase in administrative costs of currently +8.1%.

The deadline for comments on the draft ended on September 2, 2024.

As investment foundations will be treated in the same way as collective investment schemes from January 1, 2025 due to the revision of the law, the Conference of Managing Directors of Investment Foundations (KGAST), among others, has submitted a statement (see link).

The draft of the practical adjustment is criticized because it differentiates and thus favors collective investment schemes with securities investments over real estate funds.

The FTA must review its draft again on the basis of the comments. As this is only a draft, a further draft or possibly the publication of the definitive amendment to the practice (by the end of the year at the latest) remains to be seen. It can be assumed that the new practice would then be applicable as of January 1, 2025 or July 1, 2025 at the latest.