7.2.5 Case 5

The same case, but the accountancy firm is replaced by a developer, who lets out three floors to an insurance company. One floor is not let.

As the developer orders the construction of the building and the letting out to the insurance company is VAT exempt (since the insurance company is not entitled to recover 90% or more of the input VAT, it is not possible to opt for an taxable letting out), the developer makes a self-supply when he put the building into use (by letting out three floors to the insurance company). The developer cannot deduct the VAT payable in respect of the self-supply to the extent that the VAT is attributable to the three floors which are let out. It is not clear whether the developer can deduct the input VAT attributable to the 4t^h floor because this floor is not put into use.

The developer can deduct the input VAT attributable to the 4t^h floor if he can prove that he intends to use this floor for taxable purposes. This intention can be proven by the option to tax or by any other means.1

Depending on whether there is an (proven) intention to let the 4t^h floor to taxable persons, the developer may deduct 25 % of the input VAT.2

The developer will not have to adjust the input VAT as long as he proves that he intends to let out the 4t^h floor and, in principle, will opt for applying VAT to the rents. The intention can be proven by any means.