Value added tax for rentals: What private landlords should know

According to the Statistisches Bundesamt (Federal Statistical Office), there were around 43 million homes in Germany at the end of 2023 – more than half of which are rented, many by private individuals. However, many private landlords are unaware that they too can be considered VAT-registered businesses. And that has consequences – especially of a financial nature. This article explains what you need to bear in mind and what special cases apply.

When is a landlord considered an entrepreneur?

According to the Value Added Tax Act (§ 2 UStG), someone is an entrepreneur if they carry out an activity on a permanent basis to generate income – regardless of whether a profit is made or not. This means that anyone who rents out flats – even privately – is generally acting entrepreneurially in terms of value added tax. It is not necessary to register a business for this. Regular letting alone is sufficient.

When is letting exempt from VAT?

Normally, the permanent letting and leasing of residential space or real estate in Germany is exempt from VAT (Section 4 No. 12a of the German VAT Act (UStG)). This applies to flats, houses and individual rooms if they are let on a long-term basis (usually longer than six months). Owners therefore do not have to charge or pay VAT on the rent for permanent lets.

When is VAT payable on rentals?

Short-term rentals: If residential accommodation is rented to different guests for less than six months (e.g. holiday homes), this constitutes taxable turnover. The decisive factor here is the intention, not the actual duration. In this case, landlords must generally charge VAT. These so-called accommodation services are usually subject to the reduced tax rate of 7%.

Important to know: If the same rooms are offered for either long-term or short-term rental, all sales are taxable.

Renting parking spaces: Parking spaces, garages or underground parking spaces are generally subject to VAT unless they belong directly to the rented property and are included in the rental agreement. This requires that both contracts are concluded between the same contracting parties and that there is a local connection between the property and the parking space.

Electricity supply from PV systems: If landlords supply electricity from their own solar power system (e.g. on the roof), this no longer counts as part of the rent, but as a separate taxable service. This was decided by the Federal Finance Court in 2024.

Small business regulation for rentals

Since 2025, landlords have been allowed to earn up to €25,000 in annual turnover without having to charge VAT. Anyone who remains below this limit is considered a small business owner: they do not have to pay VAT and are not allowed to charge VAT on invoices. But beware: Anyone who exceeds this limit becomes liable for VAT and must comply with all regulations, including the e-invoicing requirement from 2025.

Value added tax for rentals: Special cases and ‘tax traps’

Value added tax liability on request: The ‘option to be taxed’

Under certain conditions, landlords can decide for themselves whether they want to pay value added tax on their rentals, e.g. if the tenant is an entrepreneur and uses the premises for commercial purposes.

Advantage: The landlord can then deduct input tax (e.g. for investments or renovations). But beware: this is only possible if the tenant uses the premises exclusively for activities subject to VAT.

Craftsmen’s services from abroad: the reverse charge tax trap

If, for example, a landlord commissions a craftsman from Austria to carry out renovation work on a property in Germany, the so-called ‘reverse charge’ may apply.

This means that the landlord must pay VAT to the tax office in Germany – even if the property is rented tax-free and he cannot deduct input tax. The landlord therefore not only pays the (net) invoice amount to the tradesman, but must also pay 19% VAT to the tax office.

Rental income: errors in tax returns

In recent years, courts have dealt with an increasing number of cases of tax evasion in connection with rentals. The authorities are taking increasingly rigorous action against landlords who do not declare their income properly. It is therefore particularly important for landlords to declare rental income correctly and transparently. Both unintentional errors and deliberate failure to declare income can have tax consequences.

Conclusion: Private landlords are also liable for tax

Anyone who rents out apartments – even on an occasional basis – automatically becomes an entrepreneur for VAT purposes. Even if the rental is actually tax-exempt, additional services (such as parking spaces or electricity supply) and services from foreign providers can lead to unexpected tax liabilities.