The General Financial Directorate issued Information on the application of VAT to immovable property from 1 July 2025, which responds to the amendment to the VAT Act and unifies the interpretation of the new legal regulation. The Information focuses mainly on changes in the exemption for the supply of immovable property, the definition of building land, and the assessment of the impact of construction modifications on the taxation of subsequent property sales.

A fundamental change is the extension of the exemption for the supply of selected immovable property. From 1 July 2025, only the supply of an unfinished selected immovable property, the first supply of a completed selected immovable property made by the end of the twenty-third calendar month after its completion, and the first supply after a substantial change to the immovable property are taxable transactions. Any further supply of a completed property is already exempt from VAT, regardless of the time that has elapsed since its completion.

The Information issued by the General Financial Directorate also deals in detail with the impact of construction modifications and conversions on the assessment of whether a new immovable property has been created. The examples included in the Information show that the mere conversion of a completed property does not constitute the creation of a new selected immovable property. This applies in particular to the merger of residential units, the division of units, changes to the layout of flats or non-residential premises, or changes in the purpose of use within an already completed building.

In these cases, the decisive factor is exclusively the assessment of whether the construction modifications meet the characteristics of a substantial change, with the key criterion being the threshold of 30% of the costs in relation to the sale price of the property. If this threshold is not exceeded, there is no substantial change to the immovable property and, from a VAT perspective, it is not considered a new property. The “age” of the property for VAT purposes is not reset in such a case.

The practical consequence of these conclusions is that the supply of a unit created, for example, by merging flats or through another conversion of a completed property is generally exempt from VAT, provided that it is neither the first supply after completion nor the first supply after a substantial change. The fact that the conversion took place shortly before the sale does not in itself affect the exemption.

The Information thus confirms that ordinary conversions of units generally do not lead to renewed taxation of their sale. At the same time, however, it emphasises the need to correctly assess the scope of construction works, as an incorrect assessment of a substantial change may have a direct impact on the tax liability as well as the right to deduct VAT.

If you are dealing with a transaction or construction modifications involving immovable property, we recommend consulting the specific setup before implementation. Our tax team has extensive long-term experience with the application of VAT to real estate and will help you assess the impacts of the planned approach and minimise the tax risks associated with the transfer or conversion of property.

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