Value Added Tax in Developer Construction

Hello everyone!
In the information service Notar & Recht, operated by the Notary Chambers, one reads the following:
“At the separation of the contracts [Grundstückskauf & Hausbau] − quite unlike the unified builder contract – the buyer pays 19 % VAT on the construction service in addition to the real estate transfer tax on the purchase price of the land. In a unified contract, however, he only pays the real estate transfer tax … on the total purchase price.”

I don’t understand that at all. That would mean the following:
A) Separate contracts
Land: €200,000 plus 5% real estate transfer tax = €220,000
House construction: €300,000 plus 19% VAT = €357,000
Total sum: €577,000
B) Builder contract (VAT on the house does not appear anywhere!)
€200,000 land plus €300,000 house is €500,000
€500,000 plus 5% real estate transfer tax = €525,000
Total sum: €525,000
Savings: €50,000 !!!
The question is, what is meant by the last word of the paragraph “total purchase price.” Is this total purchase price really the land price plus a house price that does not include VAT, so about 19% lower? Or are 19% VAT already included internally in the house price?
Or differently: If a construction company builds a house as a builder and sells it to the buyer together with the land, does the construction company then not have to include VAT and can thus offer the builder a cheaper offer than in the case where the construction company builds on land that already belongs to the builder?
I would appreciate clarification.
Best regards
Peter N.

Good morning Peter,

Hello everyone!
In the Information Service Notary & Law, operated by the Notary Chambers, one reads the following:
“In the splitting of contracts [land purchase & house construction] – quite the opposite of the unified developer contract – the buyer pays 19% VAT on the construction service in addition to the real estate transfer tax on the land purchase price. In a unified contract, on the other hand, he only pays the real estate transfer tax… on the total purchase price.”

I don’t understand this at all.

From my point of view, this paragraph is ambiguously formulated.

It is correct that with 2 separate and independent contracts you only have to pay the part of the real estate transfer tax on the land portion. It is also correct, however, that in a developer contract the share of VAT is already included in the purchase price – only for the house construction part. On this total amount thus generated – land + new single-family house + usually access road – “only” the real estate transfer tax then applies.

Rhenish greetings

Yes, that’s how I understand it too. One might suspect that the mentioned website deliberately describes it ambiguously because, for a notary, of course, more profit comes from a builder contract than if the notary contract is only for the land and the house construction contract takes place without a notary.

Hello Peter,

It is also correct that with a developer contract, the VAT portion is already included in the purchase price - only for the house construction part.

Your sentence is also not entirely correct. In a developer contract, no sales tax is included in the house price. However, the company is also not entitled to deduct input tax on materials and preliminary services.

To make an exact statement about how much saving potential exists, one would have to look at what proportion of input-taxable preliminary services (such as materials and subcontractor services), how much cost for own staff arises, and what profit the construction company calculates. The more own services are provided by the construction company and the higher the profit calculated for the construction company, the more saving potential exists with the developer. With few own services, this can even lead to a price increase (see example 3).

Example 1:

A) Separate contracts
Land: €200,000 plus 5 % property transfer tax = €220,000
House construction: €300,000 plus 19 % VAT = €357,000
Included therein
€250,000 materials/subcontractor services (input tax deductible €47,500)
€30,000 costs for own personnel
€20,000 profit general contractor

Total sum: €577,000

B) Developer contract
Land €200,000
House construction: €347,500
Included therein
€297,500 materials/subcontractor services (€250,000 + 19% VAT not deductible)
€30,000 costs for own personnel
€20,000 profit developer

€200,000 + €347,500 = €547,500 plus 5 % property transfer tax = €574,875
Savings: €2,125!!!



Example 2

A) Separate contracts
Land: €200,000 plus 5 % property transfer tax = €220,000
House construction: €300,000 plus 19 % VAT = €357,000
Included therein
€200,000 materials/subcontractor services (input tax deductible €38,000)
€80,000 costs for own personnel
€20,000 profit general contractor

Total sum: €577,000

B) Developer contract
Land €200,000
House construction: €338,000
Included therein
€238,000 materials/subcontractor services (€200,000 + 19% VAT not deductible)
€80,000 costs for own personnel
€20,000 profit developer

€200,000 + €338,000 = €538,000 plus 5 % property transfer tax = €564,900
Savings: €12,100!!!



Example 3

A) Separate contracts
Land: €200,000 plus 5 % property transfer tax = €220,000
House construction: €300,000 plus 19 % VAT = €357,000
Included therein
€270,000 materials/subcontractor services (input tax deductible €51,300)
€10,000 costs for own personnel
€20,000 profit general contractor

Total sum: €577,000

B) Developer contract
Land €200,000
House construction: €353,200
Included therein
€321,300 materials/subcontractor services (€270,000 + 19% VAT not deductible)
€10,000 costs for own personnel
€20,000 profit developer

€200,000 + €351,300 = €551,300 plus 5 % property transfer tax = €578,865
Price increase: €1,865!!!

Unfortunately, there is a mistake throughout: "Grundstück: 200 000 € plus 5 % Grunderwerbsteuer = 220.000 €" The correct is: Grundstück: 200 000 € plus 5 % Grunderwerbsteuer = 210.000 € Thus, in all three examples, the solution with the separate contracts is 10,000 € cheaper...

In summary, it can probably be said:

With separate contracts, you save the real estate transfer tax on the house construction, i.e. for example 5% of €357,000 = €17,850.

In return, with a developer solution, the 19% VAT applies to the entire house construction and not only to the item "materials/third-party subcontractor services." In your examples, the amount not subject to 19% VAT is estimated at between €30,000 and €100,000, so the savings are between €5,700 and €19,000.

I cannot say how these figures compare for a typical shell builder who acts as the general contractor, or for a typical developer. Maybe someone else has information on this.