Business registration for commercial rental
April 15, 2010 | 25,00 EUR | answered by Matthias Wander
I would like to rent out an apartment as an office to my wife's sole proprietorship (engineering office) with my wife as a co-owner. Due to the renovation costs, I would prefer to rent with value added tax in order to be able to reclaim the VAT portions of the renovation costs.
Do I need to register a separate business for this, and what type of business structure can I choose? Can a sole proprietorship be registered as a married couple?
Would the condominium then be considered part of the business assets and potentially be subject to taxation upon sale?
Dear inquirer,
Thank you for your inquiry, which I would like to answer based on the information provided and in the context of your project as part of an initial consultation.
Legally speaking, you and your wife would rent out the office as a Civil Law Partnership (GbR). The GbR is automatically formed by law when at least 2 people are involved and no further regulations are made. The legal form of a sole proprietorship is not possible for 2 participants.
Solution Value Added Tax:
From a VAT perspective, the GbR is considered an entrepreneur in the rental activity. Registration of a trade is not required. Rental of real estate is generally exempt from VAT. However, you can opt for taxation if your wife carries out taxable supplies with the engineering office. This option is made by explicit declaration and the identification of VAT in the lease agreement.
Solution Income Tax:
From an income tax perspective, the (proportional) rental income is separately assessed for each participant.
Husband's Share:
If your share is in private assets, you will generate income from rental and leasing. Your wife will have corresponding business expenses. The proportional property costs will be considered as advertising costs for rental and leasing. After 10 years, a tax-free sale of the property is possible.
Wife's Share:
Your wife's share constitutes necessary business assets if the value of the proportional property is not of minor importance. The proportional rent payments are not business expenses, but private withdrawals. On the other hand, they are not taxed as income from rental and leasing either. The proportional property costs are to be recorded as business expenses in your wife's business. Since the proportional property of your wife is part of the business assets, any hidden reserves must be taxed upon later sale of the property. A tax-free sale after 10 years is not possible.
I hope my explanations were helpful.
Best regards,
Wander
Tax advisor
