Leasing and VAT in Germany

Delivery or other service on leasing
Depending on the configuration, leasing or certain rental contracts can be viewed as a delivery (provision of control over an object) or as other service (transfer of use of an object). This has a decisive influence on the VAT assessment, because the place and time of the leasing contract are crucial for determining the amount of sales tax (VAT). While until recently leasing contracts within the EU were assumed to be deliveries when civil property passed to the lessee at the latest when the last installment was paid or the delivery was actually exercised, this is now changing for all rental and leasing contracts that were concluded after March 18, 2020 (Section 3.5 Paragraph 5 UStAE (VAT Application Decree); Art. 14 Paragraph 2 Letter b VAT Regulation; ECJ, judgment of October 4, 2017, Case C — 164/16). For the delivery to be assumed, there are two cumulative requirements to be fulfilled:

• the contract must explicitly contain a clause on the transfer of ownership of the object of the rental or leasing contract from the lessor to the lessee AND
• it must be clear from the terms of the contract that ownership of the object should automatically pass to the lessee if the contract is executed as planned until the contract expires. The time of the conclusion of the contract must be taken into account and the requirements assessed from an objective perspective. ​

---

For the German financial administration, a (non-binding) purchase option for the item also applies as a clause on the transfer of ownership. To check whether the second condition is met as well, the tax authorities assume a delivery if, given the financial terms of the contract, the exercise of the purchase option at the end of the contract actually appears to be the only commercial rational option for the lessee. The contract must not offer the lessee a real economic alternative that, at the time of the option, depending on their interests, they can purchase, return or rent the property.
Delivery, other service and sales tax
In Germany, if a delivery is assumed, the VAT liability arises - insofar as the tax is based on the agreed fees - immediately when the service is carried out, while when an other service is assumed, the VAT only arises with the partial performances or the payment.
The invoice must be issued in accordance with the VAT law viewpoint.

​Example: Entrepreneur A as the lessee leases a special machine with a net value of EUR 40.000,00 from May 1, 2020 onwards from lessor B. Upon expiry of the leasing contract upon payment of a final installment, the machine becomes irrevocably owned by entrepreneur A. The sales tax arises for lessor B on May 1, 2020 and must be paid to the tax office in the advance tax return for May 2020; the lessee entrepreneur A claims - if the invoice is duly available - the input tax with the advance tax return for May 2020 and not later with the monthly lease payments. ​

Cash flow advantage in the context of input tax deduction in Germany

Special leasing payments and taxes in Germany