Requirements for the extended reduction when renting out a hotel property

May 29, 2024

The exclusive letting of real estate can generally be carried out without trade tax. This enables the so-called extended reduction of real estate (Section 9 no. 1 sentence 2 GewStG).

Exclusive also means that no operating equipment may be provided to the tenants.

In practice, this is usually remedied by either selling the operating equipment to a sister company, which then transfers the operating equipment to the tenant, or by selling the operating equipment to the tenants.

The latter was attempted in the case of a hotel property. However, the initial furnishings of the hotel were initially also rented out, which led to the denial of the reduction. Ownership was then transferred to the tenants by means of an addendum, but with the obligation to return the fixtures and fittings on termination of the lease.

The BFH did not consider this to be sufficient in its ruling of 11.01.2024 (IV R 24/21). The case was referred back to the Schleswig-Holstein tax court. The latter must now clarify whether this addendum is a sham transaction and - if the transaction is to be recognized - whether beneficial ownership of the initial equipment has actually been transferred.

Although the decision basically strengthens the previous practice, it once again clearly shows that when letting real estate, care must be taken to ensure that only real estate is let. In the case of arrangements, it must also be ensured that these actually lead to the transfer of the operating equipment.

In the meantime, § 9 no. 1 sentence 3 lit. c) GewStG, however, there is the possibility of generating further income to a small extent, e.g. also from the co-letting of operating equipment.