Project developers are increasingly opting less for purchase or construction contracts in residential development projects. Instead, they work with separate purchase agreements (for the sale of a plot or apartment, concluded with the project developer) and separate construction contracts (for the construction of the house/buildings, concluded with the building contractor). The advantage of this distinction for the project developer is that they no longer face the implementation and aftercare issues that can arise with residential construction.

The advantages outlined above for the project developer only arise if the construction of separate purchase and contracting is applied carefully.

Not always beneficial
However, there are tax implications to separate purchase and construction that are often ignored. Some examples:

1. If the project developer does not act as the client for the building contractor – with regard to the houses unsold at the start of construction – an economic transfer of the relevant plots or apartment rights to the building contractor can be observed.
2. If the project developer does not charge the purchaser for the instalments of the contract price that have already expired at the time of delivery of the house (plot or apartment right) as an increase in the purchase price (after the building contractor has first charged these instalments to the project developer), the purchase price will be too low for a person who is not entitled to deduct VAT.
3. In renovation projects, there may be a transfer of an existing asset within the scope of transfer tax, meaning that the VAT on construction periods expired upon delivery cannot be deducted.

To prevent the pursuit of advantages from creating (tax) disadvantages, the tax implications of separate purchase and construction contracts (in particular) should be carefully examined on a project-specific basis. A customized solution should be provided for the contracts to be concluded (collaboration agreement between project developer and construction contractor, purchase agreement between project developer and purchaser, and construction contract between construction contractor and purchaser).

Think before you leap
If the structure of separate purchase and construction is carefully designed and properly calculated for tax purposes, the well-known adage "every advantage has its disadvantage" need not arise. Think before you leap! And have your separate purchase and construction contracts drawn up or reviewed by an expert. If necessary, by the lawyers and notaries at Wintertaling.