More and more people are renting out their own house or flat, in whole or in part, on a temporary basis to tourists, students or others who prefer private accommodation to a hotel.
I Income Tax (Einkommensteuer)
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Do you only rent out part of your own home on a temporary basis, and do the rental receipts amount to no more than 520 EUR per year? In that case, the tax authority (Finanzamt) waives taxation.
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As a general rule, you generate rental and leasing income (Einkünfte aus Vermietung und Verpachtung) through the letting. Only if you operate a hotel-like business do you generate income from a trade. Characteristics of a hotel-like operation include, for example:
- Daily cleaning
- Prospective guests may contact you at any time without prior reservation and move into a room immediately.
- You offer guests breakfast every day.
Weekly cleaning, by contrast, is not a characteristic of a hotel operation.
- Do you generate an overall surplus from the activity over several years?
a. It is clearly apparent that your deductible expenses will permanently exceed your income. This is the case, for example, when you sublet your rented flat and the per-square-metre rent you achieve is lower than the per-square-metre rent you yourself pay. In that case, the activity is treated as a hobby (Liebhaberei) from the outset. The letting is irrelevant for income tax purposes.
b. It is clearly apparent that you will achieve surpluses of rental income over deductible expenses. The surpluses are subject to income tax as rental and leasing income and must be reported to the tax authority annually in the income tax return.
c. You incur losses initially. The losses arise because you have one-off costs, such as renovation of the rooms to be let, or capital expenditure, such as the purchase of furniture. In that case you may set the losses off against other income.
Calculating Income
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All costs directly attributable to the letting may be deducted in full, e.g. costs for newspaper advertisements or additional keys to the property.
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Where only part of the flat is let, the property costs are apportioned. In the case of subletting, the costs of the flat include in particular the gross rent and electricity costs. In the case of letting an owner-occupied flat, the costs include: building depreciation, mortgage interest, local property charges, maintenance costs, and insurance.
The costs of the flat are apportioned as follows:
- Costs for rooms used exclusively by the tenants are apportioned by floor area.
- Costs for rooms used by both tenants and yourself, e.g. kitchen, bathroom, hallway, are apportioned per head.
- Costs for rooms used exclusively by yourself cannot be deducted.
VAT (Umsatzsteuer / Mehrwertsteuer)
If you let on a long-term basis to the same tenant, the letting is exempt from VAT. Long-term means more than 6 months. If you let on a short-term basis, VAT of 7% applies.
Provided your rental income does not exceed 17,500 EUR per year, you may rely on the small business exemption under section 19 of the VAT Act (UStG) and are not required to remit VAT to the tax authority.
VAT liability need not be a disadvantage: to the extent that you generate VAT-liable income, you may reclaim the VAT you have paid to other businesses (input tax, Vorsteuer) - for example on the purchase of furniture - from the tax authority.
Ancillary services customarily associated with a VAT-liable letting, e.g. cleaning, are likewise subject to the 7% VAT rate. Other services, e.g. catering or transfer from the airport to the property, are however subject to the standard rate of 19%.
If you commence a VAT-liable letting, you must submit monthly VAT returns to the tax authority in the first two years.
Other Matters
The letting of residential accommodation, e.g. via Airbnb, is subject to various restrictions. Several cities - in particular Berlin and Hamburg - are attempting to prevent the "misuse of residential space" for short-term letting. To sublet a rented flat you also require the landlord's consent. Subletting without such consent may even justify termination of the tenancy by the landlord.
However, the income tax and VAT consequences of a letting arise irrespective of whether the letting is legally permissible.