Voluntary VAT on Transfers of Real Estate – Legislative Proposal Enters Consultation

The Finnish Ministry of Finance published a draft legislative proposal on 10 June 2026 proposing significant amendments to the Finnish VAT Act, specifically targeting the mechanism for monitoring VAT adjustment liability concerning real estate investments. The draft proposal is open for consultation from 10 June to 14 August 2026.

The purpose of the proposal is to repeal the provisions that allow the seller of real estate to transfer the right and obligation to adjust VAT deductions made by the seller to the buyer. The proposed changes became necessary after a ruling from the Court of Justice of the European Union (Case C‑787/18, Sögård Fastigheter) in 2020, which held that obligations to adjust VAT deductions cannot be imposed on anyone other than the taxable person that made the original deduction.

Repeal of the transferability of VAT adjustment liability

The published proposal would repeal the VAT Act provisions on transferring the adjustment right and obligation in connection with real estate transfers. As a result, a transfer of real estate during the 10-year monitoring period of VAT deductions related to the real estate investments of that real estate would always trigger a one-off adjustment for the remaining amount by the seller. Otherwise, the general 10-year monitoring period of VAT deductions made in connection with real estate investments would remain in place largely unchanged.

New option to choose VAT taxability for certain transfers of real estate

According to the proposal, where real estate is transferred through a VAT-exempt sale, the real estate would be treated as being fully in non-deductible use for the remainder of the adjustment period. Thus, the triggering of a one-off adjustment in connection with a VAT-exempt sale would result in an obligation to adjust any VAT deductions made to the detriment of the seller.

Currently, transfers of real estate are exempt from VAT. To prevent all transfers of real estate resulting in the remainder of the adjustment period being treated as being fully in non-deductible use, the proposal would introduce rules allowing certain transfers of real estate to be voluntarily treated as VAT-taxable. Where real estate would be transferred through a VAT-taxable sale, the real estate would be treated as being fully in deductible use for the remainder of the adjustment period, allowing to adjust any non-deducted VAT for the remainder of the adjustment period to the benefit of the seller.

The proposed principal conditions for a taxable transfer of real estate are as follows:

The option to treat an applicable transfer as VAT-taxable would be voluntary for the seller and may be exercised on a transaction-by-transaction basis. Opting to treat the transfer as VAT-taxable would require registering for VAT for a transfer of real estate, which would be a new type of VAT registration introduced in the proposal.

Notably, a VAT-taxable transfer would not be possible for real estate not yet introduced into use. This condition applies to both new construction and older buildings the period of usability of which corresponds to that of new buildings due to significant renovations. Thus, the transfer of such real estate, even with an active previously incurred VAT adjustment liability, would always be treated as exempt from VAT.

From the point of view of the buyer, a taxable purchase of real estate would be treated as a real estate investment subject to adjustment liability. Thus, a taxable purchase of real estate would start a new 10-year adjustment period for the buyer.

Reverse charge on sales opted as VAT-taxable

Significantly, a reverse charge mechanism would apply to transfers of real estate opted as VAT-taxable. This means that if the seller opts for VAT taxability of the transfer, the taxable person liable for VAT would be the buyer. The reverse charge rule would be mandatory, and the parties could not agree otherwise. The application of the reverse charge mechanism would mitigate adverse cash effects of the proposed changes, as the buyer could, where applicable, report and deduct the VAT payable for the purchase on the same VAT return. The reverse charge would, however, not be applicable to transfers to municipalities, a wellbeing services county or the state, if the transferee does not perform any business activities. For such transfers, the taxable person liable for opted VAT would be the seller.

In practice, the most significant change of the proposal would be the mandatory one-off adjustment applicable to the seller in connection with any transfers of real estate, and the introduction of a new 10-year monitoring period for the buyer, where the transfer has been opted as VAT-taxable. Instead of transferring adjustment liability in the middle of the monitoring period, the adjustment liability of real estate investments would, under the proposal, become company-specific with transfers as their cut-off points. Thus, the technicalities related to VAT deductions would change significantly for both the buyer and the seller, but due to the proposed introduction of optional VAT taxability of transfers and the application of the reverse charge mechanism, adverse VAT effects compared to the current provisions are minimised.

The amendments are intended to enter into force on 1 January 2028 and would apply to transfers and other relevant change-of-use events occurring on or after that date, including in respect of properties whose 10-year adjustment period is still ongoing at the time.

If you have any questions concerning this Legal Alert, please contact the undersigned members of our Tax team.