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This article was written by
Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal
Senior Consultant, National Office Tax & Legal
In a circular dated 9 April 2026, the German Federal Ministry of Finance (BMF) classifies communities of co-owners, as well as British limited companies that are not incorporated in Germany, as taxable persons for VAT purposes if they carry out a business activity. In doing so, it is also amending the relevant passages of the VAT Application Decree. The examples published here clarify the abstract wording of Section 2 of the German Value Added Tax Act (UStG), which does not specify any specific categories for unincorporated economic entities classified as taxable persons.
In its decision of 22 November 2018 (case no. V R 65/17), the German Federal Fiscal Court ruled, in accordance with the law at the time, that a community of co-owners could not be a taxable person for VAT purposes. Instead, business activities could only be provided on a pro rata basis by the co-owners. Consequently, the right to deduct input VAT did not lie with the community, but with its co-owners on a pro rata basis.
In response to this court decision, the legislature amended Section 2 (1) UStG via the Annual Tax Act 2022 to the effect that the existence of taxable persons does not depend on whether the relevant economic entity has legal personality under other provisions. According to the explanatory memorandum to the Annual Tax Act 2022, this was intended to create legal certainty and clarity, but also to address practical problems such as the formality of invoices, the right to deduct input VAT, and the duplication of small business status.
According to the current Section 2 (1) sentence 1 UStG, any entity without legal personality is therefore considered a taxable person if it meets the general requirements of Section 2 UStG. However, the Act does not list any specific categories of cases, meaning that there was still a need for clarification. Although the previous VAT Application Decree already included the example of communities of co-owners, it does not list any further cases of application beyond this.
The current BMF Circular provides further details on the case of communities of co-owners and addresses the case of British limited companies without legal personality.
Unlike its co-owners, a community of co-owners cannot be the holder of rights and obligations. Nevertheless, following the codification of the Federal Fiscal Court’s case law, it is regarded as a taxable person for VAT purposes if it independently carries out a business activity – that is, a commercial or professional activity – and this activity is attributable less to the co-owners and more to the entire community of co-owners. Such attribution applies, for example, in the case of a property held in co-ownership where the co-owners jointly conclude a tenancy agreement for its letting. The joint conclusion of the contract makes their joint action visible to the outside world. Furthermore, unlike individual contracts entered into by the co-owners, the contract concerns the entire community of co-owners.
The same applies to a British limited company: following the United Kingdom’s withdrawal from the European Union, a limited company based in Germany is no longer legally recognised in all cases from a German perspective. Nevertheless, it may be regarded as a taxable person for VAT purposes if it carries out a commercial or professional activity on an independent basis. The law under which it was incorporated or its location is irrelevant for determining its status as a taxable person.
Note:
Although the BMF circular does not mention this case, the legal principles are likely to apply equally to civil-law partnerships (GbR) without legal personality within the meaning of Section 740 et seq. of the German Civil Code (BGB): Since the Act on the Modernisation of Partnership Law (MoPeG), the BGB has distinguished between a GbR with legal personality and one without. The latter nevertheless constitutes a taxable person for VAT purposes if it carries out a business activity within the meaning of Section 2 UStG.