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In Austria, the value-added tax (VAT) treatment of residential real estate differs from the general European Union framework. While the letting of immovable property is typically VAT‑exempt, the Austrian VAT Act provides a mandatory exception for residential use.
The letting of real estate for residential use is therefore subject to VAT at a reduced rate of 10%. This approach ensures landlords are entitled to full input VAT deduction on acquisition, construction, and ongoing costs, despite the comparatively low taxation of rental income.
This long-standing system has recently been restricted by the introduction of new rules for so‑called “luxury” or “particularly representative” residential properties. As of 01 January 2026, such properties fall under a mandatory VAT exemption. Consequently, no VAT may be charged on rent and, more importantly, the right to deduct input VAT is fully denied.
A residential unit is regarded as “particularly representative” if total costs exceed EUR 2 million (net) within a period of five years from acquisition or construction. In the case of buildings with multiple units, the threshold is applied for each residential unit rather than at the building level. If the threshold is exceeded at a later stage, for example due to subsequent renovations, the VAT treatment changes from that point onward, potentially triggering input VAT adjustments.
Relevant costs include the purchase price, covering both the building and the underlying land, as well as construction expenses, capitalised improvements (i.e. major value‑enhancing upgrades), and major repairs. These costs must be assessed cumulatively and also include related structures such as garages or swimming pools. As a result, properties in areas with high land prices, in particular in tourist regions or major cities, are more likely to meet the threshold and fall within the scope of the new rules.
The financial implications are significant. Under the previous regime, input VAT on development costs could be recovered in full, often creating substantial liquidity advantages. The new rules remove this benefit for luxury properties, and increase the effective cost base. As a result, project structuring, pricing, and investment decisions in the high-end segment require careful reassessment.
The new rules maintain the favourable VAT treatment for standard residential properties, but restrict these benefits for high-value properties. As a result, it is essential to determine at an early stage whether a project exceeds the legal thresholds, as this directly affects VAT treatment and input VAT recovery.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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