On 24 March 2025, the Tax Department issued a circular extending the deadline for submission of T.D. 1220. Form T.D. 1220 relates to the election by a lessor of the option to exempt from VAT rent/lease income where this applies.
Background on the application of VAT to rent/lease and option to exempt
In accordance with the VAT legislation, rent/lease of immovable property to a taxable person for the purpose of carrying out VAT-taxable business activity, is subject to VAT. It is noted that the rent/lease of immovable property to be used as a residence is exempt from VAT.
As per the regulatory administrative act 305/2025, the lessor has the option to notify the Tax Commissioner, using form T.D. 1220, for the election to exempt from VAT for specific immovable property such rent/lease. The form must be submitted to the Tax Commissioner within 30 days of the signing of the rent/lease agreement.
The election by a lessor to exempt the rent/lease from VAT for a property is permanent and will apply to subsequent rent/lease agreements of that specific property. This option to exempt is revoked when the ownership of the immovable property changes
Circular 2/2025 Update
The circular provided the opportunity to lessors to submit form TD. 1220 until 31.12.2025 covering rent/lease agreements entered into from 13.11.2017 (the effective date of Law 157(I)/2017) provided that:
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The lessor did not notify the Tax Commissioner with Form T.D. 1220 regarding their choice for non-taxation of the rent/lease, and did not charge VAT on said lease and/or rental, and
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The lessor has already declared the rent/lease for direct tax purposes, i.e., has already complied with their tax obligations relating to the rent/lease (income tax, contributions to GHS, and Special Defence Contribution).
The circular does not apply to leases where the lessor has charged VAT to a taxable person for the purpose of carrying out taxable business activity and, consequently, the lessee had the right under articles 20 and 21 of Law 95(I)/2000 as amended, to deduct the VAT charged by the lessor.
The circular remains in force until 31.12.2025. Therefore, from 01.01.2026, for rent/lease to a taxable person for the purpose of carrying out taxable business activity, if the lessor elects to exempt the rent/lease income from VAT they will have to notify the Tax Commissioner within 30 days from the date of signing the lease agreement, by submitting form T.D. 1220 for non-taxation of the lease and/or rental of immovable property.
The Tax Commissioner may approve a later submission date beyond the 30-day deadline for the submission of Form TD.1220.
