The German Federal Ministry of Finance issued guidance on 9 April 2026 confirming that communities by undivided shares (Bruchteilsgemeinschaften) can be taxable persons under VAT law, effective from 1 January 2023, following legislative amendments that decoupled taxable person status from civil law legal capacity.
Background
The VAT treatment of communities by undivided shares had created significant legal uncertainty after the Federal Fiscal Court ruled in November 2018 and May 2020 that such communities could not be taxable persons due to their lack of legal capacity under civil law. This jurisprudence conflicted with the tax authorities' traditional view and created practical difficulties in determining whether services should be attributed to the community, an overarching partnership, or individual co-owners.
The legislator responded with the Annual Tax Act 2022, amending section 2(1) of the German VAT Act with effect from 1 January 2023 to explicitly decouple taxable person status from legal capacity requirements under other legal provisions.
Development
The Finance Ministry classified the 2023 amendment as a clarification of legislative intent, confirming that VAT taxable person status is assessed independently of legal capacity under other provisions. Communities by undivided shares qualify as taxable persons when business activities of co-owners are attributed to the community and they act jointly toward third parties, such as concluding joint agreements.
The guidance extends to British Limited companies operating in Germany, which may be regarded as taxable persons despite lacking German legal capacity, regardless of their founding statute or administrative headquarters location. Such status generally triggers German VAT registration obligations, subject to specific exemptions under sections 13b(5) and 1(1)(4) of the VAT Act.
The principles apply from 1 January 2023 but may be applied to earlier periods, though the previous Federal Fiscal Court, German jurisprudence remains applicable where there is no contradictory conduct and community members filed separate VAT returns.
Context
This guidance provides legal certainty for practitioners dealing with communities by undivided shares, particularly in real estate transactions and joint ventures. However, the position may face future challenge, as ECJ Advocate General Kokott indicated in July 2025 that legal capacity is a mandatory EU law requirement for independent economic activity, potentially reopening the debate on taxable status for entities without legal capacity.
