When an investor buys an apartment with VAT and uses it for short-term rental such as Airbnb, the entire financial picture changes dramatically compared to ordinary long-term rental. Let’s see why.
💰 Key data
| Parameter | Value |
|---|---|
| Purchase price incl. 24% VAT | €185,000 |
| Annual revenue incl. VAT | €12,000 |
| Period | 10 years |
| VAT rate on purchase | 24% |
| VAT rate on accommodation service | 13% |
1️⃣ Purchase breakdown
Net price=185,0001.24=€149,193.55\text{Net price} = \frac{185,000}{1.24} = €149,193.55Net price=1.24185,000=€149,193.55 Input VAT=€35,806.45\text{Input VAT} = €35,806.45Input VAT=€35,806.45
➡️ The company can immediately reclaim €35,806.45 as input VAT if the apartment is fully used for taxable accommodation activity.
2️⃣ Annual Airbnb income (13% VAT)
Net income=12,0001.13=€10,619.47\text{Net income} = \frac{12,000}{1.13} = €10,619.47Net income=1.1312,000=€10,619.47 Output VAT=€1,380.53\text{Output VAT} = €1,380.53Output VAT=€1,380.53
3️⃣ 10-year overview
| Year | Net income (€) | Output VAT (€) | Cumulative output VAT (€) |
|---|---|---|---|
| 1 | 10,619.47 | 1,380.53 | 1,380.53 |
| 2 | 10,619.47 | 1,380.53 | 2,761.06 |
| 3 | 10,619.47 | 1,380.53 | 4,141.59 |
| 4 | 10,619.47 | 1,380.53 | 5,522.12 |
| 5 | 10,619.47 | 1,380.53 | 6,902.65 |
| 6 | 10,619.47 | 1,380.53 | 8,283.18 |
| 7 | 10,619.47 | 1,380.53 | 9,663.71 |
| 8 | 10,619.47 | 1,380.53 | 11,044.24 |
| 9 | 10,619.47 | 1,380.53 | 12,424.77 |
| 10 | 10,619.47 | 1,380.53 | 13,805.30 |
4️⃣ VAT summary over 10 years
| Type | Amount (€) | Description |
|---|---|---|
| Input VAT from purchase | 35,806.45 | Refunded immediately |
| Total output VAT over 10 years | 13,805.30 | Paid to the state |
| Net VAT benefit | 22,001.15 | Retained by the company |
5️⃣ VAT adjustment note
For real estate, Estonia applies a 10-year VAT correction period.
If the apartment is later used for private or VAT-exempt residential purposes, part of the refunded VAT must be repaid.
If it remains 100% for taxable accommodation use, the refund of €35,806.45 is kept permanently.
6️⃣ 10-year ROI comparison
| Indicator | Airbnb (13% VAT) | Long-term rent (VAT-exempt) |
|---|---|---|
| Purchase price (incl. VAT) | €185,000 | €185,000 |
| Recoverable VAT | +35,806 | 0 |
| 10-year net revenue | €106,195 | €120,000 |
| Output VAT to the state | –€13,805 | 0 |
| Net VAT effect | +€22,001 | 0 |
| Total return over 10 years | ≈85.9% | ≈64.9% |
| Average annual ROI | ≈8.6% | ≈6.5% |
| Advantage (Airbnb) | +2.1 percentage points / year | — |
7️⃣ 📈 Summary
💡 A VAT-registered short-term rental business can yield around 30% higher total returns than standard long-term residential letting:
- The VAT refund adds more than €22,000 in net benefit over 10 years.
- The condition: the apartment must remain in full accommodation use throughout the 10-year correction period.
