8% for construction services - when to apply the preferential VAT rate?
For some construction and construction and renovation services, it is possible to apply a preferential VAT rate of 8%. However, a number of requirements must be met for this. One of them is, inter alia, the fact that the service should be performed in a property included in the housing program. When can the 8% rate be applied for construction services? Answer in the article!
8% VAT rate for construction services and regulations
Pursuant to Art. 41 sec. 12 of the act on tax on goods and services, the tax rate of 8% is applied to the delivery, construction, renovation, modernization, thermal modernization, reconstruction or maintenance works related to buildings or parts thereof included in the construction covered by the social housing program.
Such a position was also presented, among others, by Director of the National Tax Information in the individual interpretation with ref. No. 0113-KDIPT1-1.4012.99.2018.2 of March 16, 2018, in which we read that in the case of "(...) construction works that will include renovation, thermal modernization and modernization of a building covered by the social housing program, a preferential tax rate should be applied in accordance with Art. 41 section 2 in conjunction with Art. 41 section 12 of the Act. services will be performed in the building (as a whole) covered by the social housing program. Thus, the rate appropriate for services provided in such a facility will be the preferential tax rate of 8%. "
In addition, the 8% VAT rate applies, inter alia, to down:
- maintenance works related to:
- residential buildings or their parts, excluding commercial premises;
- residential premises in non-residential buildings classified in the Polish Classification of Construction Objects in section 12,
- to the extent that the above-mentioned works are not covered by this 23% rate.
Housing construction and the application of the 8% rate for construction services
Before applying the preferential VAT rate, it should be verified whether the construction service provided is performed on the property that is included in the housing program. And the housing construction covered by the social housing program should be understood as:
- residential buildings or their parts, excluding commercial premises, residential premises in non-residential buildings classified in the Polish Classification of Construction Objects (PKOB) in section 12;
- buildings of health care institutions providing accommodation services with medical and nursing care, especially for elderly and disabled people,
- a micro-installation related to the above facilities and buildings, understood as a renewable energy source installation with a total installed electrical capacity of not more than 50 kW, connected to the power grid with a rated voltage lower than 110 kV or with an achievable thermal power in combination of not more than 150 kW, in which the total installed electric power is not more than 50 kW
The construction industry covered by the above program does not include:
- single-family residential buildings with an area exceeding 300 m2;
- residential premises with a usable floor area of more than 150 m2. When the area of the property exceeds the limits, the preferential VAT rate (8%) applies only to the part of the tax base corresponding to the share of the usable area qualifying for construction covered by the social housing program in the total usable area - as provided for in Art. 41 sec. 12c of the Value Added Tax Act.
Marek, the entrepreneur, performs construction services in an apartment belonging to the social housing program. The premises have a usable area of 170 m2. For the entire service in the net amount, the taxpayer would like to receive 250,000. zlotys. At what value can it apply the 8% rate for the construction services it performs?
The entrepreneur may apply a preferential VAT rate (rounded) for the value of PLN 220,588.24 (250,000 / 170 * 150). For the remaining value - PLN 29,411.76 - the basic VAT rate of 23% should be applied.
Evidence of the service being provided in buildings covered by the community program
An entrepreneur performing construction or renovation and construction services, using the 8% rate for construction services, should have evidence confirming the performance of the service in buildings covered by the social program, because in the event of a tax audit, the burden of proof rests with him as a taxpayer.
Importantly, the Tax Code specifies an open catalog of evidence. Pursuant to Art. 180 § 1, evidence is anything that may contribute to the clarification of the case and is not contrary to the law. The basis in this respect is primarily the contract with the buyer, which specifies the terms of its performance (and above all, the place and time). It is important to include the identification data of the parties and the scope of work. Due to the limitations in the application of the preferential rate, information on the renovation, construction or modernization area of the property should also be included.
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Another important document is the handover protocol. It confirms the scope of performed works and the moment of their execution. In addition, another group of evidence are proofs of payment, such as bank transfers or KP documents (the cash desk has been accepted). The taxpayer may have other documents which will make it credible the right to apply the reduced VAT rate in housing construction.
As the Director of the Tax Chamber in Poznań explained in the individual ruling of February 11, 2016, no. ILPP2 / 4512-1-837 / 15-4 / SJ:
"(...) as regards the application of the appropriate tax rate, it is the taxpayer's responsibility to prove the occurrence of circumstances justifying the application of a tax rate other than the standard rate, ie in this case 8%. The legislator expects the taxpayer to demonstrate that the services he provides are related to housing construction and that the usable areas are appropriate. The above is to follow from the evidence available to the taxpayer. The Act on tax on goods and services and the executive regulations issued on its basis do not specify the type and form of documents, however, the taxpayer should have reliable evidence in his documentation that will formally and clearly confirm the usable space, understood in accordance with the above-mentioned regulations, including scope, eg a photocopy of construction documentation on the basis of which such an area can be calculated, a notarial deed specifying the area of an apartment or building, allocation from a cooperative with the areas of individual living quarters listed, etc. ”.
To sum up, the object of sale is decisive when determining the VAT rate. It is important to determine whether the taxpayer supplies goods or services, and whether the activity he performs falls within the concept of a social housing program.