VAT on rental - everything you need to know
When running a business, taxpayers may provide rental services as well as purchase services of this nature. One of the problems faced by taxpayers is the correct determination of the moment when the tax obligation arises. Below are the rules on which the VAT on the lease should be settled.
VAT due on the lease
According to the general principles set out in Art. 19a paragraph. 1 of the act on tax on goods and services, the tax obligation arises at the time of delivery of goods or performance of a service, however, there are some exceptions, for which other deadlines are specified in the act. Such exceptions include the rental service - in this case, the tax obligation arises at the time of issuing the invoice (Article 19a (5) (4) of the VAT Act).
This deadline applies when the invoice is issued in accordance with the rental rules, i.e. on the date of payment for the rental at the latest.
It happens that the rental service provider will not issue an invoice - in such a situation, when should the VAT on the lease be accounted for?
Situations and reasons why the landlord did not invoice for the rental services:
the landlord, despite the obligation to issue an invoice, mistakenly failed to do so,
the landlord was not obliged to issue an invoice due to the fact that:
- in accordance with Art. 106b paragraph. 2 of the VAT Act, there is no obligation to issue an invoice when services are provided are exempt from VAT - and in accordance with Art. 43 sec. 1 point 36, services in the field of renting or leasing real estate of a residential nature or part of a real estate, for own account, solely for residential purposes, are exempt from VAT.
- a non-residential property was rented, and the tenant was a natural person who does not conduct business activity.
In such situations, if the service provider fails to issue an invoice within the applicable deadline or fails to issue it at all, the tax obligation arises on the date of the payment deadline.
The question here arises: What if the payment date is not specified? When does a tax obligation arise when an invoice has not been issued and the payment date has not been determined?
If the parties to the contract have not specified a payment date, we can refer to Art. 669 § 2 of the Civil Code, which says that if the date of payment of the rent is not specified in the contract, the rent should be paid in advance, namely: when the lease is to last no longer than a month - for the entire duration of the lease, and when the lease is to be longer than a month or if the contract was concluded for an indefinite period - monthly, until the tenth day of the month.
In addition, an invoice for rental services may be issued earlier, even more than 30 days before the service is provided - it is stated in Art. 106i paragraph. 8 of the Value Added Tax Act. In such a situation, the invoice issued must specify the period to which the invoice relates.
Advance payment received and VAT on lease
As Art. 106b paragraph. 1 point 4 of the act on tax on goods and services, if the taxpayer receives all or part of the payment for the service before the date of sale, he is obliged to issue an invoice documenting the receipt of the advance, and thus - the payment of the output VAT. However, this rule does not apply to advances received for future rental services.
The situation is different when the earlier payment for the rental service results directly from the dates specified in the rental agreement - if the parties have agreed on an earlier payment date - such an advance payment must be documented in accordance with the principles presented above - i.e. not later than on the payment date.
Accrued VAT on the lease
The act on tax on goods and services in art. 86 sec. 1 says that if the goods or services purchased by the taxpayer are related to the taxpayer's performance of activities subject to VAT, the taxpayer has the right to deduct the tax amount from these purchase invoices from the output tax (on sales). Similarly, if the purchased goods or services are only partially related to taxable sales, e.g. in a situation where the taxpayer has mixed sales, the taxpayer is entitled to deduct input VAT on the taxable part.
Thus, there is no obstacle to deducting VAT on the lease, as long as this expenditure meets the above criterion.
Additionally, if the service purchased by the taxpayer (e.g. lease) is related to the performance of activities by the taxpayer, such as the delivery of goods or services outside the territory of Poland, the right to deduct the tax will still apply, even though the service or goods sold will not be subject to taxation in the country. . Nevertheless, the taxpayer should have documents confirming that there is a connection between the tax deducted and the service or good sold.
Dates of VAT deductions from lease
According to Art. 86 sec. 10 of the act on tax on goods and services, the taxpayer has the right to reduce the amount of VAT due by the amount of input VAT in the settlement for the period in which the seller arises a tax obligation in connection with the above-mentioned service or goods. Additionally, it is obligatory for the buyer to have a VAT invoice. These rules also apply to the deduction of VAT on the lease.
The VAT Act in Art. 86 sec. 11 also states that a taxpayer who has not deducted the input VAT in the month he is entitled to has the right to benefit from the reduction of the output tax in tax declarations for one of the next two tax periods.