Construction and assembly services - VAT settlement

 

As of January 1, 2017, the regulations on invoicing by companies providing construction, assembly and construction services have changed. These changes were introduced by the amendment to the Act on tax on goods and services. Check which services have been subject to the reverse charge procedure! Answer in the article!

What are construction and assembly services?

The Act on tax on goods and services does not contain a definition of construction and assembly services. Therefore, to find out how to interpret them, you need to refer to the provisions of the Construction Law. Pursuant to Art. 3 points 6, 7 and 8 of the said Act:

• construction is:"Execution of a construction object in a specific place, as well as reconstruction, extension, superstructure of the construction object",

• construction works are: "Construction, as well as works involving the reconstruction, assembly, renovation or demolition of a building object",

• renovation is: "Performance of construction works in the existing building structure consisting in the restoration of the original condition, and not constituting the current maintenance, but it is allowed to use construction products other than those used in the original condition".

Tax obligation and the moment of issuing the invoice

The VAT Act treats entrepreneurs providing construction and assembly services as a group of specific entities. The proof of which is the moment when the tax obligation arises. Well, in the case of the above-mentioned group of companies, the tax obligation arises upon issuing the invoice, but not later than the expiry of the deadline for issuing it, i.e. on the 30th day from the provision of the service.

 

Important! The entrepreneur has the right to issue an invoice within 30 days from the date of the service.

 

Example 1.

On January 7, 2017, the company performed the renovation of a residential building. On the same day, the client accepted the works, which he confirmed with his signature on the protocol.

In this situation, the entrepreneur who performed the renovation is required to issue an invoice no later than February 6, 2017, then also a tax obligation will arise and the need to show the output VAT.

Tax obligation and failure to issue an invoice or issue after the deadline

In a situation where the taxpayer does not issue an invoice or issues it late, the tax obligation will arise on the 30th day from the date of the service - that is, on the date on which the entrepreneur was obliged to issue an invoice at the latest (Article 19a (7) of the VAT Act).

Example 2.

The construction and assembly company carried out a renovation of the terrace on February 20, 2017. The invoice documenting this service was issued on April 7, 2017.

The tax obligation arose on March 22, 2017, i.e. after the 30th day from the date of providing the service.

Tax obligation and receipt of an advance payment

Receipt of an advance payment for construction services will result in a tax obligation in the part of the advance payment. If the construction and assembly company received all or part of the payment (prepayment, advance payment, down payment, installment) before the service was performed, then the tax obligation arises upon its receipt, but in relation to the amount received. The fact that the taxpayer has not yet issued an invoice or an advance invoice does not matter here.

If the entrepreneur has received all or part of the payment before the service has been performed, it is obliged to issue an advance invoice no later than on the 15th day of the month following the month in which the entire or part of the payment was received.

The service is deemed to have been performed even if it was performed only in part for which the payment was determined. In this situation, the tax obligation arises due to the issue of an invoice for partial performance of the service.

Example 3.

A construction company undertook a window replacement service. The deadline for its performance was set for March 25, 2017. The entrepreneur received an advance payment for the entire amount on February 16, 2017. The invoice for this service was issued on March 5, 2017.

The tax obligation arose on February 16, that is on the date of payment of the advance. The invoice for this service was issued on time, as the deadline on the 15th day of the month after the month of receiving the advance payment was not exceeded.

Example 4.

The taxpayer undertook to renovate the building for the benefit of another taxpayer. The deadline for the service was set for April 20, 2017. On April 2, he received an advance payment for part of the receivables and on April 4, he issued an advance invoice. The remaining amount was settled on April 30.

The tax obligation arises on April 2 for the advance payment, and for the service provided, which was not covered by the advance payment, on May 20, i.e. after 30 days from the date of service provision.

However, if the entrepreneur issues the invoice before May 20, the tax obligation will arise on the date of issue.

Non-VAT services

When providing a service to a person who is not a taxpayer, the tax obligation arises on general terms, i.e. when the service is provided or when the payment is partially or fully received. The date of performance of the service or receipt of the advance payment is important here, as they determine the moment when the tax obligation arises.

The entrepreneur providing construction or construction and assembly services will therefore have to decide whether to issue an invoice and be obliged to show the output VAT. Despite the fact that in the month of providing the service, he did not receive the payment from the client and then start counting the expiry of the payment deadline resulting from the document, or use the maximum deadline for issuing the invoice, i.e. issue it on the 30th day from the date of the service. In this way, the payment of the VAT due will be postponed to the next month. At the same time, this will extend the waiting time for payment from the customer.

Provision of construction services as a subcontractor

At the beginning of 2017, regulations changing the way in which entrepreneurs providing their services as subcontractors account for their account have entered into force.

The detailed scope of works covered by the reverse charge is listed in Annex 14 to the VAT Act.

In this regard, we recommend reading the article: Reverse charge in 2017 - construction services