VAT in construction services
Sales of goods and services are generally taxed at the standard rate of 23%. The application of the reduced VAT rate must directly result from the provisions of the VAT Act or its implementing regulations. The 8% rate applies to the delivery, construction, renovation, modernization, thermal modernization or reconstruction of buildings or their parts included in the construction covered by the social housing program. Certain maintenance work in the residential sector is subject to a reduced VAT rate of 8%. Construction services can be taxed in various forms. The choice is made by the entrepreneur.
Income tax - income will arise
As a rule, the date of obtaining income is the date of delivery of the item, sale of property rights or performance of a service or partial performance of a service, no later than the date of issuing an invoice or paying the amount due. In the case of construction services, the scope of work is often divided into stages. The parties agree that they will perform partial acceptances and settle the performed works. The contract is therefore the basis for correctly determining the date of obtaining income.
In the case of entities conducting business activity, revenues that affect the determination of the amount of income (or loss) include, among others money and cash values due, even if they have not yet been received, excluding the value of the returned goods, discounts and discounts granted. Revenues do not include collected payments or accumulated receivables for the supply of goods and services, which will be performed in the following reporting periods. This means that not all money received is income. This applies, inter alia, to advances, collection of which is a certain rule when conducting construction services. The collected advance payment will be subject to income tax only on the date of obtaining the income for which it was collected.
Forms of taxation
Taxpayers settling in accordance with the rules provided for in the Corporate Income Tax Act tax the income obtained from the provision of construction services on the same terms as other income - at the rate of 19%.A taxpayer providing construction services who is not subject to the provisions of the Corporate Income Tax Act may choose to be taxed in the form of:
- tax card;
- lump sum on registered revenues;
- flat tax;
- or tax scale.
The tax card does not require keeping records of revenues or costs. The tax is paid in a fixed amount, depending mainly on the type of business, the number of inhabitants of the town where it is performed, and the employment status. Taxation in the form of a tax card is applicable regardless of the amount of income. However, in order for the taxpayer dealing with the renovation and construction industry to not lose the possibility of taxation in the form of a tax card, in 2011 he may provide services for business entities in the amount not exceeding PLN 58 277. In the case of entrepreneurs who are VAT payers, it is a net amount. In addition to the above-mentioned circumstances that result in a loss of taxation in the form of a tax card, one should also indicate, for example, an increase in employment above a certain limit. If the entrepreneur loses the right to tax in the form of a tax card, he should notify the head of the competent tax office about this fact. Even if he does not fulfill this obligation, he is obliged to pay income tax on general terms for the entire tax year. This means the obligation to establish a tax book of revenues and expenses from the first day of the month following the month in which the decision on the expiry of the decision establishing the amount of income tax in the form of a tax card was delivered. In addition, the taxpayer is required to calculate income tax according to general rules, i.e. taking into account the revenues obtained and documented costs of obtaining them for the entire tax year.
Lump sum on recorded revenues
Income from the provision of construction services is taxed at the rate of 5.5%. It should be remembered that taxpayers have the right to pay a lump sum on recorded revenues if:
- in the year preceding the tax year, they obtained revenues from this activity, conducted exclusively on their own, in the amount not exceeding EUR 150,000 or they obtained revenues only from activities conducted in the form of a company, and the sum of revenues of the partners of the company from this activity did not exceed the amount of EUR 150,000;
- they start to operate in the tax year and do not benefit from taxation in the form of a tax card - regardless of the amount of income.
In the case of taxpayers providing construction services subject to value added tax, the revenue from this sale is deemed to be revenue less the tax on goods and services due.
Flat tax and tax according to the tax scale
In the case of flat tax, all income is taxed at a uniform rate of 19%. Taxpayers subject to taxation according to the tax scale will not pay the tax if their annual income does not exceed PLN 3,091. Up to the amount of annual income of PLN 85,528, the tax amounts to 18% minus the amount reducing the tax of PLN 556.02. Above this amount, the tax will be PLN 14,839.02 + 32% of the surplus over PLN 85,528.
Construction and renovation services are not exempt from VAT. However, entrepreneurs conducting such activity may benefit from a subjective exemption from VAT. This exemption is granted to:
- taxpayers who continue their activities, provided they do not exceed the sales value limit specified in the act in the previous tax year. For 2011, the year 2010 is taken into account, when the limit was PLN 100,000;
- taxpayers starting their business in a given tax year, provided they do not exceed the annual limit of PLN 150,000 in proportion to the period of sales.
Entrepreneurs who are subjectively exempt from VAT are required to keep sales records. These records will make it possible to capture the moment of obtaining the turnover, the exceeding of which requires the submission of a VAT registration declaration.
As a rule, the tax obligation arises when the goods are released or the service is provided. In the case of construction and assembly works, the tax obligation arises upon receipt of all or part of the payment, but not later than on the 30th day from the date of service provision. If, before the goods are released or the service is provided, the entrepreneur has received a part of the amount due (in particular: prepayment, advance payment, advance payment, installment), the tax obligation will arise upon its receipt in this part.
The currently reduced 8% VAT rate applies to housing facilities, but only those included in the construction covered by the social housing program. Pursuant to the VAT Act, the reduced rate applies to the supply, construction, renovation, modernization, thermomodernization or reconstruction of buildings or parts thereof. Pursuant to the VAT Act, construction covered by the social housing program is understood as residential buildings or their parts, excluding commercial premises, and residential premises in non-residential buildings, as well as buildings of health care institutions providing accommodation services with medical and nursing care, especially for people. elderly and disabled. The construction covered by the social housing program does not include:
- single-family residential buildings with a usable floor area of more than 300 m2;
- residential premises with a usable area of more than 150 m2.
In a situation where the area of a flat or single-family building exceeds the above limits, two tax rates will apply to this delivery - reduced and basic.
Certain maintenance work in the residential sector is subject to a reduced VAT rate of 8%. The reduced rate will apply to, inter alia, maintenance services for elevators, intercoms, ventilation and other similar installations and devices that are necessary for the maintenance of the building in good condition. The lower rate will also cover minor repairs, such as replacement of a cable, valve, etc. However, in the case of renovation of all or part of the installation or building, the VAT rate should be determined in accordance with the provisions on the so-called social housing, including the area limits for premises and single-family buildings.
Maintenance works that are not included in the social housing program are taxed at the rate of 8%, provided that the tax-free value of the goods included in the tax base for the provision of maintenance works does not exceed 50% of this base. Otherwise, i.e. when the net value of the goods exceeds 50% of the tax base for the maintenance work, the sale of the service should be taxed at the rate of 23%.
VAT rate for the sale of window and door joinery along with its installation in a residential building.
From 1 January 2011, the installation of windows and doors in residential buildings is subject to taxation at the rate of 8% according to uniform rules for all entities providing this type of service, i.e. regardless of whether the entrepreneur providing this service is a manufacturer or a service company that purchased joinery elements from another entity.
If the usable area:
- single-family residential building will exceed 300 m2;
- a residential unit will exceed 150 m2
then the reduced rate can only be applied partially, i.e. in proportion to the share of the quota area in the total usable area.
Documenting the surface
The obligation to apply the appropriate VAT rate is borne by the invoice issuer, i.e. the entity that provides construction services. In the case of construction services provided in single-family houses or apartments, the VAT rate depends on the area of a given facility. The contractor for construction works may use, inter alia, the following evidence confirming the usable area of a single-family house or flat:
- the client's declaration of the area of the residential facility;
- other documents - if, in the opinion of the tax authority, the declaration of the client or the contractor of construction works turns out to be insufficient evidence, other evidence should be used, e.g. decisions and declarations in real estate tax, which will result in the usable area, construction documentation on the basis of which determine the usable area or a photocopy of the notarial deed in which the area was replaced;
- own documentation - it is possible to perform independent measurements of the area of an apartment or a single-family house and to prepare an appropriate document based on these measurements and attach it to the VAT documentation.
Settlement of VAT on construction services provided in the EU
In the case of the provision of construction services in the EU, the place of taxation is the country where the property on which the construction services are performed is located, regardless of whether the buyer of the service is a company (taxpayer) or a natural person not conducting business activity. If the service is purchased by the EU taxpayer, he is obliged to settle the tax on the service. For a Polish company, it is then a non-taxable service. If the buyer of the service is a natural person who does not conduct business activity, the obligation to settle the tax rests with the Polish company.
Place of service provision
If the service is provided between entities from two different countries, the place of its taxation is determined by the place of its provision indicated by the provisions of the VAT Act. Construction or renovation (assembly) services performed by the company should be classified as real estate services. The condition for qualifying a specific service is its relation to the real estate to which the service relates. The method of VAT settlement for this type of services depends on the place of delivery. These services also include accommodation services in the hotel sector or sectors with a similar function, such as holiday centers or places intended for use as campsites, and services for the use and use of real estate and services provided by appraisers and real estate agents. The place of supply of real estate services is the place where the real estate is located, according to the rates in force in the country where it is located. This also applies to services for the preparation and coordination of construction work, such as architects and construction supervision services. The indicated principle of taxation of this type of services applies both to services provided to value added tax taxpayers and final consumers (natural persons) - i.e. entities that are not such taxpayers. Therefore, regardless of the status of the buyer of the service, it will always be taxable in the country where the property on which the construction service is performed is located.
Services that are taxed in another EU country must be documented by an invoice, known as a commercial or simplified invoice. It documents an activity that is not subject to taxation in Poland. However, it should contain an annotation that the tax is settled by the buyer, or an indication of the relevant provision of the act or directive indicating that the tax is settled by the buyer.
In the records, the taxpayer should provide the name of the service and its value, excluding value added tax or a tax of a similar nature. These services should be recorded by the taxpayer, taking into account the moment when the tax obligation arises for the service provided. Therefore, the company should register the construction services performed in the month in which the VAT obligation arose for them, indicating the moment when this obligation arose.
Provision of taxable services outside the territory of the country requires the maintenance of a detailed register of these services. It should specify the name of the service, its net value and the moment when the VAT obligation arises. The service should be recorded in the settlement period in which the VAT obligation arose for it.
How to determine the tax liability for a construction service
The taxpayer is obliged to determine for them the moment when the VAT obligation arises. The moment of taxation of construction services provided outside Poland should therefore be determined on the same principles as in the case of the provision of these services in the territory of the country. The tax obligation arises upon receipt of all or part of the payment, but not later than on the 30th day from the date of service provision.
An invoice documenting construction services should be issued no later than when the tax obligation arises. The invoice can also be issued earlier, but not earlier than on the 30th day before the obligation arises. In the case of construction services, the date of issue of the invoice does not affect the moment when the VAT obligation on the construction service arises.
Provision of a service to a non-taxable entity
In the case of entities that do not conduct business activity and are not taxpayers of value added tax, the place of their provision will also be the location of the real estate on which these services will be provided, i.e. the territory of another EU country. In this case, however, the buyer will not be obliged to settle the tax on the purchase of the service. The obligation to settle the tax for the provision of these services will be borne by the company according to the tax law in force in that country