Rules for the application of reduced VAT rates in 2014

Service-Tax

The new year will be associated with many changes, especially in the field of the VAT Act, but also in the regulations on tax on goods and services. The Ministry of Finance has prepared two draft regulations:

  1. on VAT exemptions and detailed conditions for applying these exemptions,
  2. on goods and services for which the VAT rate is lowered and on the conditions for applying the reduced rates.

The draft regulation of 8 October 2013 on goods and services for which the VAT rate is lowered and the conditions for applying the reduced rates apply to the application of the rates: 8%, 5% and 0%. It is in fact a repetition of the regulations that have been in force so far, contained in the ordinance of April 4, 2011.

The only change is that the new regulations do not include §7 (7) (1) of the currently binding executive regulation to the VAT Act. The above-mentioned §7 para. 7 point 1 applies to the use of the 8% VAT rate when selling the right of perpetual usufruct of land, in the case of delivery of buildings or structures permanently connected with the land or parts of such buildings or structures, if these buildings or structures or their parts are taxed at the rate of 8%.

The justification of the draft explains that there is no need to maintain the above provisions in the regulation, as they may function pursuant to the provisions of the VAT Act. These regulations result directly from Art. 29 sec. 5 of the act on tax on goods and services, which indicates that in the case of delivery of buildings or structures permanently connected with the land or parts of such buildings or structures, the value of the land is not separated from the tax base. Since the appropriate VAT rate for buildings is 8%, the 8% VAT rate should also be applied when the right of perpetual usufruct of land related to the building / structure is transferred.

The draft ordinance of the Minister of Finance on goods and services for which the VAT rate is lowered and the conditions for applying the reduced rates will enter into force on January 1, 2014. It will not, however, introduce any specific changes in this respect, apart from removing some unnecessary provisions. From the new year, the rules for applying reduced VAT rates will therefore be the same as before.