Court fees are exempt from VAT

Service-Tax

In the case of entities providing legal services, i.e. law firms or attorneys-at-law, it is necessary to pay additional fees for the so-called court marks. As they act as representatives in the proceedings, they pass these costs on to the clients, respectively. In such a situation, should the sale of the aforementioned marks of fees to the clients of the office be subject to VAT, or should it be exempt? We will look for the answers in this article.

Court fees and VAT

Court fees are fees due for participation in court proceedings by one of the parties. They constitute an obligation towards a judicial authority which is necessary for payment in order to take legal action. These fees can be paid by bank transfer to the current account of the judicial authority, cash payment at the cash desk of the court or by purchasing court fee stamps.

The basis for exemption from VAT of court fees

The sale of court marks at a nominal price benefits from the right to VAT exemption. The above results from Art. 43 sec. 1 point 4 of the VAT Act, pursuant to which “delivery for a price equal to the face value of postage stamps valid for postal services within the territory of the country and other stamps of this type is released”.

Active VAT taxpayers, as a rule, are required to issue invoices documenting the sale of goods and services - in this case, services of a legal nature. If the services are provided to natural persons who do not conduct business, taxpayers are required to issue an invoice at the express request of the buyer.

As you know, the activity of legal advisers and advocates consists in mediation in contacts with state institutions, mainly with courts. Representatives of the law firm act on behalf of their clients. It often happens that it is necessary to submit appropriate applications, letters or even court claims, and their acceptance for consideration depends on the court fees paid. In practice, the final person who bears the cost of purchasing court marks are the clients of the law firm who, after the case is completed, receive the settlement of the service on the invoice issued. In accordance with the above regulations of the VAT Act, if the costs of fees are transferred to other persons while maintaining their nominal value, taxpayers should identify them on the invoice as a separate item with the exempted rate.

Court fees - proper documentation of the sale

It is worth paying attention to one more aspect of the tax exemption for the sale of tax stamps. It is important that the provisions of the contract concluded between the client and the law office contain certain rules for settling the discussed expenses. As a rule, the attorney-at-law (or advocate) acts as an attorney on behalf of the client, therefore the client should be charged with court fees related to the proceedings.

However, there may be a suspicion that court fees - primarily covered by the law firm - are part of the basis for determining the value of the service provided. Therefore, if the taxpayer issues an invoice for the service, including court fees in the total value of the service, then, in principle, such sale should be subject to VAT.

It will be much safer for a given issue to issue invoices by a law office with a separate item indicating the value of acquired court marks. This will avoid possible doubts of tax authorities as to the legitimacy of taking advantage of the exemption.