Place of service provision - work on real estate abroad

Service-Tax

Many Polish entrepreneurs work on real estate located abroad. In such a situation, the provisions of the VAT Act provide for a separate method of settlement and determination of the place of performance. As practice shows, taxpayers often have problems with the proper settlement of such works.

Place of service provision

Defining the place of performance of activities is legally established in the provisions of the VAT Act and is of fundamental importance for determining the taxation of tax services. VAT is a territorial tax. Only activities that are considered to be provided in a given place are subject to taxation in a given country.

The basic principle of how to determine the place of providing services has been formulated in Art. 28b of the VAT Act. Pursuant to the aforementioned article, the place of supply of these services is the place where the taxpayer who is the recipient of the service has his registered office.

 

However, there are exceptions to this rule. Real estate services are specifically regulated. The principles of their taxation result from the provision of art. 28e for VAT, according to which the place of provision of real estate services, including:

  • services provided by appraisers,

  • services provided by real estate agents,

  • accommodation services in hotels or establishments with a similar function, such as holiday centers or places intended for use as campsites,

  • real estate use and use services; and

  • construction preparation and coordination services, such as architects and construction supervision services

- is the location of the property.

The obligation to tax a service on real estate in the country where it is located may in some cases necessitate the registration of a Polish entrepreneur as a taxpayer in the country where he performs work, if such obligation results from the regulations in force in a given country.

Therefore, taxpayers must always familiarize themselves with the provisions in force in the country where the property is located, because they determine the method of taxation of the services provided.The regulations generally allow for the self-taxation mechanism to be used by the buyer, but only if the recipient is an entrepreneur registered for value added tax purposes in a given country.

As it results from the individual interpretation of the Director of the Tax Chamber in Katowice of September 30, 2015, ref. No. IBPP4 / 44512-205 / 15 / LG:

(...) the place of provision, and thus the taxation of the service related to real estate, is determined solely by the location of the real estate with which the service is closely related, regardless of the entity for which it is performed and where the service provider is located. This principle applies when the service can be assigned to a specific property that is locatable as to its location. This provision - as is clear from its wording - constitutes an exception to the rule, adopting as a criterion the reference not to the entity but to the object, which is real estate, and the services directly related to it are to be taxed according to the place of its location. At the same time, these services may be unlimited, as indicated by the catalog included in this provision, which is open. The scope of these services includes not only services strictly related to works performed in real estate and real estate trading, but also services, the performance of which is based on the use, use and use of real estate.

It should be emphasized that in the light of the provisions on the place of service provision, in order to consider services as related to real estate, the result of the works must be related to a specific real estate, e.g. a plot, building, structure with specific parameters, numbers, owned by certain persons. (...)

Documenting the service performed

Although the service provided is not taxable in Poland, pursuant to Art. 106b paragraph. 1 point 1 in connection with joke. 106a point 2 lit. and the VAT Act, the taxpayer is obliged to document this sale with an invoice issued in accordance with the VAT Act. The above-mentioned provisions of the VAT Act show that the Polish service provider (taxpayer) is obliged to issue an invoice in the case of providing the service:

  • for which the place of taxation is the territory of a Member State other than the territory of the country,

  • to another value added tax payer who, as the customer, is obliged to pay the value added tax.

This invoice:

  • should be marked with the words "reverse charge" (Article 106e (1) (18) of the VAT Act),

  • should not contain data on the tax rate and amount, which is a consequence of the fact that the service is not subject to taxation in Poland (Article 106e (5) (1) of the VAT Act).

Deduction of VAT on materials related to the performance of the service

Joke. 86 sec. 1 of the VAT Act shows that the taxpayer has the right to reduce the amount of tax due by the amount of input tax to the extent that the goods or services are used to perform taxable activities.

It follows from the above that the right to reduce the amount of tax due by the amount of input tax is granted when certain conditions are met, i.e. the deduction is made by an active registered VAT taxpayer and when the goods and services on the purchase of which the tax was charged, are used for taxable activities. The condition enabling the taxpayer to exercise the right to deduct input tax is the relationship between the purchases and the taxable activities performed, i.e. the consequence of which is the determination of the tax due (the emergence of a tax liability).

Moreover, pursuant to Art. 86 sec. 8 point 1 of the VAT Act, the taxpayer has the right to deduct input tax when purchasing goods also when the imported or purchased goods relate to the delivery of goods or the provision of services by the taxpayer outside the territory of the country, if these amounts could be deducted if these activities were performed in the territory of country, and the taxpayer has documents that show the relationship of the deducted tax with these activities.

Thus, provided that the above-mentioned conditions are met, there are no obstacles to deduct VAT from the purchased goods used to perform the services.

Demonstration of services in the declaration

The explanations to the declaration for value added tax (VAT-7, VAT-7K and VAT-7D) show that the declaration should include not only all taxable activities for which the tax obligation arose in the settlement period for which it is submitted declaration, but also activities performed outside the territory of the country, for which there is a right to deduct input tax or return it. The supply of goods or the provision of services taxed outside the territory of the country is shown in item 11 of the declaration, provided that, in relation to these activities, the taxpayer has the right to deduct the input tax referred to in art. 86 sec. 8 point 1 of the VAT Act, or the right to a refund of the amount of input tax referred to in art. 87 sec. 5 of the VAT Act.

On the other hand, the value of purchases together with the amount of input tax is shown by the taxpayer in item 41 and 42 of declarations as "Acquisition of other goods and services".

Summary information

Summarizing information must be submitted by taxpayers registered as EU VAT taxpayers who provide services (other than tax-exempt or taxed at 0%) to taxpayers from other European Union countries, on which the tax - in accordance with art. 28b of the VAT Act - should be settled by the EU buyer of the service in his country.

Art. 28e of the VAT Act, therefore they should not be included in the summary information.