Construction services and the VAT obligation
The tax obligation arises when the goods are delivered or the service is provided (Article 19a of the VAT Act). If the entrepreneur has received all or part of the payment before the delivery or the performance of the service, this obligation will arise upon their receipt. However, it should be remembered that the legislator also imposed a special moment of the tax obligation in relation to, for example, construction services. Therefore, builders, as one of the few, are obliged to follow, in particular, the date of issuing the invoice. Check when construction services should be settled on the basis of VAT.
Construction services - no more cash billing
The provisions in force until the end of 2013 provided that the tax obligation in the case of construction and construction and assembly services arises on the date of receipt of all or part of the payment, but not later than on the 30th day from the moment the service was performed. For entrepreneurs providing this type of services, the date of issue of the invoice did not matter when settling VAT. The payment date specified in the invoice was also irrelevant. Thus, the following were of fundamental importance for the purposes of determining the moment of tax liability for construction services until the end of December 2013:
- date of receipt of payment,
- date of performance of the service, which is usually the same as the date of signing the works acceptance protocol.
The modifications to the provisions of the VAT Act have completely changed the factors influencing the moment when the tax obligation arises.
Construction services - tax obligation dependent on the issuance of an invoice
Providers of construction and construction-assembly services still constitute a group of taxpayers who pay taxes on special terms. In their case, the tax obligation for the provision of construction or construction and assembly services to taxpayers arises when the invoice is issued (Article 19a (5) (3) (a) of the VAT Act). Thus, it does not matter if and when the payment for the service was received (with the exception of advances and prepayments, of course). If the provider of construction services issues an invoice, this will be the moment when he should show the VAT due on the sale. Only in exceptional circumstances, when the taxpayer:
- will not issue an invoice or
- will issue it with a delay,
the tax obligation will arise on the 30th day from the date of the provision of services - that is, the date on which the entrepreneur was obliged to issue an invoice at the latest (Article 106i (3)).
The moment when the tax obligation arises is determined on the date of issuing the invoice, unless the entrepreneur has previously received the payment from the contractor. Therefore, the provisions of the provisions allow for the issuing of an invoice up to 30 days from the date of the service (Article 106i (3) point 1), therefore it is possible to postpone the tax obligation to the next month following the completion of the construction service. However, in practice, a second bottom can be found here. Subsequent invoice issuance usually means a longer waiting period for payment. In economic practice, the countdown of the expiry of the payment deadline usually takes place only from the moment of issuing the invoice.
Therefore, since 2014, companies providing construction or construction and assembly services must therefore decide whether to issue an invoice immediately after the service has been performed and then be forced to report the VAT due on the sale, despite the fact that in the month of the service, they will not receive payment from the customer. Such a procedure will allow you to start counting the expiry of the payment deadline resulting from the document, and this in turn may increase the probability of earlier receipt of the payment. Or will it be a better solution for them to use the maximum deadline allowed by the regulations to issue an invoice - that is, to prepare it on the 30th day from the date of the construction service? This method will allow you to move the payment of output VAT to the next month after the service was performed. There is, however, a "but" - thus the waiting time for payment will be longer.
If the construction service is provided to natural persons who do not conduct business activity, the tax obligation should be recognized on general principles, i.e. at the time of their performance. If the taxpayer receives all or part of the payment earlier, the obligation to settle VAT will arise upon its receipt.
Reverse charge for construction services
As of January 1, 2017, the amended provisions of the VAT Act are in force, pursuant to which the construction services listed in Annex 14 are subject to the reverse charge procedure. However, to use this procedure, additional conditions must be met:
- the service provider is an active VAT payer, the sale of which is not exempt from tax pursuant to Art. 113 paragraph. 1 and 9,
- the service recipient is an entity registered as an active VAT payer,
- the service provider acts as a subcontractor.
More on the issue of reverse charge in the article: Reverse charge - construction services.