Construction and assembly services and VAT in 2014

Service-Tax

On the first day of January this year, the provisions of the amended Act on tax on goods and services entered into force. The biggest changes include the issue of modifying the regulations concerning the moment when a tax obligation arises - which applies to both those who sell goods and provide services. The general rules in the new law stipulate that this moment is separated from the date of issuing the invoice - it is linked to the date of delivery of goods or performance of a service.

There are, however, some exceptions - the general rules do not apply, for example, to persons involved in construction or construction and assembly activities. However, they are bound by a new moment of tax obligation, determined in particular with regard to the type of services provided, closely related to the date of issuing the invoice.

There is no longer any cash settlement for construction services

Until the last day of the previous year, in terms of construction and assembly services, the tax obligation arose on the date of receipt of all or part of the payment - no later than 30 days from the date of performance of a given service. Therefore, the date of issue of the invoice and the payment date placed on it did not play any role under VAT. What mattered, in particular, was the date of receipt of the payment. If the entrepreneur did not receive it earlier, he was obliged to prove and tax the sale with VAT no later than 30 days from the date the service was provided.

Until the end of 2013, the most important events helpful in defining the date when the VAT obligation arose in the field of construction and assembly services were:

  • date of receipt of payment,
  • date of service performance, usually determined by signing the acceptance protocol.

Modifications in this area, which came into force at the beginning of 2014, meant that entrepreneurs providing this type of services no longer have to monitor the date of receipt of payment from the customer in such detail.

Tax obligation for construction services after the amendment

In the amended Act on tax on goods and services, entrepreneurs providing construction and assembly services remain distinguished as a group of special entities. Art. 19a sec. 5 point 3 lit. and of the aforementioned act says that in their case the moment of the tax obligation arises at the moment of issuing the invoice. Whether or not the entrepreneur was paid in a given month is no longer relevant. Issuing an invoice is tantamount to the obligation to disclose the VAT due on the sale. Only if the taxpayer fails to issue an invoice or does it late, the tax obligation will arise on the 30th day from the date the services were provided - that is, on the date on which the entrepreneur was obliged to issue an invoice at the latest (Article 19a (7)).

The practical dimension of changes

Providers of construction services could, until the last day of the previous year, postpone the tax obligation to the next month following the month of the service - provided that they did not receive payment for it. This facilitation has been abolished since 2014 - the moment when the tax obligation arises is determined by the date of issuing the invoice. Although, as a rule, a taxpayer providing construction services has 30 days to issue an invoice from the date the works are performed (see: Art. 106 and paragraph 3, point 1), therefore it is possible to shift the moment of the tax obligation to the next month after the services have been performed, however, in reality it is it means a longer waiting time for the entrepreneur. This is because in business practice the countdown of the payment deadline usually starts from the moment the invoice is received / issued.

Example 1.

Economic events:

A pavement laying service was performed. On September 14, an acceptance protocol was signed and a sales invoice was issued.

The payment from the customer was made on November 10.

As it was in 2013:

The tax obligation under VAT arose on October 14.

As it is in 2014:

The tax obligation under VAT arises on September 14 - which means that it is one month earlier than under the legal status in force in 2013.

 

Example 2.

Economic events:

The apartment was renovated. The service was performed and accepted by the buyer on August 24. Invoice issued on August 28.

The payment from the customer was made on August 27.

As it was in 2013:

The tax obligation under VAT arose on August 30.

As it is in 2014:

The tax obligation under VAT arises on August 30 - no changes.

Therefore, the taxpayer providing construction or assembly services is currently faced with the choice of:

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  • or issues an invoice, which is associated with the obligation to prove the tax due on sales in the period in which it was issued, despite the fact that in the month of the service the amount due from the customer was not received, and starting to deduct the expiry of the payment deadline, which results from the document,
  • or uses the maximum time to issue an invoice, i.e. 30 days from the date of the service - which means that the payment of the VAT due is shifted to the next month, but at the same time the waiting period for payment from the customer is extended.

 

The rule that if the taxpayer receives all or part of the amount due before the services is provided, he is obliged to issue an invoice and show the VAT due on the value of the received payment.