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Construction services : What does it mean?
In order to have a clear view on the European VAT compliance obligations of your company, you need to understand how VAT regulations treat differents kind of transactions. The EU VAT system defines two type of transactions: supplies of goods and of services.
We describe below the key aspects of construction services.
Let's take an example
Your company based in Romania has signed a contract for the erection of an industrial warehouse in Poland. Your workers will be temporarily dispatched on the worksite.
Construction services are subject to VAT in the country where the immovable property is located.
Construction services are subject to VAT in the country where the immovable property is located. Polish VAT is therefore applicable. However, a local reverse charge [payment of VAT switched to the client] has been implemented into the Polish VAT Act enabling you to avoid any VAT registration in Poland provided your client is a Polish taxpayer. Your company is therefore not required to be VAT registered in Poland and must issue invoice without charging any VAT. Polish VAT incurred on your expenses can be refunded through the electronic procedure available in your own country.
The VAT treatment will be different in case your company purchases materials for the construction from another country and the goods are shipped on the worksite in Poland. In this case, your company should be VAT registered in Poland to report an intra-community acquisition of goods. Being VAT registered in Poland, local reverse charge mechanism is no more applicable and your company must charge Polish VAT to its client.
The Expert's eye
Construction businesses faced common issues and challenges. Companies acting in the construction sector must pay attention to the following issues:
- Check whether or not a local reverse charge has been implemented in the country where the immovable property is located and if applicable in their relation with their client as well as in their relation with their sub-contractors [if any]. Many countries have however introduced local reverse charge in the construction sector [anti-fraud measures];
- In case no reverse charge is applicable, proceed to the local VAT registration;
- Check if the physical presence in the country during a certain period does not create a fixed establishment for VAT purposes [reallocating all purchases services in Poland] ;
- Check the VAT rate applicable on the transaction. Some Members States have introduced a reduced VAT rate in the construction sector.