Amendment to the VAT Act

Correction of deducted VAT in the event of non-payment for supply

The amendment introduces a new obligation of a customer to correct deducted VAT relating to purchased goods or services, from the purchase of which input VAT was deducted if they do not pay for the supply fully, or only partially pay within 100 days of the liability’s due date.

Customers will be obliged to correct deducted input VAT to the extent of the outstanding liability in the VAT period lasting 100 days from the due date (even if no correction document issued by the supplier is received). If subsequently part or all the liability is paid, the customer will have the right to deduct the corresponding part of input VAT. If the customer only originally deducted input VAT in a proportional amount, this fact will be taken into account when correcting the deducted VAT.

This new provision will also apply to deliveries of goods and services prior to 1 January 2023 if 100 days have elapsed by 1 January 2023.

Takeaway

The new provision represents an additional administrative burden for VAT payers, since the tracking of payments and the need to correct the deducted VAT, or reapplying for the right to deduct VAT will be administratively time-consuming. The amendment will also impose additional costs on business as regards software solutions.
 

Bad debt relief

In connection with the introduction of the new obligation of customers to correct deducted input VAT if they do not pay for the supply within 100 days of the due date, more favourable conditions are introduced for a receivable to be considered as uncollectible by the supplier.

Under the amended regulation, the limit of EUR 300 and 12 months from the due date for the creation of an uncollectible receivable is abolished, and instead it will be necessary to monitor whether more than 150 days have passed since the receivable was due.

After meeting the condition of 150 days from the due date, it will be necessary to monitor the condition of the amount of the receivable and subsequently, the following must be assessed:

1. receivable up to EUR 1,000 – to be considered as uncollectible, it will be sufficient for the supplier to document that they have performed an act intended to obtain payment of the receivable from the customer.
2. receivable over EUR 1,000 – the supplier will have to document that:

• they sought to enforce its payment by filing a lawsuit (not at an arbitration court), or
• the receivable is enforced in enforcement proceedings if the supplier has an enforcement title (for example, an enforceable decision issued in arbitration proceedings, or a notary record meeting the conditions according to the enforcement legislation)

In this context, there is also a corresponding modification of the provisions regarding the suspension of the preclusion period and the procedures for the supplier as regards when, how and in what amount they may correct the reduced tax base.

As part of the amendments, the legal fiction of the latest delivery of the correction document issued by the supplier when applying bad debt relief was also introduced into the law. According to this legal presumption, if the customer does not receive a correction document by the end of the calendar month following the month in which it was sent to him by the supplier, it will be considered that they received this corrective document on the last day of that following month.

The other reasons for a receivable to be deemed uncollectable remained unchanged.

This provision will be effective from 1 January 2023. According to the transitional provisions, for the receivable to be deemed as uncollectable under the new regulation, it will be necessary for the moment 150 days have elapsed from the due date to occur after 1 January 2023.

Takeaway

The above represents a simplification of the rules under which a taxpayer is entitled to correct their tax base and pay VAT in the event of uncollectible receivables, thus improving their cash flow. This change should primarily have a positive effect on taxpayers with a large number of smaller receivables.
 

Correction of deducted VAT in the event of theft

As part of the amendment, the determination of the amount for the correction of deducted VAT in the event of theft of goods is also amended. This will apply for the theft of property with a purchase price of EUR 1,700 or less, with a useful life longer than one year, and which was purchased for a purpose other than sale. In this case, the legal fiction of assessing this property as if it were a depreciable property with a 4-year depreciation period according to the Income Tax Act will be applied.

Takeaway

In the event of the theft of such property, VAT will only be returned to the state budget from the residual value, in the same way as for depreciated assets. For example, in the event of the theft of a 4-year-old computer with a purchase price of EUR 1,500, which the taxpayer used for his business purposes, the taxpayer will not have the obligation to correct the deducted VAT.
 

Reduced VAT rate

In order to support tourism and the gastro sector, a reduced VAT rate of 10% was approved from 1 January 2023 for:

• transporting people by cable cars and ski lifts,
• making indoor and outdoor sports facilities available for sport ,
• entrance fees to artificial swimming pools,
• restaurant and catering services.

Takeaway

Since there is an expansion of the range of services subject to the reduced 10 % VAT rate, entrepreneurs should check whether the services they provide will be subject to this new reduced VAT rate and set up their e-kasa and invoicing systems accordingly. This is especially important for the gastro sector, where provided restaurant and catering services must meet the definition under Council Implementing Regulation (EU) No 282/2011.
 

Other changes effective from 1 January 2023

• Late payment interest when importing goods is stipulated.
• The term “small scale shipment of non-commercial goods” is clarified.
• When property is transferred to a legal successor, the approach for dealing with such property is harmonized, regardless of its type, and the obligation of the legal successor to continue amending the deducted VAT is also introduced for movable investment property.
• The obligation to submit a null tax return is cancelled for foreign persons in the position of the first customer in a triangulation trade.
• The period in which a domestic taxable person who has not fulfilled the obligation to register for Slovak VAT (or fulfilled it late) is considered a VAT payer is amended, and in this context the period for which an extraordinary VAT return is submitted is also amended,
• For late VAT registration, in cases where input VAT exceeds output VAT, mandatory VAT inspections are cancelled. The tax administrator may check the data in a submitted extraordinary VAT return using another method, for example, by local investigation.
   

Obligations for payment service providers.

A new provision § 70a transposing Council Directive (EU) 2020/284 of 18 February 2020 amending Directive 2006/112/EC as regards introducing certain requirements for payment service providers will be added to the VAT Act.

The aim of the Directive is to combat certain types of fraud, especially B2C e-commerce transactions, as more people are shopping online from abroad.

The new regulation will introduce several obligations for payment service providers (mainly banks) as of 2024, e.g.:

• the obligation to keep records of cross-border payments and recipients,
• the obligation to store data on cross-border payment transactions if the recipient accepts more than 25 payment transactions per calendar quarter,
• the obligation to submit data on payers or payment recipients from payment transactions to the Financial Administration.

The law defines in more detail who is considered a payment service provider, payment recipient, payment service, etc., determines the personnel scope of the new provision, the methodology, scope and period of record keeping, etc.

Takeaway

The implementation of the new rules will significantly strengthen the tools and measures for tax collection in cross-border transactions by requiring payment service providers to keep special records and report them to the Financial Administration. These records will subsequently be cross-checked and evaluated at the European level.

For payment service providers, these new obligations will represent an additional administrative burden and will require set up and adaption of processes and systems.