Amendment to VAT Act from 1.1.2019

Cancellation of VAT guarantee

The amendment to VAT Act proposes the complete withdrawal of the VAT guarantee.

Takeaways

Applicants for VAT registration will no longer have to pay a VAT guarantee to the tax office. The payment of VAT guarantee to tax office has until now been obligatory in some cases to compensate for possible VAT underpayments.

Changes in VAT treatment of leasing

Following the judgment of the Court of Justice of the EU (CJEU) of 4 October 2017 in C-164/16 (Mercedes‑Benz Financial Services UK Ltd), which clarified the concept of finance leasing, it is proposed to exclude from the VAT Act the provision related to the application of VAT rules for cross-border leasing. However, the suggested amendment to the VAT Act is not as substantial as this CJEU judgment itself. It appears that following this judgment, some leasing supplies that has until now been considered for VAT purposes as supplies of services may be considered as supply of goods, i.e. have different VAT treatment and implications.

Takeaways

CJEU case-law may fundamentally change the VAT treatment of finance leasing and this may significantly affect all companies operating with leasing.

Change in the place of supply of digital services

The draft amendment regulates VAT rules for the supply of telecommunication services, radio and television broadcasting and electronic services (“digital services”) which are provided to a non-taxable person. If the supplier meets the defined turnover, the place of supply of the digital services will be the place where the supplier is established.

Takeaways

This change is intended to bring a simplification for providers making occasional supplies of digital services to non-taxable persons from other EU Member States.

Supply of immovable property

VAT payers will have to exempt the supply of immovable property meant for housing, if supply occurs after 5 years from the first approval of the construction. The option to charge VAT on such a supply will be no longer available. The amendment aims to prevent the misuse of VAT deductions related to immovable property meant for housing. When immovable property meant for housing is sold after 5 years from the first construction approval and before the expiration of the VAT adjustment period (20 years), VAT payers will have to make an adjustment to the deducted input VAT (i.e. reimburse VAT to the tax office).

Renting of immovable property

For the same reasons, another substantial change is proposed. If a VAT payer rents immovable property meant for housing, he will have to apply VAT exemption on such a rent regardless of the status of the recipient (tenant). Such a VAT payer will have to monitor the obligation to adjust the deducted input VAT from the purchase of immovable property during the 20 year VAT adjustment period. This change will apply to rental contracts concluded after 31 December 2018.

Definition of first approval

The draft amendment introduces the definition of the first approval of the construction from which the 5-year period during which supply of immovable property is always subject to VAT is calculated, which can be:

• The first approval of the construction;
• The approval of the construction if the use of the property has changed and construction costs represent at least 30% of the value of the construction before construction work began;
• The approval of the reconstruction of the building if construction costs represent at least 30% of the value of the construction before reconstruction work began.

Takeaways

VAT payers selling immovable property meant for a housing after 5 years from its first construction approval and renting immovable property as housing will have to exempt this supply from VAT. They will also have to monitor their obligation to adjust the deducted VAT from acquisition of property.

The introduction of a new definition of the first approval of immovable property implies in some cases the obligation to recalculate the 5-year period for the application of the VAT exemption when selling the immovable property.

Reverse-charge if simplified invoice is issued

Cancellation of the minimum amount of EUR 5,000 of the VAT base for the application of local reverse-charge for agricultural crops and metals that was introduced by an amendment to the VAT Act effective from 1 January 2018 has caused practical problems, especially where the customer only received a cash register receipt from a supplier. In contrast to a regular invoice, a cash register document does not contain the customer’s identification information or information that the supply is subject to a reverse-charge. Thus, the supplier has often charged VAT on such a sale of goods, which was not in line with the VAT Act, and the customer was not entitled to deduct such incorrectly charged VAT. In order to eliminate these problems, it is proposed to exclude the application of the local reverse-charge for supplies of agricultural crops and metals products, if a simplified invoice is issued.

Takeaways

If a supplier issues a cash register receipt for the supply of agricultural crops and metals products, they will charge Slovak VAT on such a supply.

Adding of obligation to adjust deducted VAT

The amendment proposes the introduction of the obligation for a customer to make an adjustment to deducted input VAT from an advance payment. This obligation applies if it is obvious, based on objective facts, that goods and services for which advance payment was paid, will not be supplied. This provision is introduced further to the case-law of the CJEU (C-107/13 FIRIN OOD). The Act does not specify what objective facts mean, but according to the explanatory report to the amendment to the VAT Act, this may include, for example, a declaration of bankruptcy on the supplier’s assets or the deletion of the supplier from the commercial register.

Takeaways

Companies should regularly monitor the status and position of their suppliers to which they pay advance payments for future supplies of goods or services, as they will be obliged to return previously deducted input VAT from advance payments.