Special Arrangements for Imposing Value Added Tax on Immovables and Metal Waste

From 1 January 2011 special arrangements for imposing value added tax became applicable to immovables and metal waste. Under the new rules the recipient of the goods shall be liable to paying the tax (reverse charge mechanism) on the supply of immovables and metal waste.

What Is Reverse Charge Mechanism?

Under the general value added tax rules the value added tax has to be charged and paid to the state budget by the seller of the goods. Under the reverse charge mechanism the buyer of the goods has the obligation to report and pay the value added tax.

How to Calculate Value Added Tax under Reverse Charge Mechanism?

The seller of the goods issues an invoice, showing also the amount of value added tax, but the seller does not report the amount in its value added tax return, and it does not pay the tax to the state budget. The purchaser pays the seller for the immovable an amount net of value added tax and records the amount of value added tax stated in the invoice as tax payable by the purchaser. The transaction is reported in the value added tax return in the month of receiving the invoice. If the purchaser uses the goods for its taxable supply the value added tax is reported in the same period of taxation as input tax as well.

The seller states in the invoice issued for a transaction subject to the reverse charge mechanism that the purchaser shall record the value added tax as tax payable by the purchaser.

NB! The reverse charge mechanism can only be used if the transaction is conducted between taxable persons.

How to Apply Reverse Charge Mechanism on Transfers?

In case of immovables the reverse charge mechanism is applied only in case of transactions that the seller wishes to tax on a voluntary basis (subsection 16(3) of the Value Added Tax Act) and of which the seller has informed the tax authority in writing prior to the transaction. The notification obligation rests with the seller of immovables or metal waste.

What Is Not Subject to Reverse Charge Mechanism?

The reverse charge mechanism does not apply to dwellings, since in their case it is not possible to choose the method of taxation.

The reverse charge mechanism can not be used in the case of transferring new buildings, construction works which have been significantly improved and lots with detailed plans, whose taxation is compulsory (clause 16(3)2) of the Value Added Tax Act).

The special arrangements are not applicable if the purchaser of immovables or metal waste is a taxable person with limited liability or a natural person.

Legal basis:

The term “metal waste”, which is the object of the reverse charge mechanism, is defined in section 104 of the Waste Act. A detailed list of metal waste is established by regulation No 17 of the Minister of the Environment of 15 April 2004.

The special arrangements for imposing value added tax on immovables and metal waste are prescribed in section 41' of the Value Added Tax Act.