Key Rules for VAT Debtors in Construction Transactions: Analysis of Laws and Practices in Serbia

Welcome to our detailed overview of determining VAT debtors for the trade of goods and services in construction. This text focuses on legal provisions and practical applications in Serbia, particularly exploring cases from 2018, 2019, and 2020. Understanding these rules is crucial for every expert in the field of construction and finance.

Legal Basis of VAT Debtors in Construction Transactions

In this regard, the opinion of the Ministry of Finance, No. 000301477 2023 10520 004 000 011 004 dated 14.11.2023, concerning the determination of VAT debtors for the trade of goods and services in the field of construction when, during 2018, 2019, and 2020, works were carried out on the repair of towers and blades and protection against corrosion on damages to wind turbines in the wind park, according to Article 10 of the Value Added Tax Law.

Indeed, works on high structures that require climbing skills and knowledge of using appropriate equipment, specifically works on the repair of towers and blades and works on corrosion protection on damages to rotor blades and other parts of wind turbines located in the wind park, carried out during 2018, 2019, and 2020 by a VAT obligor – the contractor to another VAT obligor – the client, are considered trade in the field of construction, and therefore, the tax debtor for the said trade is the VAT obligor – the client.

In accordance with the Value Added Tax Law (“Official Gazette of RS”, No. 84/2004, 86/2004 – corr., 61/2005, 61/2007, 93/2012, 108/2013, 6/2014 – aligned din. amount, 68/2014 – other law, 142/2014, 5/2015 – aligned din. amount, 83/2015, 5/2016 – aligned din. amount, 108/2016, 7/2017 – aligned din. amount, 113/2017, 13/2018 – aligned din. amount, 30/2018, 4/2019 – aligned din. amount and 72/2019 – hereinafter: the Law), for the trade of goods and services in the field of construction performed by a VAT obligor to another VAT obligor, i.e., a person from Article 9, Paragraph 1 of the Law, the obligation of calculating and paying VAT lies with the recipient of goods and services as a tax debtor under Article 10, Paragraph 2, Point 3) of the Law.

The Regulation on determining goods and services in the field of construction for the purpose of determining the tax debtor for value-added

tax (“Official Gazette of RS”, No. 86/2015 – hereinafter: Regulation) specifies what, in the sense of Article 10, Paragraph 2, Point 3) of the Law, is considered goods and services in the field of construction.

Specific Cases: Works on Wind Turbines in the Wind Park

The mentioned regulation was applicable from October 15, 2015, until December 31, 2020. In this context, works on high structures that require climbing skills and knowledge of using appropriate equipment, in this case, works on the repair of towers and blades and works on corrosion protection on damages to the rotor blades and other parts of wind turbines located in the wind park, carried out during 2018, 2019, and 2020 by a VAT obligor – the contractor to another VAT obligor – the client, are considered trade in the field of construction under Article 10, Paragraph 2, Point 3) of the Law, as activities from the group 43.99 – Other unspecified specific construction works, mentioned in Article 2, Paragraph 1, Point 19) of the Regulation. Therefore, the tax debtor for the relevant trade is the VAT obligor – the client.

In this case, the basis for calculating VAT consists of the amount of compensation that the VAT obligor – the contractor receives or is to receive for the delivered goods or provided services from the VAT obligor – the client or a third party, excluding VAT, which includes all incidental costs that the VAT obligor – the contractor charges to the VAT obligor – the client (e.g., costs of accommodation, per diems, medical examinations, and transportation of physical persons engaged by the VAT obligor – the contractor for the purpose of trade in the field of construction performed to the VAT obligor – the client).

Practical Application and Implications of the Law

Provisions of Article 3 of the Law stipulate that the subject of VAT taxation is the supply of goods and services (hereinafter: the trade of goods and services) performed by a tax obligor in the Republic for a fee, within the scope of business activities, as well as the import of goods into the Republic.

The trade of goods, in the sense of this law and in accordance with the provision of Article 4, Paragraph 1 of the Law, is the transfer of rights to dispose of tangible things (hereinafter: goods) to a person who can dispose of such goods as an owner, unless otherwise specified by this law.

The trade of goods, in the sense of this law, is also considered to be the delivery of goods produced or assembled at the request of the client, from the supplier’s materials, unless it concerns only additions or other incidental materials (Article 4, Paragraph 3, Point 6) of the Law).

The trade of services, in the sense of this law and in accordance with the provision of Article 5, Paragraph 1 of the Law, are all jobs and actions within the scope of business activities that are not the trade of goods from Article 4 of this law.

The trade of services, in the sense of this law, is also considered to be the handover of goods produced or assembled at the request of the client, from the client’s materials (Article 5, Paragraph 3, Point 3) of the Law).

According to the provision of Article 10, Paragraph 1, Point 1) of the Law, the tax debtor, in the sense of this law, is an obligor who performs taxable trade of goods and services, except when the obligation to pay VAT in accordance with this paragraph is borne by another person.

The provision of Article 10, Paragraph 2, Point 3) of the Law specifies that, exceptionally from Paragraph 1, Point 1) of this article, the tax debtor is the recipient of goods and services in the field of construction, a VAT obligor, i.e., a person from Article 9, Paragraph 1 of this Law, for trade conducted by a VAT obligor.

In accordance with the provisions of Article 2, Paragraph 1 of the Regulation, goods and services in the field of construction, in the sense of Article 10, Paragraph 2, Point 3) of the Law, are considered to be goods and services whose trade is conducted in accordance with Article 4, Paragraph 1 and Paragraph 3, Point 6) and Article 5, Paragraph 1 and Paragraph 3, Point 3) of the Law, within the scope of activities from the following groups of the Classification of Activities prescribed by the Regulation on the Classification of Activities (“Official Gazette of RS”, No. 54/2010), namely:

  1. 20 Construction of residential and non-residential buildings;
  2. 11 Construction of roads and motorways;
  3. 12 Construction of railways and underground railways;
  4. 13 Construction of bridges and tunnels;
  5. 21 Construction of pipelines;
  6. 22 Construction of electrical and telecommunication lines;
  7. 91 Construction of hydro-technical structures;
  8. 99 Construction of other unspecified structures;
  9. 11 Demolition of buildings;
  10. 12 Preparation of construction sites;
  11. 21 Installation of electrical systems;
  12. 22 Installation of water, sewerage, heating, and air-conditioning systems;
  13. 29 Other installation works in construction;
  14. 31 Plastering;
  15. 32 Installation of joinery;
  16. 33 Laying of floor and wall coverings;
  17. 34 Painting and glazing;
  18. 91 Roofing works;
  19. 99 Other unspecified specific construction works.

When a VAT obligor (hereinafter: VAT) performs activities from Paragraph 1 of this article, regardless of whether it is registered to perform these activities in accordance with the law, at the request of the client, from its own material, provided that it concerns only additions or other incidental materials, it is considered that the VAT obligor, in accordance with Article 4, Paragraphs 1 and 3, Point 6) of the Law, performs the trade of goods in the field of construction from Article 10, Paragraph 2, Point 3) of the Law (Paragraph 2 of the same article of the Regulation).

The provision of Paragraph 3 of the same article of the Regulation stipulates that, when a VAT obligor performs activities from Paragraph 1 of this article, regardless of whether it is registered to perform these activities in accordance with the law, at the request of the client, from the client’s materials,

Under the provision of paragraph 3 of the same article of the Regulations, it is prescribed that when a VAT obligor performs activities from paragraph 1 of this article, regardless of whether they are registered to perform these activities in accordance with the law, on the order of the client, from the client’s materials, it is considered that the VAT obligor, in accordance with Article 5, paragraphs 1 and 3, point 3) of the Law, performs the provision of services in the field of construction from Article 10, paragraph 2, point 3) of the Law.

Under the provision of Article 17, paragraph 1 of the Law, it is prescribed that the tax base (hereinafter: the base) for the supply of goods and services is the amount of compensation (in money, goods, or services) that the obligor receives or is to receive for the delivered goods or services provided from the recipient of goods or services or a third party, including subsidies and other receipts (hereinafter: subsidies), which does not include VAT, unless otherwise provided by this law.

According to the provision of Article 17, paragraph 3 of the Law, the base also includes excise duties, customs, and other import duties and other public revenues, except for VAT, as well as all ancillary costs charged by the obligor to the recipient of goods and services.”

Conclusion

In conclusion, understanding how VAT debtors are determined in construction transactions is key to efficiently managing tax obligations and complying with legal regulations in Serbia. Through the analysis of specific cases and practical application, this text provides an in-depth insight into the complexities and nuances that characterize this area. For any additional information and professional advice, do not hesitate to contact our team.

 

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