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VAT in the construction sector Practical Application Of Reverse Charge

LeitnerLeitner is one of the most influential tax consulting and auditing companies in Central and Eastern Europe, which is becoming more and more recognised in Serbia due to its professionalism and the high quality of services provided to clients

The internal calculation of VAT was recently extended to the area of construction services, by abolishing the condition that the provider and the service recipient must have the status of contractor or investor. Now it is only necessary for the supply to be made between two VAT payers.

The proposed solution is one of the steps towards harmonisation with EU regulations in the tax domain. The Act on the classification of business activities determines which supplies are considered as services from the construction area, by listing business activity codes. In practice, this approach does not reflect the essence of construction services, since the activities in the Act are determined on a statistical basis.

One of the main issues is how to interpret the Act, mainly due to the fact that the Act does not have a numerus clausus approach. For instance, construction of green areas is not expressly listed as a construction service, but under the business code for green areas, it is specifically listed that this code doesn’t include construction, which represents a service from the F Sector of the classification. While interpreting the Act, not only the linguistic method should be used, but also logical and systematic methods.

Another dilemma is how to classify supplies conducted within primary supply, which is classified as supply in the construction area. The Ministry of Finance took the view that each supply should be considered separately and the tax debtor is determined for each supply. However, this is not applicable if the service supplier levies the cost of the services provided by the third party (auxiliary services) to the recipient.

These problems are still to be solved in the coming period.

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