A significant change in the VAT Act is the application of a VAT scheme with respect to the delivery of projects and the rental of real estate as well as the definition of the term “initial statutory permitting”.
The delivery of projects or portions thereof, including delivery of the building lot (§38 (1)) on which the project is built in the current version of the VAT Act is exempt from VAT so long as delivery is completed after five years from initial statutory permitting. VAT payers under the previous version of the VAT Act had the right to choose whether to tax the project. The amended VAT Act eliminates the right to make this decision.
The amended VAT Act adds new circumstances that are subject to the 5-year period during which the delivery of a part of a project, such as an individual flat, apartment or non-residential unit shall be compulsorily subject to VAT!
After the expiration of this 5-year period, the taxpayer is obliged upon delivery of such residential projects to exempt delivery from tax.
If residential property is sold after expiration of the 5-year period and before expiration of the period for the modification of deducted VAT (20 years), the taxpayer will be obliged to modify the VAT deducted from the acquisition of this property.
The amended VAT Act changes the rules for taxation of real estate intended for rent or lease. The tax exemption therefore becomes mandatory for the rental of residential property with consideration given to the standing of the tenant. The change applies to all real estate rental and lease agreements concluded after 31 December 2018 based on which the real estate was furnished for use after 31 December 2018.
The amended VAT Act expands the definition of initial statutory permitting to include initial statutory permitting that allowed the initial use of the project for the intended use, statutory permitting that allowed a change in the intended use of the project and statutory permitting that allowed the use of the project after the completion of construction work that led to a significant change in conditions compared to the previous use of the project. The threshold criterion is set to 40% of the value of the project. This value will be defined as the market value of the project at the time before redevelopment, with consideration given to the location of the project and the time criterion. The tax exemption is granted 5 years after statutory permitting related to a change in use or renovation of the building.
