On 1 January 2017, Council Implementing Regulation No 1042/2013 VAT to be charged for property-related services enters into effect regarding the chargeability of VAT for property-related services. The Implementing Regulation was approved in 2013, but only comes into force on 1 January 2017 because of the need for sufficient time to harmonise approaches among the Member States. The main objective is to unify the interpretation of property-related terms in all EU countries and ensure uniform VAT treatment of the supply of services connected with real estate, with a positive impact on the level of legal certainty affecting the amount of risk when planning transactions.
Slovak legislation has already implemented these provisions in Sec. 16(1) of the current Act 222/2004 Coll. on value added tax, which states that the place of supply of property-related services is the place where the immovable property is located. The government thereby has the right to charge tax on the transaction.
The Implementing Regulation further defines the term “immovable property” and also which services are to be considered and not considered property-related, especially in order to avoid double taxation and also double non-taxation. The European Commission issued a non-binding Explanatory Note to the article of the Implementing Regulation at the end of 2015, designed to aid in interpreting the different type of real estate services.
Property-related services are considered to be only those services that have a sufficiently direct connection with that property. A sufficiently direct connection of services with immovable property is also where they are provided to, or directed toward, an immovable property, having as their object the legal or physical alteration of that property.
The explanatory note to the regulation also lists services that cannot be considered property-related. Examples include advertising services, even if the property was used to provide them, as well as tourist agency services, providing a spot at a fair for stands in case ancillary services are provided (such as Wi-Fi connection). Accordingly, discretionary portfolio management services involving real estate and some legal services would not be considered property-related either. Below are several examples of services that should be regarded as property-related.
· Engineering design services
This is considered to be a property-related service only if it relates to a specific plot, building or structure being designed by an architect. Unless the property is known in advance or the plot where the immovable property will be located is known, such a service will not be considered as property-related and tax will be charged according to the general rule on the supply of services.
· Services from experts, lawyers and brokers
Brokering of sales and leases, notary work, sales contract drafting services or the acquisition of immovable property are considered to be property-related if they involve specific immovable property.
· Property management
Occupational safety and health services, cleaning, maintenance, recovery of rent from non-paying tenants, construction site supervision, advertising of vacancies in a building and negotiation of lease conditions are included among services related to specific immovable property.
· Providing employees
If a provider gives a customer a sufficient number of its employees for the purpose of carrying out work, this service will be considered property-related only if the provider takes responsibility for the work carried out on behalf of the employees.
Given that the proper definition of property-related service is often complicated because it is not always possible to show sufficient relevance to the properties concerned, we recommend you to contact us in such cases as we have practical experience in the issue.
