The reversed procedure applies to VAT on construction services. It means that the tax is paid by the buyer, not the seller, as is usually the case. In a construction contract, the main contractor accounts for the tax on construction services for the entire contract chain.
What does translated VAT liability mean?
Inverted VAT liability means, in a simplified way, that the subcontractor or other subcontractor charges the buyer for the construction service without VAT. Only the main contractor or other buyer pays the final tax for the performance received from the customer.
All companies operating as subcontractors or companies operating in the subcontracting chain invoice their construction services to the main contractors or other subcontractors tax-free.
The buyer has the right to deduct the value added tax that he has paid on the basis of the inverted tax liability. This requires that the general conditions for the right to deduct are met and that the buyer has fulfilled his notification obligation stipulated in Section 162 of the AVL.
Under what conditions is the reversed VAT liability applied?
Reverse VAT liability is only applied if both of the following conditions are met:
- The service is a construction service or the hiring of labor for a construction service.
- The buyer is an entrepreneur who sells construction services or hires labor for construction services other than occasionally.
- The buyer can also be a so-called arbitrator. He is a trader who resells the service in question to the trader defined above.
Reversed tax liability cannot be circumvented in such a way that the buyer in the construction subcontracting chain is an entrepreneur who occasionally sells construction services. For example, if a company that does not engage in construction activities buys installation work and resells it to a construction company, reverse tax liability applies to both sales.
Construction for own account
Reversed tax liability is also applied in construction for one's own account, such as, for example, foundation contracting.
Reversed tax liability is therefore also applied when the buyer is a business owner who builds or constructs a building or permanent structure on the land under his control for the purpose of sale.
The property will be handed over before commissioning
Reversed tax liability is also applied in other situations, when the buyer is a business owner who hands over the property before it is put into use after the completion of the construction service.
Does not apply to sales containing only materials or goods
Reversed tax liability does not apply to sales containing only material or goods. However, it also applies here if the taxable person sells construction services only as a sideline.
If the company sells construction services other than occasionally, it is liable for tax on all construction services it acquires for its operations. The rule also applies when the purchased construction service is not resold. Such a situation is, for example, when a company buys construction services for its own office property.
The reversed VAT obligation has been in effect in the construction industry since 2011.
useful links
- Tax administration: reversed VAT liability in the construction industry
- Tax administration: instructions on the application of reverse VAT
- Finlex: Value Added Tax Act
Translated VAT - printable instructions
List of construction services
Ville Wartiovaara
Regional Director (ret.), Legal Officer
ville.wartiovaara@rt.fi + 358 40 564 7939Talonrakennusteollisuus ry, Uusimaa