Construction industry: changes to VAT from July
In connection with the amendment to the Construction Act, an amendment to the VAT Act changes the definition of family houses and apartment buildings, which will have a broader definition from 1 July 2023. Accordingly, the General Financial Directorate is currently updating its information on the application of the VAT Act to real property.
Until now, real property definitions derived from the definitions set out in the cadastral regulations, but from the beginning of July, they will be based on the new Construction Act. The most important change is the definition of an apartment building and a single-family house, as the new definition no longer explicitly includes the condition of the building being designated for housing under the construction law.
This change will primarily impact the determination of the correct VAT rate for construction work on a completed building for housing and social housing or for the construction and delivery of a building for social housing. It will also affect the fulfilment of the conditions for exemption from VAT of the delivery or lease of real property.
Although this is only a change of terminology, certain related and controversial issues are currently being discussed by the professional public with the financial administration. For this reason, the GFD decided to update its information, aiming to incorporate not only the current amendment but also other developments that have occurred since the previous methodology was issued in 2016, in particular selected case law.
What will happen next?
The information update is still in a draft state and being discussed further. The most interesting topics include a change to the threshold for a ‘substantial change’, a summary of case law on the issue of leases and related services, and a refinement of the definition of single-family houses and apartment buildings.
Given the amendment’s expected effectiveness from 1 July 2023, we expect that the final wording of the GFD’s information will be issued before this date. We will keep you informed about any further developments.