Monika Bartosiewicz

Tax advisor (Poland)
Senior Associate
Phone: +48 22 244 00 70

The Act of 1 December 2016 amending the Value Added Tax Act and some other acts came into force on 1 January 2017. It introduced a number of measures to the VAT Act, the so-called tightening package, to improve collection of VAT. As part of those measures, the reverse charge procedure will apply to certain construction services.

Reverse charge conditions

The reverse charge mechanism with respect to construction services will apply only if all of the following conditions are met (Article 17(1)(8) of the VAT Act):

a)     the service recipient is registered as an active VAT taxable person;
b)    the service provider is not exempt from registration for VAT (exemption up to the sales limit of PLN 200,000);
c)     the service provider is a subcontractor.

Scope of construction services

The construction services subject to the reverse charge mechanism are listed in Appendix no. 14 to the VAT Act. They include without limitation:

1.     construction of residential and non-residential buildings;
2.     general contractor work related e.g. to construction of:
a)     roads, bridges and tunnels;
b)    irrigation systems, water mains and lines, water and sewage treatment plants, and pump stations;
c)     transmission and distribution telecommunications and power lines;
3.     demolition of structures;
4.     ground preparation work (excluding earthwork);
5.     installation of heat, ventilation and air conditioning systems;
6.     plastering and painting work.

Services at the turn of a year

The above regulations apply to services performed after 1 January 2017, as well as those that began in 2016 but did not finish that year. The date when the service supply is completed should be determined in line with Article 91a(2) and (3) of the VAT Act. 

As regards the services supplied in parts, the service is considered completed when the part for which the payment is set has been completed. Services for which consecutive deadlines for payment or settlement are set are deemed completed at the end of the period to which the payment or settlement relates, until the end of service performance. Continuous supplies of services lasting more than a year, for which deadlines for payment or settlement do not expire in a given year, are deemed completed at the end of each tax year, until the end of service performance. 

Furthermore, construction services as well as construction and assembly services are deemed completed when they are actually finished. The acceptance record or any other civil law formalities are irrelevant. Therefore, if certain services started in 2016 but were not completed before the end of 2016, they should be accounted for using the reverse charge mechanism in 2017.  

If a sub-contractor received an advance on account of his construction services in 2016 but the work will be performed in 2017, the transitional provisions require that the sub-contractor amends the tax return because of the advance. He should amend the return for the period in which the services will be completed.

The introduction of the reverse charge procedure in respect of construction services has triggered new obligations as regards, among other things, the correct description of the services, the sub-contractor's role and invoicing.

If you are interested in detailed information on the issue presented here, please feel free to contact Rödl & Partner. We would be glad to share more information on this subject with you and provide comprehensive CIT, PIT, VAT advisory in Poland.