The reverse charge mechanism consists in transferring the VAT settlement obligation from the supplier to the buyer. A reverse charge transaction exempts a taxable person supplying goods or service from the obligation to pay VAT. As a consequence, the seller issues a sales invoice without VAT, with the annotation "reverse charge" and prepares a VAT-27 declaration. On the other hand, the entity obliged to charge VAT is the buyer, who at the same time retains the right to deduct input VAT on the purchase.

reverse charge

From January 1, 2017, the reverse charge mechanism will be mandatory for entities providing construction services listed in Table 1, when the following conditions are met:

  1. Both transaction entities (service provider and recipient) are active VAT payers.
  2. The service provider provides reverse charge services as a subcontractor.

Who is a subcontractor?

According to the definition in the Polish language dictionary, the subcontractor is a company or person performing work on behalf of the main contractor.

A subcontractor who subcontracts should be treated as the main contractor for his scope of work. It is worth noting that in the scope of reverse charge application services in the field of "rental of construction structures and machinery along with operators and the hire of personnel for these services" have been deleted. The provision of such services is not subcontracted, as the services provided by subcontractors should be consistent with the scope of works that are the subject of the construction contract between the investor and the general contractor.

Practical application:

In the light of the new provisions and the avoidance of errors in the settlement of VAT, subcontractors who provide services subject to reverse charge should put a clause directly on the sales invoice informing about the provision of subcontracting services.

Transitional provisions:

The reverse charge mechanism should be used for services performed from 01 January 2017

The moment of performance of the construction service or partial performance of the construction service is the date on which the contracting authority signs the final acceptance report or partial performance report, if payment has been specified for the part of the services rendered.

Tax liability:

Settlement of VAT by buyers of reverse-contracted construction services remains the same as for a taxpayer providing construction services who is not a subcontractor. The date of occurrence of the VAT obligation should be recognized when the invoice is issued, while the date of deduction of VAT arises not earlier than in the settlement for the period in which the taxpayer received the invoice.

Table No. 1

List of reverse-charge construction services

(Annex 14 to the VAT Act, items 2-48)

Pos.

PKWiU symbol

Name of service (service group)

1 regardless of the PKWiU symbol Services for the transfer of greenhouse gas emission allowances, symbol PKWiU, referred to in the Act of June 12, 2015 on the greenhouse gas emission allowance trading scheme (Journal of Laws, item 1223 and of 2016, items 266 and 542) )
2 41.00.30.0 Construction work related to the construction of residential buildings (work related to the construction of new buildings, reconstruction or renovation of existing buildings)
3 41.00.40.0 Construction work related to the erection of non-residential buildings (work related to the construction of new buildings, reconstruction or renovation of existing buildings)
4 42.11.20.0 General construction works related to the construction of highways, roads, streets and other roads for vehicles and pedestrians and the construction of runways
5 42.12.20.0 General construction works related to the construction of railways and underground railways
6 42.13.20.0 General construction works related to the construction of bridges and tunnels
7 42.21.21.0 General construction works related to the construction of transmission pipelines
8 42.21.22.0 General construction works related to the construction of distribution networks, including ancillary works
9 42.21.23.0 General construction works related to the construction of irrigation systems (canals), water mains and lines, facilities for water and wastewater treatment and pump stations
10 42.21.24.0 Works related to drilling wells and water intakes and installing septic tanks
11 42.22.21.0 General construction works related to the construction of telecommunications and power transmission lines
12 42.22.22.0 General construction works related to the construction of telecommunications and power distribution lines
13 42.22.23.0 General construction works related to power plant construction
14 42.91.20.0 General construction works related to the construction of quays, harbors, dams, locks and related hydrotechnical facilities
15 42.99.21.0 General construction works related to the construction of production and mining facilities
16 42.99.22.0 General construction works related to the construction of stadiums and sports fields
17 42.99.29.0 General construction works related to the construction of other civil engineering structures, not elsewhere classified
18 43.11.10.0 Works related to demolition and demolition of buildings
19 43.12.11.0 Works related to the preparation of the site for construction, excluding earthworks
20 43.12.12.0 Earthworks: works related to digging trenches and excavations as well as moving earth
21 43.13.10.0 Works related to the execution of excavations and geological and engineering drilling
22 43.21.10.1 Works related to the performance of electrical installations for safety
23 43.21.10.2 Works related to the implementation of other electrical installations
24 43.22.11.0 Works related to the implementation of plumbing and drainage installations
25 43.22.12.0 Works related to the implementation of heating, ventilation and air conditioning installations
26 43.22.20.0 Works related to gas installations
27 43.29.11.0 Works related to the installation of insulation
28 43.29.12.0 Fitting works
29 43.29.19.0 Other installation works nec
30 43.31.10.0 Plastering works
31 43.32.10.0 Joinery installation work
32 43.33.10.0 Works related to lining floors and facing walls
33 43.33.21.0 Floor and wall works such as terrazzo, marble, granite or slate
34 43.33.29.0 Other floor and wall covering works (including wallpapering), not elsewhere classified
35 43.34.10.0 Painting works
36 43.34.20.0 Glass works
37 43.39.11.0 Works related to the production of decorative elements
38 43.39.19.0 Works related to the performance of other finishing construction works, not elsewhere classified
39 43.91.11.0 Works related to the construction of roof structures
40 43.91.19.0 Works related to performing other roofing works
41 43.99.10.0 Works related to the installation of anti-moisture and waterproofing insulations
42 43.99.20.0 Works related to scaffolding assembly and disassembly
43 43.99.30.0 Foundation works, including pile driving
44 43.99.40.0 Concrete works
45 43.99.50.0 Works related to erecting steel structures
46 43.99.60.0 Works related to erecting brick and stone structures
47 43.99.70.0 Works related to the assembly and erection of structures made of prefabricated elements
48 43.99.90.0 Works related to the performance of other specialized construction works, not elsewhere classified