The Ministry of Finance adopted a comprehensive Rulebook on the Value Added Tax (“VAT Rulebook”) that was published in the Official Gazette no. 37/2021 of 14 April 2021.
The VAT Rulebook entered into force on 22 April 2021, however the application of its provisions will start on 1 July 2021. In relation thereto, a transitory provision of the VAT Rulebook stipulates that if fee or a part of fee was charged or paid until 30 June 2021, inclusive, for trade in goods or services carried out from 1 July 2021 onwards, such trade shall be subject to regulations applicable on 30 June 2021.
As mentioned above, on the day of the VAT Rulebook application, 27 rulebooks which regulate various issues related to trade in goods and services that specified certain matters under the Law on Value Added Tax shall cease to be in force. In addition to the mere consolidation of all provisions that were stipulated within 27 different regulations, the VAT Rulebook also introduces certain important novelties that refer, inter alia, to the following:
- Goods and services in the field of construction;
- Determination of the tax base;
- The manner of tax base amendment;
- Manner and procedure for approval of tax proxy;
- Manner and procedure for exercising tax relief with right to deduction of previous tax and without right to deduction of previous tax;
Having in mind that the new VAT Rulebook has 33 chapters and as many as 282 articles, it is not possible to refer to all amendments that will be introduced by application of the VAT Rulebook, therefore we will present an overview of several amendments:
- Goods and services in the field of construction
Article 10 of the Law on Value Added Tax defines tax debtors in terms of the said Law and Article 10, para. 2, item 3 of the Law stipulates further that tax debtor is recipient of goods and services in the field of construction, VAT taxpayer, for trade realised by VAT taxpayer, if the value of such trade exceeds RSD 500,000, excluding VAT.
Since it was necessary to further specify what goods and services in the field of construction represent, this was done in the currently valid Rulebook on establishing the goods and services in the field of construction for the purpose of establishing tax debtor for the VAT, which explicitly enlists all activities which are considered as goods and services in the field of construction. The list of activities has not been amended by the new VAT Rulebook.
What is new in the VAT Rulebook is the fact that it defines more precisely what goods and services, regardless of their value, do not represent goods and services in the field of construction in terms of the Law on Value Added Tax, such as:
- Repair of equipment that is an integral part of the facility, including the repair of parts of such equipment;
- Repair of fittings and parts of fittings for water, sewage, heating and air-conditioning systems;
- Supply with installation i.e. installation of kitchen and bathroom units (e.g. sink, countertop, top units, shower, washbasin etc.), as well as cabinets, shelves, libraries and other furniture in buildings;
- Supply with installation i.e. installation of heating/cooling devices (such devices usually imply e.g. air-conditioner, refrigerators etc., instead of heating/cooling systems such as central air-conditioning, central heating system etc.);
- Supply with installation i.e. installation of system for watering/irrigation and individual parts of such systems, whereas systems imply a set of goods composing the system, notably hoses, sprinklers, vents, pumps and filters;
- Supply of goods and rendering of services within landscaping activities, including landscaping of greenery in/on facilities.
Also, if auxiliary trade in goods/services is done along with the trade in goods and services in the field of construction, only trade in goods and services in the field of construction shall considered to be done. However, if trade in goods/services that is not deemed as trade in goods/services in the field of construction is done along with the auxiliary trade in goods/services that is deemed as trade of goods/services in the field of construction, only trade in goods and services that is not deemed as trade of goods/services in the field of construction shall considered to be done.
- Procedure for approval of tax proxy
The manner and procedure for approval of tax proxy is currently regulated by the Rulebook on the manner and procedure for approval of tax proxy for value added tax, which stipulates that tax proxy of a foreign entity can be a natural person, entrepreneur or a legal entity that meets the following requirements:
- Has residence/seat in the Republic of Serbia;
- Is registered as VAT payer for minimum 12 months prior to submitting the application for approval of tax proxy;
- Does not have due and unsettled public revenue duties on the day of application, based on the business activity as prescribed by the Tax Administration;
- Is not legally sentenced for tax criminal offence.
What is a novelty compared to the above mentioned Rulebook is comprised in one of the conditions for tax proxy – that the proxy is registered as VAT payer for minimum 12 months prior to application for approval of tax proxy. Now, it is necessary that minimum 12 months have passed from the date of application for registration until the day of application for approval of tax proxy.
This practically means that a VAT payer does not have to be registered 12 months before the appointment as tax proxy, it may be registered for a shorter period of time having in mind that the calculation of deadline is shifted to the moment of application for registration.
Another novelty is that the VAT Rulebook now prescribes the procedure for submission of notice of withdrawal i.e. cancellation of tax proxy to the Tax Administration. The person whose proxy was terminated by withdrawal or cancellation submits to the relevant tax authority a notice of withdrawal or cancellation of proxy in a prescribed form and with the prescribed information and evidence.
- The manner of tax base amendment
The VAT Rulebook now specifies in which cases is particularly considered that the tax base amendment occurred, as well as in which cases the tax base is specifically not amended. This was previously not explicitly defined by the Rulebook on the manner of tax base amendment for calculation of value added tax.
Namely, the tax base amendment specifically occurs due to:
- Subsequent inclusion of costs relating to the realised trade in goods or services;
- Subsequent discount of price for the realised trade in goods or services;
- Return of goods:
- Which usual use period expired (remainder), or which shelf life specified by the manufacturer is expiring or has expired (where minimum two-thirds of the shelf life has expired, and there is no more than two months until expiry),
- Which is done in accordance with the law regulating consumer protection (this item is also envisaged in the currently valid Rulebook),
- Due to complaint or termination of contract in accordance with law, given that the VAT payer that conducted the trade in goods possesses solid evidence thereof (this item is also envisaged in the currently valid Rulebook),
- Which are under the VAT Rulebook considered as returnable packaging and whose value was charged to the recipient of goods;
- Subsequent fulfilment of requirement for exercising tax relief with right to deduction of previous tax;
- Difference between the base established by assessment and the base on the day of occurrence of tax obligation;
- Difference between market value of the goods and services which are received against compensation for trade in goods and services on the day of transaction and market value of such goods and services on the day of delivery;
- Changes on basis of decrease or non-existence of tax upon deduction due to subsequent acquisition of right to apply the agreement on avoidance of double taxation valid on the day of occurrence of tax obligation for VAT, which is included in the base.
On the other hand, the tax base amendment specifically does not occur:
- When fees for trade in goods or services are expressed in foreign currency and the value of dinar compared to such currency on the day of occurrence of tax obligation differs from the value of dinar compared to foreign currency on the day of payment of such fee, given that the same type of foreign exchange rate (purchase, middle, sale exchange rate) of the same bank was applied during the establishment of base, VAT calculation and collection of fee;
- If the value of dinar compared to foreign currency on the day of occurrence of tax obligation differs from the value of dinar compared to foreign currency on the day of occurrence of obligation to pay tax upon deduction under the law regulating tax upon deduction;
- If the compensation for realised trade in goods or services is subsequently changed on basis of counter-service rendered by recipient of goods or services, or third person (e.g. positioning of goods, takeover of obligation to transport other person’s goods, takeover of obligation to purchase goods from a specific entity).
Although not all fields regulated by the VAT Rulebook have been amended by its adoption compared to the existing rulebooks regulating these issues, what is the greatest advantage of VAT Rulebook entry into force is that it somewhat “codified” the regulations in one comprehensive document, which will certainly facilitate the management, linking and interpreting the Law on Value Added Tax and other regulations in the field of value added tax.
Consequently, from a long list of regulations in the field of value added tax, starting from 1 July 2021 that list of regulations will comprise from:
- Law on Value Added Tax;
- Rulebook on Value Added Tax;
- Regulation on the quantity of expenditure (ullage, spillage, breakage and defect) that are not subject to value added tax;
- Regulation on criteria for establishing what is, in terms of the Law on VAT, considered as prevailing trade of goods abroad;
- Regulation on enforcement of the Law on Value Added Tax in the territory of Autonomous Province of Kosovo and Metohija during the validity of the UN SC Resolution 1244.
This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.
By Sara Necic, Senior Associate, PR Legal