VAT – Building Construction

Taxable person by the acquisition of building construction services

Paragraph j) of nr. 1 of article 2^nd defines VAT taxable persons as “natural persons or corporate bodies referred in paragraph a) with an head office, a permanent business establishment or a domicile in national territory, performing transactions that grant the right to deduct, totally or partially, the tax when acquiring building construction services, including the refurbishment, repairs, maintenance, preservation and demolition of immovable properties under a contract work or sub-contract work.”

In the situations there foreseen, the inversion of the taxable person takes place, the acquirer being responsible for paying the tax due, without prejudice to the right of deduction, pursuant to the general terms of the VAT Code, namely article 19^th to 25^th.

The invoices issued by those services providers must show the expression “VAT due by the acquirer” (nr. 13 of article 36^th of the VAT Code).

The VAT due by the acquirer must be settled in the invoice itself – issued by the provider - or through an internal document.

Cases in which the inversion takes place

There is inversion of the taxable person whenever, cumulatively:

a) building construction services are acquired;

b) the acquirer is a VAT taxable person in Portugal that carries out transactions, which grant, totally or partially, the right of VAT deduction.

Notion of building construction services

The rule at issue is all-embracing as all building construction services are included in it, even if those are or not part of the concept of contract work or sub-contract work to which articles 1207^th and 1213^th of the Civil Code refers to. The reference, in the articulated pleading, to the services on a “Contract Work or Sub-Contract Work basis” is merely indicative and not restrictive.

Building construction services are the ones that have as object the carrying out of works, comprising several actions aiming at their completion.

On the other hand, works must be understood as all building and re-building works, extensions, alterations, repairs, preservation, rehabilitation, cleaning, restoration and demolition of immovable properties, as well as any other works related to any building process, whether public or private.

The inversion rule applies to the delivery of goods whose fitting up or installation is carried out at the work site, except the ones which, unequivocally, do not lose their real property nature, that is to say, goods that are not materially incorporated or connected to the real property with permanent feature.

Qualification of the acquirer taxable person

The inversion rule only takes place when the acquirer is a taxable person with a head office in Portugal or with a permanent business establishment or domicile here, carrying out transactions that grant the right of deduction, totally or partially.

There is no inversion – that is, the services provider shall pay the VAT - when the acquirer is:

a) a non-taxable person;

b) a taxable person that carries out exempt transactions exclusively, which are not foreseen in paragraph b) of nr. 1 of article 21st of the CIVA (the common taxable persons embraced by article 9^th or by article 53^rd of the Code) considered as such the ones appearing in the computer registration of the DGCI (General Tax Division), including those who are in a pending framework pursuant to nr. 4 of article 29^th of the VAT Code;

Applying the law in the time

The new rules are applied to situations in which the liability occurs in 1^st April 2007 or subsequently.

As to verify in which VAT framework the acquirer is inserted to, the persons concerned must consult thetaxpayer situation on the Tax Department website.
 

ANNEXE I – EXAMPLE LIST OF SERVICES TO WHICH THE INVERSION RULE IS APPLIED
-Opening of trenches;
-Opening and backfilling of grooves;
-Rubbing down;
-Transfer of staff under the directing of the assignor;
-Connection boxes’ installation;
-Construction of gardens, parks and other works related to layouts;
-Construction of car parks, repair and maintenance of those, should they imply building construction works;
-Construction of irrigation systems;
-Construction and repair of railways;
-Construction, assembly and repair of electrical lines;
-Construction, repair and painting of roads and paths;
-Demolitions, diggings, opening of foundations, earthworks and cleaning works aiming at preparing the ground for the construction;
-Drainage and waterproofing;
-Execution of weaker concrete and concrete cover;
-Execution of render, masonry, formwork, iron frameworks and fitting of beams;
-Execution of lower suspended ceilings, pavements and partitions;
-Electrical installations;
-Pavements and tiles’ laying, doors, windows, wardrobes’ fitting;
-Painting, plastering and other coverings;
-Divers’ services rendered, within the scope of the carrying out of port works, construction or repair of bridges and other works of the same type;
-Plumbing services and tinsmith’s trade;
-Systems of air-conditioning, cooling, heating and communications, which are part and parcel of the immovable property;
-Ground leveling, opening and preparation of wells, drainage and waterproofing;
-Other services foreseen in the Order nr.19/2004, of 10^th January and not expressly mentioned in Annexe II.

ANNEXE II – EXAMPLE LIST OF SERVICES TO WHICH THE INVERSION RULE IS NOT APPLIED
-Rental of containers, namely for offices, accommodation and bathrooms;
-Technical assistance, maintenance and repair of equipments belonging to the immovable property (ex: elevators, systems of air-conditioning, cooling, heating, electricity, communications, pools), provided they do not imply building construction services;
-Transfer of staff under the directing of the assignor;
-Security laboratory tests;
-Cleaning of immovable properties that do not imply services of painting, renders and other building construction works, namely the restoring.
-Maintenance, preservation and renovation of green zones provided  they do not imply building construction works, namely the restoring;
-Mere rental or provision of equipments (scaffoldings, cranes, concrete mixers, mechanical digger and other machines);
-Removal of waste material and cleaning services of the building site;
-Services of engineering, architecture, topographers and designers;
-Inspection services of equipments and installations;
-Services of security, control, signaling, measurement and works management;
-Transport services;

We reccomend to consulta the Order nr 30101, of 24/06/2007

Code of the Value-Added Tax

VAT system on Intra-Communitarian Transactions

This note is only for information and does not hold its divulgers responsible. For thorough information you must consult the Law.