"I want to turn the house into a utility. This was bought for the company and in the case of resale of the house with the plot the sale is exempt from VAT. What if I wanted to rent this place to a company and sell after a few years? Will this continue to be sold without VAT or not?"
The Goods and Services Tax Act provides for situations in which the supply of buildings is exempt from VAT.
According to Article 43(1)(10) The VAT Act shall be exempt from tax supply of buildings, structures or parts thereof, except where:
- the delivery is made within or before the first settlement,
- between the first settlement and the delivery of the building, buildings or parts thereof, a period shorter than 2 years,
Consequently, where the above-mentioned delivery is made during the period after expiry 2 years after the first settlement, it is then exempt from VAT.
According to Article 2(14) VAT Act whenever the rules refer to the first settlement - this means putting into service to the first buyer or user or starting to use for the own use of buildings, buildings or parts thereof, after:
(a) the construction or
(b) an improvement where expenditure incurred for improvement, within the meaning of the income tax rules, represented at least 30% baseline.
The first settlement is therefore the case both when giving up the building property for use immediately after its construction and each time after its improvement, provided that the expenditure incurred in connection with it represented at least 30% the initial value of the property. The legislator then indicates that added value is created, which is subject to VAT (VAT is sometimes called value added tax – hence the English name Value Added Tax).
In case of non-compliance with the above conditions Article 43(1)(10) attention should also be paid to Article 43(1)(10a) VAT Act, which contains additional conditions for the application of the VAT exemption. Under that provision, the supply of buildings, structures or parts thereof not covered by the exemption referred to in point 10, provided that:
- in respect of these facilities, the person making their delivery was not entitled to reduce the amount of tax due by the amount of input tax,
- the person making their supply did not bear expenditure for their improvement, for which he had the right to reduce the amount of tax due by the amount of input tax, and if he incurred such expenditure, they were lower than 30% initial values of these objects.