Liability for Value-Added Tax (VAT)
VAT is normally paid by the seller of the service or the product. Hence, reversed liability to tax means that the subject to taxation is the buyer, not the seller. In certain situations in which building services are sold, reversed liability to value-added tax applies. In these cases the buyer must be aware of his liability to tax.
Reversed liability to value-added tax must be applied to the sale of construction services in Finland whenever both of the following requirements are met:
The service is a building service or hiring of labor for a building service
The buyer is an entrepreneur who in his action otherwise than occasionally sells building services or hires labor for building service. The buyer can also be a so-called arbitrator or an entrepreneur who sells this service further to an above-mentioned entrepreneur.
Reversed liability to value-added tax applies to building services including building and repairing work of immovable property and assignment of goods installed in context with the work. In addition to house building, the building may also be civil engineering or specialized building. Reversed liability to value-added tax applies to real estate services including but not limited to:
groundwork of a building area,
building of all types of buildings and constructions, repair building. fundamental improvement work and renovation work,
building installation work (electrical installations, insulating work, HPAC work),
finishing building work (building’s carpenter work installations, covering of the floor and walls, painting, glazing),
renting of construction engines and its users,
hiring of labor for abovementioned building services.
Reversed liability to value-added tax does not apply to services including but not limited to:
planting and maintenance of parks,
real estate management services,
architect services, building consulting, project management,
renting of construction engines without a driver
Reversed liability to value-added tax only concerns a sale of a service, not a sale of goods. If a building service also includes material, it is regarded as one entity and a sale of a building service. Reversed liability to value-added tax does not affect the right to deduction of value-added tax.
The definition of immovable property used in Value-Added Tax Act differs from the term used in the Land Use and Building Act. When deciding on the liability to value-added tax, one must use the definition used in Value-Added Tax Act. In this act “immovable property” means an area of land, a building and a permanent structure, or some part thereof as well as a part, device or machine permanently installed in such.
Reversed liability to value-added tax applies when liability to tax has begun 1.4.2011 or after that. However, reversed liability to tax does not apply to such incomplete services that one has started to perform before 1.4.2011.
When the buyer is a foreigner, who does not have a permanent agency in Finland and who has not been entered in the register of persons liable to value added tax, the seller is liable to tax even if the action in question is one where reversed liability to value-added tax would apply.