Lithuania: Starting 1 July 2015 new amendments to the value added tax (VAT) law come into force whereby taxable persons (VAT payers) will have to withhold and pay VAT on construction services.
This means that the construction service provider will receive payment for services without VAT and the purchaser of construction services will have to calculate, fill in returns and pay output VAT. A purchaser of construction services with the right to deduct VAT will be able to exercise this right immediately so that at the end no VAT will need to be paid.
Note, however, that these amendments to the VAT law will apply only to VAT payers. Moreover, “reverse charge” VAT will apply only to construction services but not to construction materials.
Implementation of the VAT law amendments is expected to ensure efficient VAT collection to the state budget and reduce the risk of VAT fraud, so that the “shadow” of the construction sector will shrink and the number of fraudulent companies and malignant transactions will fall.
The main advantages
Construction service providers: Will be free of VAT calculations and payments – everything will be done by the purchaser of construction services. Will no longer have to use circulating assets for tax liabilities when the VAT payment term is shorter than for payment for services provided.
Construction service purchasers: Will not be required to pay input VAT to the service provider and delay VAT refund or offset taxes until the tax return submission date. In case of full VAT deduction, VAT obligations will become declarative and no payments will have to be made.
Important for all parties
In order to avoid misunderstandings in the VAT field, the parties to construction service agreements should clearly define when the obligation to pay VAT for construction services and materials is borne by the purchaser and when construction materials / services are taxed with VAT as usual.
Not sure if the “reverse charge” VAT scheme applies to you? Want more information on the VAT law amendments? Wondering how you will need to adjust construction service agreements due to the VAT law amendments? Feel free to contact us and we will be more than happy to assist.