Recently, two amendments to the VAT Law were published in the Collection of the Law. The first one substantially changes the VAT system and the second one changes the VAT rates: The basic rate is to be decreased to 20 per cent and the reduced rate is to be increased to 14 percent. Both amendments will come into effect on January 1, 2003.
The main changes impacting VAT payers are as follows:
Input VAT deduction rules
Generally, the VAT payer can deduct the input VAT relating to the taxable supply received (e.g. goods or service) only if it uses it for its taxable transactions resulting in a VAT liability or for other purposes stipulated by the VAT law, e.g. exporting goods or services, the international transportation of goods and money and the regular international transportation of people, which are VAT-exempt supplies. Thus, the VAT payer has to determine its right to deduct the input VAT individually, for each taxable supply received.
If the VAT payer partially uses the taxable supply for the purposes mentioned above, the VAT law stipulates rules on how to calculate the ratio to determine the proportional amount of the VAT that can be deducted. As under the current rules, the VAT taxpayer is not entitled to deduct the VAT in respect of particular goods or services - e.g. cars - unless further rules apply from the VAT Law.
A newly registered VAT payer can deduct the input VAT that is part of the value of goods, real estates, industrial rights or copyrights including software, having been purchased by or contributed to a corporate entity as an in-kind contribution during 12 months prior to the day of registration, if further VAT Law conditions are met.
Furthermore, with effect from January 1, 2003, the VAT payer does not need to pay the input VAT in order to deduct it upon the VAT Law's conditions. This new rule also applies to the taxable supplies received from January 1, 2002, if they have not been claimed until the end of 2002.
In addition, for those taxable supplies received up to December 31, 2001, that are not paid by the end of 2002, the "old" rules for input VAT deduction apply. However, since the "old" and "new" systems of how to deduct input VAT are different, it should be easier for VAT payers to pay input VAT by December 31, 2002, to avoid mixing the "old" and "new" systems of VAT deductions and creating problems in this respect in the future.
Adjustment to the input VAT deduction relating to assets
The amendments introduce new rules with respect to the deduction of input VAT that is part of the value of assets acquired. Under these rules, the purpose of use of such assets should be reviewed in a five-year period.
If the change in using an asset results in a change of entitlement to the VAT deduction, the VAT payer has to recalculate its entitlement based on a formula stipulated by the VAT Law and adjust the input VAT deduction accordingly. The adjustment has to be made by the end of the calendar year in which the change happened.
These rules relate to movable long-term assets with an acquisition price (without VAT) of more than Sk30,000 ($714), real estate (nehnuteľnosť) construction (stavba) and construction work (stavebné práce), including the technical appreciation of construction or real estate.
These new rules also apply to VAT payers who acquired assets before 2003 but were not allowed to deduct the input VAT, as they did not meet all law conditions, e.g. the input VAT was not paid. Therefore, to avoid additional work with respect to checking and recalculating the amount of VAT deductible after January 1, 2003, VAT payers will be able to pay VAT relating to assets acquired by December 31, 2002, and follow the "old" VAT rules.
With effect from January 1, 2003, if the input VAT deductible exceeds the output VAT, the difference can be deducted from the VAT taxpayer's future VAT liabilities within a five-year period. If it is not, the right to claim the input VAT back is lost. From January 1, 2003, the tax authorities will pay back the difference between the output VAT and the deductible input VAT to VAT payers only if:
- the value of goods and services being exported and the fees for international transportation provided represent at least 30 per cent of the total value of taxable supplies being provided by a VAT taxpayer in a taxable period; or
- the taxpayer deducts the input VAT above Sk100,000 ($2,380) that is part of the value of a tangible asset acquired, and this VAT represents more than 50 per cent of the total output VAT; or
- the total amount of the 14 percent output VAT exceeds 50 per cent of the total amount of the output VAT in a VAT period and also during five prior taxable periods.
Therefore, from the cash-flow perspective, it should be more beneficial for taxpayers, especially for those who will reduce or cease their activities in the future, to pay input VAT by December 31, 2002, and meet further law requirements to get input VAT paid back by the tax authorities under "old" rules valid until December 31, 2002.
Ingrid Jalčová, ACCA, is a chartered accountant and licensed tax advisor with five years of experience with global advisory firms. She invites comments and questions at email: firstname.lastname@example.org
23. Dec 2002 at 0:00 | Ingrid Jalčová