Reverse charge in value added taxation in the construction sector from 1 April 2011
Validity:
In force until further notice
The system aims to reduce the potential tax risk associated with VAT fraud. This will create a more level playing field in the sector and thus help improve the position of tax-compliant firms. Other countries using a similar system include Sweden, Belgium, and the Netherlands.
When will the reverse charge system become effective?
If work giving rise to VAT liability starts on 1 April 2011 or later, the reverse charge mechanism will apply. However, if work has started before 1 April 2011 but remains unfinished at that date, the reverse charge mechanism will not apply.
When will the reverse charge apply?
The reverse charge mechanism will apply when services are supplied in Finland – when construction work is performed in Finland or when people are contracted by a Finnish business to perform construction work
AND
when the buyer is a business selling building services on an ongoing basis.
What services will be covered?
The reverse charge mechanism will apply to construction services including:
- Excavation and foundation work
- Construction work
- Installation work
- Finishing work
- Plant hire or rental contracts covering both equipment and operator
- On-site cleaning work
- Supply of contracted employees to a site.
What services will not be covered?
The reverse charge mechanism will not apply to the following:
- Installation of plant used for production
- Architectural services, planning and design work, other engineering and technical services
- Plant hire or rental contracts covering only the equipment
- Outdoor cleaning services (including roads, driveways, parks, airports)
- Transport
- Building maintenance.
Note that the reverse charge mechanism will not apply to sales of goods, nor to sales of services to private individuals.
Invoicing
The seller is required to issue the invoice, even though it is the buyer that is actually VAT liable. The seller sends the buyer an invoice without VAT but with all the usual information. The seller has the obligation to establish whether the buyer meets the requirements for the reverse charge system outlined above.
The invoice must show the buyer´s VAT number (in Finland Business ID - Y-tunnus) and indicate that the buyer is VAT liable.
Periodic Tax Returns
The Periodic Tax Return form includes separate boxes for supplies, purchases and VAT. These boxes are intended for taxpayers in the construction sector.
The seller must fill out their return and indicate the total amount VAT liable construction services supplied. Similarly, the buyer must fill out their return and indicate the total amount of VAT liable construction services purchased. The buyer must calculate the VAT at the 24 percent (from the beginning of 2013) rate, and enter this amount. For VAT liable purchases, the buyer is to fill out the box indicating the VAT deductible.
Estonian / Russian: