General VAT rate increases to 25.5%
Enactment of the law
The general VAT rate will increase from 24% to 25.5% starting September 1, 2024. The timing of the legislative change, the rapid schedule, and its occurrence at the end of the summer vacation period present challenges for businesses, which will have a relatively short period to prepare for the change. The change will affect, among other things, the timing of VAT allocations before and after the beginning of September. The change in the tax rate must also be taken into account in product pricing. Updates and changes required by various IT systems are another consideration. All of the aforementioned will result in additional work and necessitate careful attention in financial management and VAT processing.
According to the rather simplified transitional provision of the law, the law applies when the obligation to pay tax arises after the law has come into force. The enactment of the law is scheduled for the middle of the calendar year and the middle of the third quarter calendar period, although the business sector and other stakeholders hoped for a later enactment date. The commencement at the beginning of September is likely to cause interpretative disagreements, at least regarding self-supply, real estate investment adjustment obligations, and the determination of tax rates for correction items. For this reason, businesses should already prepare in advance to provide evidence for the timing of the aforementioned items.
Correct tax rate
To determine the correct tax rate and timing, attention must be paid to the timing of the obligation to pay tax. To facilitate this determination, some general rules can be presented to aid the correct interpretation of the law resulting from the change:
- The VAT on the sale of goods is generally allocated to the tax period during which the goods are delivered, i.e., handed over to the buyer.
- In installment sales, the obligation to pay VAT arises when the goods are handed over to the buyer.
- The VAT on the sale of services is allocated to the tax period during which the service was performed.
- Goods or services sold on a continuous basis are considered delivered or performed at the end of each settlement period related to the performance.
- An advance payment is allocated to the tax period during which the advance payment is made, and the tax rate is generally determined based on this time. An exception is the advance payment for an intra-community acquisition, which does not affect the timing of allocation.
- An intra-community acquisition is allocated to the calendar month following the month in which the acquisition was made, i.e., the goods were received. However, if the final invoice for the acquisition is given to the buyer during the delivery month, the intra-community acquisition is allocated to the delivery month.
- The VAT payable on imports is allocated to the calendar month in which the customs decision is made.
- Discounts given, bad debts, and other correction items apply the tax rate that was in force when the goods were delivered or the service performed.
- Subsequent annual or seasonal discounts and other similar items related to goods and services can be divided into parts according to different tax rates based on the passage of time.
However, the obligation to pay tax does not determine the tax period for which VAT is reported. Based on the timing allocation rules, it is possible that 24% sales must be reported, for example, for September 2024, and conversely, 25.5% sales for August 2024. The aforementioned situations relate to taxpayers who apply either the invoice or payment basis for their sales. The delivery of goods or performance of services determines the correct tax rate in these situations as well.
Reporting
All VAT at the general rate is reported under the section for general rate sales, regardless of whether the tax rate is 24% or 25.5%, and which rate’s tax is being reported. The updated paper form will be available only from January 1, 2025.
Other Considerations
The change in the VAT rate may also necessitate updating and clarifying contracts and other documents, as the amount of VAT is often stated as a percentage in the documents.
Companies engaged in consumer sales should review their marketing materials and other communications if they intend to pass on the VAT rate change at least partially to sales prices.
There may also be situations where the purchase invoice indicates and calculates VAT at an incorrect percentage due to delays in updating the seller’s invoicing software. In such cases, it is safest to request a new invoice from the seller, where the amount of tax is calculated and reported correctly.
