January 6, 2023
On December 30th, 2022, the Parliament made further amendments to the VAT Act 2022 (S.B. 2022 no 121) which came into effect on January 1st, 2023.
From January 1, 2023, to June 30, 2023, this law’s operation shall be monitored and evaluated by the government-appointed committee.
Below is an overview of the amendments.
Tariff
1. Article 4 paragraph 2 section a is replaced with a new text reading as follows:
The supply and import of goods and the delivery of services are listed in Appendix 1;
Commentary:
With this amendment, the importation of the goods listed in Appendix 1 is zero-rated. The amended Appendix 1 also contains more goods and services.
“the delivery of goods performed in relation with their export”
This is replaced with the following text:
“delivery of exported goods”
Commentary:
According to the explanatory memorandum, this amendment is meant as clarification that the zero rate applies when exporting goods. It further states that only the entrepreneur who exports the good is allowed to apply the zero rate and that all other deliveries in the chain prior to the actual exports of goods are normally charged with the VAT.
Contrary to the provisions of paragraph 1, the tax rate is 5 (five) percent on the importation and delivery of goods and the provision of services listed in Appendix 4.
Commentary:
A newly introduced rate of 5% VAT is applicable on
a. insurance for international medical expenses; and
b. motor gasoline and other similar motor fuels and diesel oil
Commentary:
Not only domestic delivery of the goods listed in Appendix 3 are subject to the 25 percent rate, but also the importation of such goods.
By law, the appendices, as referred to in paragraph 2 under a, paragraph 3, and paragraph 4 are amended.
Commentary:
Appendix 2 and Appendix 3 can be changed by law.
Exemptions
6. Article 5 paragraph 2 is replaced with the following text:
The Minister may, under conditions to be set by him and under restrictions, grant exemption from tax for the supply of goods and the provision of services: to embassies, consulates, and legations on the basis of reciprocity, if international relations make it desirable.
Commentary:
It is now regulated that an exemption of VAT can only be granted to embassies, legations, and consulates in case reciprocity apply.
Place of service
7. Article 9 paragraph 2 letter b is expired and replaced with the following text:
The place of passenger transport services and freight transport services is the place where the person takes a seat or the place where the goods are loaded.
Commentary:
The place of supply of passenger transport services and freight transport services in the case of B2B services is the place where the person takes a seat or the place where the goods are loaded.
The place of passenger transport services and freight transport services is the place where the person takes a seat or the place where the goods are loaded.
Commentary:
The place of supply of passenger transport and freight transport services in the case of B2C services is the place where the person takes a seat or the place where the goods are loaded.
Tax levy
9. A new paragraph 4 is added to Article 11 with the following text:
The State Decree according to paragraph 3 will only come into force on 1 January 2024.
Commentary:
According to the explanatory memorandum, this amendment is introduced mainly for budgetary reasons. The new paragraph 4 of Article 11 stipulates that the State Decree of the regime of the reverse charge for the import of goods will only come into effect on 1 January 2024.
Issuance of invoices
10. Article 27 paragraph 7 is replaced by the following text:
If the customer is not an entrepreneur, the entrepreneur can use a cash register system as referred to in Article 28 paragraph 2. The applied rate should however be stated on the consecutively numbered receipt.
Commentary:
It is now regulated that for private consumers the entrepreneur can use a cash register system with consecutively numbered receipts on which the applicable VAT rate is stated.
Deduction of sales tax
11. The following amendments are made to Article 68:
In paragraph 2, after part c, sections d and e have been added reading as follows:
After paragraph 3, paragraphs 4, 5, 6, and 7 are added, reading as follows:
5. The deduction according to paragraph 3 is only allowed in the declaration periods that fall in the calendar year 2023.
6. Reimbursement of the refundable item to the entrepreneur shall, contrary to in Article 17 paragraph 2 mentioned certain period, up to and including the 30th of June 2023, take place within two months.
7. Businesses have the opportunity to sell food inventory purchased through December 31, 2022, tax-free through March 31, 2023.
8. During the period from January 1, 2023, to June 30, 2023, the operation of this law shall be monitored and evaluated by the government-appointed committee. The Minister reports in writing to the Parliament no later than the 30th of June, 2023 of the findings of this committee.
Commentary:
With the introduction of the VAT, the Sales Tax has been abolished on January 1, 2023. The VAT Act includes a transitional provision in Article 68. According to article 68, Sales Tax paid on goods can be deducted if certain conditions are met and of which proof can be provided.
Appendixes
12. Please see below the amended Appendix 1 (zero-rated goods and services), Appendix 2 (exempted goods and services), Appendix 3 (25% rate for luxury goods), and Appendix 4 (5% rate for international health care insurance, motor fuels, and diesel oil).
Deduction
13. Imports by and supplies and services, with the exception of the deliveries in accordance with article 14 paragraph 6, to:
1˚. contractors and subcontractors under the Petroleum Act 1990, as the changes made thereto;
2˚. state-owned enterprises under the Petroleum Act 1990, as they read after the therein amendments made thereto are subject to a zero rate.
Commentary:
With this amendment, the import of goods by contractors and subcontractors is also zero-rated.
The zero rate does not apply to deliveries as set out in article 14 paragraph 6. These are:
a. the provision of food, beverages, and tobacco products;
b. providing business gifts and other gifts;
c. the provision of wages in kind and opportunities for relaxation;
d. motor vehicles intended for the carriage of passengers and of goods or services related to such motor vehicles except for car dealers and leasing companies and except for motor vehicles with a maximum authorized mass exceeding 3,500 kg.
Appendix 1
Subject to the zero (0) percent rate are:
a. the supply of water and related services by a state-owned enterprise or government service for domestic use only and other supply of water in a container of at least five (5) gallons or more.
b. the supply of electricity and related services and cooking gas;
c. the rental of immovable property for at least 3 months, which is furnished, intended, and used by the tenant as the main residence for permanent residence;
d. domestic passenger and freight transport by road, water, and air;
e. the services provided by hospitals and laboratories for medical investigations;
f. the import and delivery of medical devices and aids, such as orthopedic articles and appliances – including medical ones, consumables, medical-surgical belts and straps as well as crutches – dentures, artificial teeth, artificial eyes, artificial limbs, and similar articles, hearing aids for the hard of hearing, fracture splints and other articles and devices for the treatment of fractures in the bone structure, health spectacles, health glasses, and contact lenses;
g. the import and supply of medicines;
h. local health insurance, accident insurance, and life insurance;
i. the provision of public education that falls under the supervision of the Ministry of Education, Science and Culture including teaching aids, school supplies, and school uniforms;
j. funeral services;
k. the care of children in childcare;
l. the care of the elderly, the needy, and retirement homes;
m. patient and injured transport;
n. the following services:
1. cashless services relating to deposits, current account transactions, payments, transfers, receivables, checks, and other commercial papers;
2. granting and brokering credit;
3. offering the opportunity to withdraw money at the ATM;
Appendix 2
Exempt from tax are:
a. the transfer of immovable property and of rights subject thereof;
b. granting access to public entertainment pursuant to the Entertainment Tax Act;
c. providing the opportunity to participate in games of chance according to the Casino Tax Act, as it reads after the amendments made therein changes thereto;
d. granting the opportunity to participate in lottery according to Article1 of the Lottery Act 1939, as it reads after the provisions contained therein changes thereto;
e. the services provided by doctors, dentists, dental technicians, nurses and midwives, physiotherapists and remedial therapists, chiropractors, speech therapists, dieticians, psychologists, and podiatrists as such are performed, as well as youth dental care and oral hygiene and services of alternative healers and other paramedics;
f. the supply and import of goods and the provision of services by organizations of social, cultural, charitable, sporting, or religious nature, provided that the organization has no profit motive and there is no serious distortion of competition.
Appendix 3
Luxury goods
a. automobiles and other motor vehicles primarily designed for passenger transport with a cylinder capacity of more than 2,500 cm³ or with a cif value of US$ 40,000 (forty thousand United States dollars) or more; and
b. motorcycles with a cylinder capacity of more than 125 cm³.
c. Speedboats, personal watercraft, yachts, sports, and other recreational craft;
d. Helicopters and aircraft for transporting less than 10 persons;
e. Weapons, ammunition, parts, and accessories thereof; and
f. Fireworks
Appendix 4
Subject to the 5 (five) percent rate are:
a. insurance for international medical expenses; and
b. motor gasoline and other similar motor fuels diesel oil.
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