New VAT rates apply to selected services from 1 May 2020. Services that now fall under the lowest tax rate (10%) can be divided into three categories: (i) catering services; (ii) services with a high proportion of human labour; and (iii) other services.
The first category - catering services - is the most discussed one. From 1 May 2020, it is necessary to correctly assess whether this is really a catering service for which the taxpayer can apply a 10% VAT rate. If the payer concludes that it cannot, the VAT rate will remain at 15%, and in the case of draft alcoholic beer at 21%.
To be a catering service at the 10% VAT rate, additional services must be provided at the same time. Services that can be considered additional include, for example, providing a dedicated place with tables and chairs to consume meals or providing toilets and washable utensils. The rule here is that the more additional services, the better. The same condition applies to the serving of non-alcoholic drinks and draft alcoholic beer. The information provided by the General Directorate of Finance does not exclude the possibility of applying a 10% VAT rate to catering services and the sale of food produced by a third party, in cases where the condition of additional services is met. However, in these cases, I recommend increased caution.
On the other hand, this information completely excludes the application of a 10% VAT rate for food that can be consumed on the spot (e.g. a hot dog), but without the provision of related ancillary services, in which case it is a supply of goods and not a catering service. The same applies to goods primarily intended to be taken with you (e.g. packaged food, pizza in a box), regardless of the amount of additional services.
The second category includes:
- Interior cleaning services - performed in households.
- Window cleaning services - performed in households.
- Home care for children, the elderly, the sick and the disabled.
- Repair of footwear and leather goods.
- Bicycle repair.
- Hairdressing and barber services.
The third category includes:
- Potable tap water. Potable water distributed in another way is subject to a 15% VAT rate. The information provided by the General Directorate of Finance specifies that the 10% VAT rate will also apply to hot water which was made from potable tap water.
- Water treatment and distribution networks.
- Drainage and wastewater treatment, including other services related to these activities.
- Electronically provided publications, which thus reach the level of the printed ones. Simply put, the 10% VAT rate is applied to the kind of electronic service (publication) where a 10% VAT rate would have been applied if the publication had been delivered in printed form.
- Colouring books, maps.
- Book lending.
I would like to point out that in order to apply any reduced rate of VAT, the transaction must be correctly classified, while meeting the verbal description given in the relevant annexes to the VAT Act.
In conclusion, apart from the catering services issues, the rate amendment is well arranged. The welcome news is that VAT will be reduced for businesses which provide the above-mentioned services. For the goods or services concerned, lowering rates may even mean a slightly cheaper price. However, in my experience, I believe this will not happen and that there will be no more than a temporary stagnation of these prices.