A. Amendment of Table C of Schedule Five of the basic law

1. Existing provision

The amendment concerns paragraph 3 of Table C of Schedule Five on the basis of which, under conditions referred to in the said paragraph, it grants the right to main residence buyers to request the reduced rate of 5% instead of the standard 19% rate. One of the conditions of paragraph 3 (6th sub-paragraph) concerns the time point of submission of formal declaration by the eligible person:

"The eligible person submits a formal declaration on a special form determined by the Commissioner with notification published in the official Government Gazette of the Republic, in which he must state, among other things, that he has not secured another residence in the Republic, which he uses as his main and permanent place of residence, for which he paid the reduced VAT rate. The formal declaration can be submitted at any stage during the construction of the residence or in the case of supply before the residence comes into the possession of the eligible person.

2. Amendment of the existing provision

(a) The following reservation shall be added immediately after sub-paragraph 6:

"It is understood that the Commissioner may allow that the official declaration can be submitted within 12 months from the date the eligible person acquires possession of the residence, if the Commissioner is satisfied, provided that full supporting information is submitted to him, that the untimely submission of the official declaration is due to the absence of the beneficiary person from the Republic, to his illness or to another event which, at the discretion of the Commissioner, may sufficiently justify the non-timely submission of the official declaration "

Comment: From the wording of the above proviso, it can be concluded that the twelve-month extension for the submission of the official declaration after acquiring possession of the residence is not automatically granted to all eligible persons but to those who can cite specific reasons such as illness or absence in abroad. As for other reasons, it is up to the Commissioner to decide whether they are acceptable or not.

B. The replacement of 6 months with 12 months in the reservation in the seventh subparagraph of paragraph 3

Point (iv) of the seventh sub-paragraph enumerates the evidence to be produced by the eligible person after obtaining possession of the residence. The reservation to the seventh subparagraph specifies that the evidence must be submitted 6 months after the date of acquisition of possession.

Based on the amending Law, the time for presenting the evidence is extended from 6 to 12 months.

What happens in practice?

Bearing in mind that in order to be able to impose the reduced rate of 5%, the contractor must be in possession of the relevant certificate issued by the competent section of the Tax Department. Until the relevant certificate is received, the contractor is obliged to impose the normal rate of 19% on the value invoices he issues.

If the declaration is submitted after possession of the residence, i.e. after the supply takes place, most payments made by the beneficiary will be subject to the normal rate of VAT.

The question that arises is under what provision of the Legislation is the 14% VAT refunded to the beneficiary?

May be, 'By issuing a credit note with the VAT amount only?'

However, since the relevant legislation and interpretative circulars that refer to valid credit notes do not cover this specific case, the above question was raised with the Tax Department and its official position is awaited.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.