Reverse charge of VAT in the case of subcontracting in the construction sector

Verified 07 July 2023 - Legal and Administrative Information Directorate (Prime Minister), Ministry of Finance

In the building and public works sector (BTP), the reverse charge of the VAT: titleContent shall apply where work is carried out by a subcontractor on behalf of a contractor subject to VAT. This means that VAT is not paid by the subcontractor. The final customer (company) pays VAT directly to the tax authorities.

In principle, VAT is collected by the company (seller) from its customer (buyer) and then remitted to the government.

Within the framework of the subcontracting in the building and public works (construction) sector, the reverse charge of VAT is applied. In other words, VAT is collected by the company receiving the work, i.e. the company which uses a subcontractor to carry out part of the work.

The subcontractor does not charge VAT to the company to which the goods are supplied, but must indicate the ‘reverse charge’ on the invoice. It's at the company taker reverse charge of VAT, i.e. pays VAT directly to the tax authorities. On the other hand, it charges VAT to its customer, i.e. the person or company who requested the work.

Warning  

If the company takes forgets to reverse charge VAT, it shall be sanctioned by a fine corresponding to 5% the amount deductible (i.e. VAT).

The construction works concerned by the reverse charge of VAT are: construction work on buildings and other buildings.

These include:

  • Building work carried out by various trades involved in the renovation or construction of buildings
  • Public works and civil engineering works
  • Capital works on buildings: incorporation of movable property into real estate (built-in appliances, piping, etc.)
  • Repair or rehabilitation work to rehabilitate a building
  • Housekeeping operations which are an extension of the work or an accessory to such work

The work must have been contracted out.

The link between the payer and the subcontractor must be established by means of a subcontract, or failing that, by one of the following documents :

  • Quote
  • Signed Purchase Order
  • Other document showing the agreement of will between the 2 companies concerning the performance of the work subcontracted and its price

The company of the taker must state the amount HT: titleContent the services provided to it and which are subject to reverse charge under the heading ‘ Other taxable transactions ” of its turnover statement.

Please note

If the subcontractor is subject to the exemption from VAT, then the company receiving the goods does not have to pay VAT to the tax authorities.

The subcontractor does not collect the VAT which applies to the supplies subject to the reverse charge. They must indicate these transactions in their turnover statement on the line " Other non-taxable transactions ”. Even if it does not collect VAT on these transactions, he can deduct the VAT of its own expenses.

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