The Executive authority recently published the Decree N° 5232/21 (the “Decree”) through which decrease, in fact, the rate of the VAT applicable to the amount of rent of real estate destined to business, professional and personal activities, to an effective rate of 5%.
As you may remember, from January 01, 2021, the rate of the VAT while renting real estate that are not destined to housing an increase of 10%, whereas the one applicable to the personal and familiar homes stayed in 5%. Through the Decree, the Government looks to mitigate the negative impact caused by the world-wide sanitary crisis, by means of the decrease of the tax that the tenant must pay to the landlord.
The mechanics indicated by the Decree is to reduce the taxable basis, not to reduce the rate of 10%, because the last one must be done through a law. Thus, the proprietors of real estate that give them in lease for business, professionals or personnel shall issue an invoice, consigning 50% of the price agreed upon in the column of exempt and the other 50% in the column of the Taxable to 10%, over which it shall be applied the referred VAT rate.
The Decree was dated May 10, 2021 but it is in force, retroactively, from May 01, 2021, and until October 31, 2021, and until October 31, 2021. Therefore, for those that have invoiced the 10% between the referred dates would have to cancel the original invoices and then issue new ones with the VAT settled in the way prescribed by the Decree, or, they shall issue letter of credit and a new invoice, consigning correctly the settlement of the tax.
It is important to mention that the Decree does not clarify if the VAT Credit affected the taxable rent for real estate at this effective rate of 5% shall have to be prorated (since there is a portion of the exempt sale) or if they can be used as directly related to the taxable service. In the understanding that, what the reduction of the effective rate looks for, that is to lighten the tenant in the payment of the tax, applying the prorating would force the landlord to lose part of its credit.
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