Reverse Charge in Construction and Condominium Invoices

Reverse charge is a VAT mechanism whereby the tax is settled by the customer rather than the supplier. In construction it is provided by Article 17 of Presidential Decree 633/1972 for certain services, such as subcontracting and cleaning, demolition, installation of systems and completion works on buildings, but it operates when both parties are VAT-registered entities. An ordinary condominium, acting as a final consumer, normally receives the invoice with ordinary VAT and does not apply the reversal. Recognising the cases avoids accepting incorrect invoices.

How reverse charge works

Under the ordinary regime it is the supplier who charges VAT on the invoice and pays it to the Treasury. With reverse charge the supplier issues the invoice without VAT, stating that the tax is settled by the customer through the reversal; it is the customer, if a VAT-registered entity, who integrates the invoice and records it both as a debit and a credit. The mechanism serves to counter VAT evasion in sectors considered at risk, such as construction.

Why an ordinary condominium receives invoices with VAT

Reverse charge in construction assumes that the customer is a VAT-registered entity able to settle the tax through the reversal. When it carries out no commercial activity, an ordinary condominium has no VAT number and is treated as a final consumer: it cannot integrate the invoice or settle VAT under reverse charge. For this reason the supplier charges VAT on the invoice in the ordinary way and the condominium pays it in full.

The difference from dealings between firms

Reverse charge in construction typically operates along the chain of contracts: between contractor and subcontractor, or between firms exchanging services of cleaning, demolition, installation of systems and completion of buildings. When instead the customer is a private consumer, such as an ordinary condominium, the service returns to the ordinary VAT regime. It is the nature of the customer that determines the regime, not only the type of work.

• Reverse charge assumes two VAT-registered entities
• An ordinary condominium is a final consumer, without a VAT number
• The condominium receives the invoice with ordinary VAT to pay in full
• The reversal instead operates between firms along the chain of contracts

Reverse charge and split payment: two different mechanisms

Reverse charge must not be confused with split payment. In reverse charge the supplier does not charge VAT and the VAT-registered customer settles it through the reversal; in split payment the supplier charges VAT but the customer, if a public body or a company identified by law, pays it directly to the Treasury. Both regimes are alien to a private condominium, which pays the invoice with ordinary VAT to the supplier.

If the supplier bills in reverse charge by mistake

A supplier used to working with firms may issue the condominium an invoice without VAT bearing the reverse charge note. In this case the manager must report the error and request a corrected invoice with ordinary VAT, because the condominium cannot settle the tax under reverse charge and the incorrect invoice does not allow the transaction to be regularised correctly.

The case of a condominium with a commercial activity

If a condominium opens a VAT number for a commercial activity, for example letting space, the picture may change for transactions relating to that activity, and it must be assessed case by case with a tax adviser. For the ordinary management of the common areas, however, the condominium remains a final consumer and receives invoices with ordinary VAT, without reverse charge.

Recording suppliers' invoices correctly, distinguishing the VAT regimes and managing withholdings, reduces errors and invoices to correct. With AmministraPro the manager records invoices with the correct amounts and keeps track of withholdings and payments: the features are described on the /funzioni page and the plans on the /prezzi page.