Condominium fees and VAT
The new Law on Value Added Tax, effective on July 1st, 2019 will tax all services, except those that the same law declares as exempt. Section 2 of the Law, defines as services “any operation that does not have the consideration of transfer or import of goods “. Does this mean that the fees paid to a condominium must be added with the 13% of valued added tax?
The answer is … it depends. It depends on what we understand by condominium fee. If this fee pays services like those that are provided in a mall, which includes maintenance of common areas, security, marketing, etc., or for those that provide a service of building, it seems obvious that it is taxed with the VAT
According to section 4 of the law, the VAT taxpayer should be the one who performs activities that involve self-management of the factors of production or commercialization of goods, or the provision of services. An easy way to know if the condominium fees are taxed, is to verify if the administration of the condo is provided by a professional or a company.
On the other hand, if the condominium fee is a mere reimbursement of the costs of conservation and operation of the services and common goods, as in many residential condominiums, it is not possible to see how they could be taxed. Examples of this reimbursement could be the remuneration of the security service provided by a third party, the water before its separation of each affiliated property, the electrical energy consumed in the security booth or in the common areas, the maintenance of gardens, etc.
Most of these services will be taxed with VAT, but if the condominium does not produce any added value, then they do not meet the requirement to be a taxpayer, namely, the ordering of factors on their own. The condominium -which in this case identifies with the homeowner – is an end consumer.
It could be objected to this interpretation, that the law taxes the self-consumption of goods or services, so one would think that the Condominium should charge itself the tax. Again, this is only true when the self-consumer manages by its own account the factors of commercialization or provision of services. In which case, article 8, subsection 13th, declares exempt such self-consumption.