Tax on medical services, education, authors etc.

Under VAT legislation, certain activities are exempt from VAT, primarily those deemed to serve the public interest and typically catering to private individuals who cannot deduct VAT on their expenses. Examples include medical and dental treatments, accredited education, certain cultural services, and, notably, residential leasing.

Other activities are challenging to subject to VAT because of difficulties in determining the value or exchange relationship of the services provided, such as bank interest charges or insurance sales.

Several of these VAT-exempt industries are subject to payroll tax. This means that, instead of VAT, the business must pay a tax based on an amount equivalent to its payroll expenses (reflecting its activity) or, for businesses without employees, on its taxable profit.

There are four calculation methods for payroll tax, plus a variant of the fourth method, resulting in a total of five methods, depending on the industry and business characteristics.

Some businesses subject to payroll tax may also engage in VAT-liable or payroll tax-exempt activities. For example, a business providing VAT-exempt, but payroll tax-liable social services may also deliver certain services to public authorities that are exempt from payroll tax.

For VAT-exempt businesses, it is therefore critical to accurately identify which parts of the business are subject to payroll tax. Additionally, the tax must, of course, be calculated and reported correctly.

It should be noted that residential leasing is exempt from both VAT and payroll tax.

Please contact us for guidance regarding payroll tax obligations.