Modern business environments often rely on long-term collaborations between companies. Regular deliveries or recurring services can be classified as continuous services. Due to many complexities of regulations and the diversity of cases, many entrepreneurs choose to seek accounting services.

What are the continuous services?

Continuous services involve successive payment or settlement periods. Businesses can settle them monthly or quarterly. Moreover, the tax obligation arises on the last day of that period.

If the service lasts longer than a year and no periodic settlements are anticipated, it is considered completed at the end of each tax year. Similar rules apply to continuous delivery of goods. 

Sometimes, regulations may provide for a different time for the tax obligation to arise, such as when an invoice is issued. This tax obligation applies to ongoing legal, office, or telecommunication services. 

Examples of continuous services

Transport services 
Regular transportation services provided by transport companies to regular customers, with established settlement periods, can be settled at the end of each period. For example, a service for April 1 to May 15 will be settled for VAT purposes in May. 

Service and technical support 
Year-round technical support qualifies as a continuous service. VAT should be settled at the end of each period (e.g., quarterly), in accordance with the settlement schedule. 

Licenses and subscriptions 
One-time licenses (e.g., after providing access keys) are settled at the time of delivery. Subscriptions paid monthly are settled at the end of each period. 

Agreements for regular supply of goods 
In the case of agreements for regular supply with established settlement periods, deliveries can be treated as continuous services and subject to the relevant VAT regulations. 

Free use of property 
If the use of property triggers a VAT obligation (e.g., when VAT was deducted on the purchase of real estate), the tax can be settled periodically, for example, monthly. 

Importing long-term rental services 
If a company rents a car from abroad, VAT is settled at the end of the month or at the time of an advance payment. The invoice does not determine the tax obligation. 

Loan taxed with VAT 
Waiving the VAT exemption on loans allows VAT to be settled as a continuous service. If the agreement provides for monthly interest payments, the tax obligation arises at the end of each month. 

Why accurate classification of continuous services matters?

Incorrect classification of continuous services can result in the improper determination of the VAT tax obligation. It is best to carefully analyze each case, taking into account the nature of the agreement, the type of service, as well as the method of settlement with the counterparty. The VAT Act is the primary basis for analyzing each situation. 

In summary, VAR settlement on continuous services requires an understanding of the regulations and a case-by-case analysis.

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Text based on: INFORLEX