VAT in the Implementation of Enforcement Procedure

Through enforcement procedure, receivables from a debtor who has not settled his financial obligations to the creditor are collected by force. Enforcement procedures can be carried out in two ways: based on authentic documents and based on enforcement documents. The creditor can choose the subject of enforcement, i.e., on which the debtor’s property will be collected by force.

The creditor, i.e., the bailiff collects by force:

  • Debt principal,
  • Default interest,
  • Costs of enforcement procedure.

The costs of enforcement procedure are expenses incurred during the engagement of legal bodies, notaries, possibly experts, all costs related to obtaining the necessary documentation (postal services, validity clauses…). In the case of enforcement of monetary funds, the costs of enforcement procedure include the costs of paying a fee to an authorized financial institution.

The bailiff’s costs of enforcement proceedings are not stated in the amounts including VAT but are reduced by input tax. Thus, input tax is not part of the cost, but it is an item that is deducted when calculating value-added tax. An entity that has the right to enforce the costs related to the procedure of initiating and conducting enforcement is not entitled to collect VAT from the debtor from the accounts of lawyers, Fina, HP, and others involved. The bailiff who received the service of engaged entities, according to the received invoices, is entitled to input tax. This means that input tax reduces his VAT liability to the state, and depending on the accounting period, he can even get a refund from the state.

If, however, a situation occurs where the creditor has collected from the debtor an amount that includes VAT on that basis, he will generate additional income. Enforcement is not carried out to generate additional income but to collect uncollected receivables, therefore it must not result in additional income. Therefore, if the creditor gains income in this way without a legal basis, he is obliged to pay the debtor the overcharged costs. The creditor is entitled to the collection of costs related to the enforcement proceedings but may not generate additional income.

The above-mentioned applies if the creditor is in the VAT system. Entities that are not VAT payers are not entitled to input tax. If the bailiff is not liable for VAT, the costs of enforcement proceedings include VAT collected by all engaged entities. In this case, he has the right to charge the debtor for the costs of the proceedings together with the included value-added tax.

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