This benefit results from the application of the provision of article 31 of the tax law 5073/2023, which provides annual income tax deduction of up to 3,200 euros for costs of renovation and functional upgrading of real estate. The benefit in the long run is much greater than the burden due to the 24% VAT charge when paying the professionals in question. In other words, this provision was established to prevent many taxpayers from accepting the classic “agreement” that professionals in these categories usually ask for not being charged with 24% VAT, as long as no receipt is issued.
It suits
In particular, the amount of income tax, which can be saved by any taxpayer who asks to pay the professional by card and receive a receipt, will now be much greater than the amount of VAT that will be charged for his work and value of materials. This is because the total cost of labor and a significant part of the cost of materials are deducted from the income tax.
The maximum amount of expenditure for which the discount applies amounts to 16,000 euros and the period for which the taxpayer can benefit from the deduction it is now 5 years. That is, for every expenditure on materials and works up to 16,000 euros made by every property owner from 1-1-2024 within a year, the amount of this expenditure is spread over the next 5 years, to be deducted as a deduction from the income tax of of these years. Thus, the maximum annual tax deduction is 3,200 euros (16,000 euros/5 years) and concerns both materials and works.
Restriction
It should be clarified here, however, that this provision provides for a limitation (a “cutter”) that the material expenditure recognized cannot exceed 1/3 of the work expenditure. This limitation has the consequence that the taxpayer’s VAT burden is… amortized two years later, when the deduction is distributed over the following five years. That is, while the total amount of income tax that the taxpayer can save is more than three times the VAT that he will pay, the specific limitation and the distribution of the benefit over 5 years delay by two years the… amortization of the additional and temporary VAT burden.
Nevertheless, the income tax deduction resulting from this provision is very large.
Conditions
Conditions to recognize the deduction of the repair, maintenance and renovation expense of a residence or residences from income tax are:
* the buildings have not already been included or will not be included in an upgrade program,
* the expenses to be proved by issued receipts of retail transactions or by issued invoices for the provision of services,
* the expenses have been paid by electronic means of payment (credit or debit or prepaid cards or through e-banking, etc.).
Works for more… light clearinghouses
The tax deduction applies to the costs of the following renovation and functional upgrading works:
1) Energy
* Installation of thermal insulation.
* Replacement of frames, glazing and external protective sheets.
* Installation or upgrade of a heating/cooling system, as well as the necessary infrastructure and components to make it fully operational.
* Installation of devices to automatically control the operation of the heating/cooling system.
* Installation of a system of self-production of electricity (with energy compensation), as well as systems of electric accumulators (batteries), when combined with photovoltaic systems.
* Installation of a hot water production system using Renewable Energy Sources (RES).
* Installation of a mechanical ventilation system with heat recovery.
* Upgrading the lighting of the common areas of the apartment building.
2) Functional-aesthetic
* Installation/replacement of hydraulic installation.
* Installation/replacement of electrical installation.
* Roof maintenance/repair.
* Masonry repair/Painting inside and outside buildings.
* Installation of fixed or mobile shading systems.
* Upgrade or install an elevator.
* Installation of domestic recharging points for electric vehicles.
* Change or repair floors.
CALCULATION
In detail examples for the benefit with… evidence
In order to better understand the size of the benefit that the taxpayer now has if he pays electronically and receives a receipt from every professional who carries out renovation work on his residence or other property, we quote the following examples:
1) Suppose a homeowner calls a plumber to repair extensive damage to their property’s plumbing. The cost of the work amounts to 300 euros without VAT 24% and the value of the materials to 200 euros without VAT 24%. If the owner accepts that no receipt is issued by the plumber and pays the expense in cash, he will be charged 500 euros and will save the 120 euros of VAT. According to the provision of article 31 of Law 5073/2023, if the expense is paid by card and a receipt is issued, the taxpayer will pay a total of 620 euros (500 euros + VAT 24%) and will receive a tax deduction, which will be calculated as following:
* for the work: 300 euros + 72 euros VAT 24% = 372 euros,
* for materials: 1/3 X 372 euros (due to the fact that the discount for materials cannot exceed 1/3 of the cost of the works) = 124 euros,
* 372 euros for the works + 124 euros for the materials = 496 euros.
The total expenditure that will be recognized for income tax deduction will be 496 euros (372 euros for the works and 124 euros for the materials). This amount will be deducted in 5 equal installments from the income tax of the following 5 years. Thus, every year for the next 5 years, from 2025 to 2029, the taxpayer will have an annual income tax deduction of 99.20 euros for the expenditure of 620 euros he made, paying the VAT of 120 euros ( 496 euros the deductible expense/5 years).
Essentially, the VAT charge of 120 euros will be more than covered by the tax deduction of 496 euros over a period of 5 years, but already from the 2nd year of distribution of the deduction, where the total benefit will now have reached 198.4 euros (99.2 euros + 99.2 euros).
2) Suppose another taxpayer calls a tiler to install new tiles inside and outside the floors of his single-family home. The cost of the work amounts to 1,000 euros without VAT 24% and the value of the materials to 800 euros without VAT 24%. If the owner accepts that no receipt is issued by the contractor and chooses to pay the entire expense in cash, he will be charged a total of €1,800 and will save €432 of VAT at 24%, which corresponds to the net value of €1,800 of the expense.
According to the new provision, valid from 1-1-2024, if the expense is paid by card and a receipt is issued, the taxpayer will pay a total of 2,232 euros (1,800 euros + VAT 24%) and will receive a tax deduction, which will calculated as follows:
* for the works: 1,000 euros + 240 euros VAT 24% = 1,240 euros,
* for materials: 1/3 X 1,240 euros (due to the fact that the discount for materials cannot exceed 1/3 of the cost of the work) = 413.33 euros,
* 1,240 euros for the work + 413.33 euros for the materials = 1,653.33 euros.
The total expenditure that will be recognized for income tax deduction will be 1,653.33 euros (1,240 euros for the work and 413.33 euros for the materials). This amount will be deducted in 5 equal installments from the income tax of the following 5 years. Thus, every year for the next 5 years, from 2025 to 2029, the taxpayer will have an annual income tax deduction of 330.66 euros for the expenditure of 2,232 euros he made, paying also the VAT of 432 euros ( 1,653.33 euros the deductible expense/5 years).
Essentially, the VAT charge of 432 euros will be more than covered by the tax deduction of 1,653.33 euros over a period of 5 years, but it will already be overcompensated by the 2nd year of distribution of the deduction, where the total benefit will now have reached 661.32 euros (330.66 euros + 330.66 euros).
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