Generally, the place of supply of services (i.e. where VAT is due) falls under the General Rule. This states that the place of supply is where the customer belongs (for B2B supplies) or where the supplier belongs (for B2C supplies). There is no need to register in other EU Member States. The reverse charge is applies due to B2B supplies.
However, the place of supply of services connected to immovable property is where the property is located. This means local VAT local in that specific country applies to those supplies. Therefore there is a possibility of the supplier having to register for local VAT to meet its compliance obligations.
We have listed out below some examples of the services which are not subject to the General Rule. These instead fall under the rule for immovable property:
- Architects, surveyors or other professional services relating to a specific piece of immovable property;
- Construction or installation services including maintenance, renovation or repair work;
- Site supervision or security;y
- Property management other than portfolio management of investments; and
- Accommodation provided in the hotel sector
Therefore if a business provides the above services and there is a substantive link from them to an immovable property located in another EU Member State, it will need to consider if they have created an obligation to register in those Member States.
Previously each Member State independently interpreted which services connected to immovable property. This created some confusion for businesses and therefore, the EU published additional legislation in October 2013 to better define the services subject to this rule – however, this legislation came into effect from 1 January 2017.
The intention behind the legislation was to provide a more uniform approach to interpreting what immovable property is and specifying the proximity required for a connection between the services and the property. To supplement these new rules, the EU Commission published guidance in 2015 to interpret further the new rules.
Interpreting the new rules
The new rules require businesses to review two questions to confirm whether a supply of services connected with immovable property takes place:
- Does this service relate to property that can qualify as immovable property and, if so;
- Is there a sufficient connection between the service and immovable property to which it relates to qualify as a connected service?
If the answer is yes to both these questions, the service connects with immovable property. Having determined this point the business then needs to review what additional compliance and registration issues it has created in the Member State the property located.
We have provided some examples of this below.
Where an architect established in the UK provides a UK customer with his services for a property he is to have built in the UK, the supply is subject to UK VAT and the architect charges UK VAT at 20%.
But what if the UK’s established architect’s customer has recently purchased some land in Spain and he has asked the architect to draw up plans specifically for this site? As the land is in Spain, the architect provides drawings that are connected to a property being built in Spain. This is a service connected with immovable property and therefore Spanish VAT applies to the supply. The architect will need to consider if he has to register for Spanish VAT and how he manages any related compliance obligations (i.e. VAT returns, other reports, etc).
Engineering or maintenance services
A UK established business engages a French established supplier to undertake a service. This is for the maintenance, repair and inspection of machines and equipment. The machinery is ‘permanently’ fixed to the floor of its factory building in the UK.
First, confirming the machinery’s status is important. This determines whether the services connect to immovable or movable property. If the latter is true then the services fall under different VAT rules.
On the basis that the equipment is permanently fixed, the French customer may think he has created an obligation to register for VAT in the UK and charge UK VAT. However, as the supply is made in the UK by a non-established business to a UK VAT registered customer, there is no registration requirement. The UK business can account for the VAT on the supply under the ‘reverse-charge mechanism’.
The reverse charge is a mechanism whereby the recipient of the supply acts as though it has made and received the services and accounts for the VAT accordingly. Not all EU Member States operate this mechanism domestically. This adds to the complexity of doing business in the EU.
How we can help
From the two examples provided, there are many complexities within EU laws and regulations. Especially when it comes to services connected with immovable property.
It is important to be aware of the land and property VAT obligations for your business when providing these services. Especially when the property is in a different EU Member State. VAT rates are as high as 27% in some EU countries. This is a costly mistake if your obligations are not known in advance. You will become liable for this VAT due to the tax authorities.
We have experience on providing advice in relation to services provided in the land and property sector. Our VAT experts are always on hand to assist. This includes help with all registration and compliance obligations for land and property VAT.