VAT - Place of Supply of Services

With different rates of value-added tax (VAT) applying throughout Europe, the place that a supply is made (and hence the VAT rate which is applicable) can be a very important matter.

The basic 'place of supply' rule is that in normal circumstances (and subject to some exceptions), the place of supply for a service is the place where the supplier 'belongs' – in other words, where they normally do business.

So, for example, if a services company based in the UK makes supplies in Germany, the 'place of supply' will normally be the UK.

One of the most important exceptions to the rule is the rule that services supplied relating to land are supplied in the country in which the land is situated. So, for example, if you retain an architect to help redesign your villa in Spain, the place of supply is Spain, even if the architect has no place of business there. This can be important, as many European Union (EU) countries have very low thresholds for registration, so the architect may be required to register for VAT (Called IVA in Spain), to carry out the contract.

The other main exception is the provision of transport. Passenger transport is supplied in effect in the country in which the transport takes place. Freight, however, is supplied in the country in which the shipping commences, but the customer can, by providing the supplier with his VAT registration number, account for VAT under the 'reverse charge' system in his own country. Transport hire normally takes place where the supplier of the hire belongs, unless the hire takes place exclusively outside the EU.

Some services take place where the customer belongs. These include many professional services, banking, insurance and financial services, the supply of staff, services supplied electronically, telecommunications, and several others.

Artistic and cultural services are supplied where they are performed, except for radio and television broadcasting, which are supplied where the audience belongs.

The above list is much simplified. It should therefore be evident that if you are considering undertaking trade with, in or through any EU country, a thorough look should be taken at the VAT implications.


 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.