VAT activities abroad? Keep the following in mind
Do you perform work abroad as an entrepreneur? Keep a close eye on the VAT rules that apply to you.
VAT rules when working abroad
As an entrepreneur, it is difficult to be aware of all VAT rules when working abroad. For example, if you sell and install or assemble machines abroad or perform work on immovable property abroad. This also includes repairs you carry out for foreign recipients. Please note that something that is not immovable according to conventional usage, can be for VAT, and vice versa. Several European and non-European countries are increasingly enforcing stricter rules to ensure that VAT rules are correctly observed.
What factors should you consider?
You must check whether you are going to install or assemble machines, production lines, robot lines, racks or other installations abroad. Work on immovable property, such as (company) buildings, homes, roads, drilling platforms, tunnels or underwater installations is also included. Agriculture, forestry and arable farming, earth-moving operations and logging can also be considered work on immovable property. A tree is often immovable for VAT purposes.
Special VAT rules do not only apply to physical activities, but also, for example, to property valuations or consultancy work abroad. Factors such as personnel also play a role. Do you carry out the work abroad with your own personnel or are you looking for personnel in the country where the work takes place? The sequential and/or hirer's liability may apply when you hire in personnel or engage a subcontractor. It is also important to check whether you have a permanent establishment abroad.
Registration obligation for repair work?
Do you only carry out repair work on other people's property abroad? Then in many cases you have no registration obligations. This may be different if you repair immovable property, such as buildings, certain piping networks or electrical installations.
What are these special rules?
For the activities mentioned above, you generally calculate the VAT in the country where the immovable property is located or where the installation or assembly takes place. You then also pay the VAT in that country. To do this, you must register for VAT in the relevant country. You will then receive a VAT number from that country and you must file a VAT return there as long as your work has not yet been completed.
In many cases you need assistance from specialists in the country where the installation or assembly takes place. This also entails costs for you. In addition, it is possible that you sometimes install or assemble goods in, for example, Germany, but that your client is a Belgian party.
What happens if I do nothing?
Various countries, especially within Europe, monitor compliance with these rules more and more intensively. After all, the VAT must end up in the right country and must not lead to distortions of competition. In many cases, you can avoid these registration obligations with thorough and timely preparation.
Application of the reverse-charge mechanism
In many cases it is possible to use a national reverse-charge mechanism in the country where the work takes place or where the property is located. These reverse-charge mechanisms are very specific and differ in all European countries. The various countries also do not apply these reverse-charge mechanisms uniformly. In addition, certain countries do not have a reverse-charge mechanism in some situations. The rules also differ depending on the type of work. Different reverse-charge rules often apply to installation or assembly work on machines than for work on immovable property
Reverse-charge of VAT is not always possible
Often these reverse-charge mechanisms cannot be applied if the recipient is not established or registered for VAT purposes in the country where the work takes place or where the property is located. For example, a Dutch entrepreneur who supplies and installs machines (or other goods) in Latvia on behalf of a German entrepreneur. In this case, the Dutch entrepreneur cannot make use of the Latvian reverse-charge mechanism, because it is not possible in Latvia to reverse-charge Latvian VAT to a party not established in Latvia.
Preparation is essential
ABAB is happy to help you with this issue. We map out where you deliver goods with installation or assembly. We look at your supply chain and who performs the installation or assembly work. Do you install or assamble yourself? Will you have that done? Who transports the products? Do you also perform installation or assembly work outside Europe? Our tax advisers are specialised in cross-border installation and assembly projects. In many cases we are able to set up your projects in such a way that you can avoid a foreign VAT registration. We do this by analysing your orders based on the terms of the assignment and the contract. We then determine whether it is possible for you to invoke a domestic simplification scheme. This is often a possibility. In that case, you will save a lot of time and costs and avoid a registration obligation. You do have to correctly organise your administration, VAT returns and invoices.
Risks are great
Due to the ever-increasing exchange of data and checks, sooner or later entrepreneurs who do not comply with these rules will have to deal with the foreign tax authorities. For example, because they carry out an audit at the recipient’s. Tax officials are also increasingly taking a look at large projects. By proactively identifying these problems, this can be dealt very well in practice. In many cases it is not even necessary to register in the country of the recipient.
Do you require more information?
Would you like advice and/or support with VAT for cross-border goods deliveries with installation or assembly work? Please contact Anne Kin, tax advisor at ABAB International, on telephone number 013-5915125 or send Anne an email.