Installation Supplies VAT
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MFFA Belastingadvies | Tax Advice
VAT and Cross-Border Working
VAT levy might not be the first thing that comes to mind when thinking about cross-border working.
Nevertheless, specific VAT issues may arise as soon as staff of a Dutch company start performing activities abroad. In this article we discuss a few practical examples.
Below we will give an example of a Dutch entrepreneur who performs taxed services.
VAT EXAMPLES
Installation supplies VAT abroad
Example:
Normally, by applying the zero rate in the destination country, the seller has no further VAT obligations. However, this can change as soon as the goods sold must be installed or assembled in the destination country by own personnel who stay in the country of installation for one or more days.
The fact that the transaction involves not only the sale of goods but also has a service component means that the VAT may be different. Such an installation or assembly supply is then no longer a transaction to which the zero VAT rate applies but is a supply subject to taxation in the country of installation/assembly.
This means that the Dutch seller is dependent on local regulations as to how VAT is levied.
Many EU member states have a reverse charge mechanism: the VAT on the installation delivery is then transferred to the buyer. The Dutch seller is still not required to charge VAT or register for VAT in that country. However, this is different if the buyer is not established in the destination country, in which case there is usually no reverse charge mechanism: local VAT must be charged and remitted via a local registration. Such a registration usually takes a few months to realize.
Assembly in Another EU Country
Example 1:
A Dutch entrepreneur sells a machine to a Belgian entrepreneur. The machine is assembled with his own personnel in the Belgian industrial hall. The installation delivery is taxable in Belgium, but a reverse charge mechanism applies in Belgium.
Should the buyer be a Luxembourg company and the machine is assembled in Luxembourg, the Dutch entrepreneur would have to charge and remit 17% Luxembourg VAT. In that case, VAT registration in Luxembourg is mandatory. If the Luxembourg buyer has its own premises in Belgium and the machine is assembled in Belgium, then the Dutch entrepreneur owes 21% Belgian VAT. However, the Belgian VAT is again reversed if the Luxembourg buyer has a Belgian VAT number and has appointed a fiscal representative.
If the personnel are present for several months, the local tax authorities may take the position that there is a permanent establishment for VAT purposes. In that case, local VAT is due (in most cases) even if the client is a local company.
Different VAT Rules
It is therefore important to be aware that different VAT rules apply as soon as personnel start performing installation and/or assembly work in another country. In practice, we sometimes see that this does not happen and an invoice with the application of the zero rate is wrongly issued.
Local costs and VAT deduction
As soon as personnel is active abroad on behalf of the Dutch entrepreneur, there are often costs of accommodation. Think of hotel and restaurant costs, the rental of means of transport, etc. Personnel may also purchase materials and tools locally for a service performed locally.
VAT Refund
In principle, the Dutch entrepreneur is entitled to a VAT refund. If local registration is involved, a refund can be claimed via a local VAT return. If there is no local registration requirement, then VAT paid in the EU can be reclaimed digitally in the Netherlands. A separate digital or written procedure applies for countries outside the EU.
Example 2:
A Dutch entrepreneur sells a machine to a Belgian entrepreneur. The machine is assembled with his own personnel in the Belgian industrial hall. The installation delivery is taxable in Belgium, but a reverse charge mechanism applies in Belgium.
Should the buyer be a Luxembourg company and the machine is assembled in Luxembourg, the Dutch entrepreneur would have to charge and remit 17% Luxembourg VAT. In that case, VAT registration in Luxembourg is mandatory. If the Luxembourg buyer has its own premises in Belgium and the machine is assembled in Belgium, then the Dutch entrepreneur owes 21% Belgian VAT. However, the Belgian VAT is again reversed if the Luxembourg buyer has a Belgian VAT number and has appointed a fiscal representative.
If the personnel are present for several months, the local tax authorities may take the position that there is a permanent establishment for VAT purposes. In that case, local VAT is due (in most cases) even if the client is a local company.
Different VAT Rules
It is therefore important to be aware that different VAT rules apply as soon as personnel start performing installation and/or assembly work in another country. In practice, we sometimes see that this does not happen and an invoice with the application of the zero rate is wrongly issued.
Local costs and VAT deduction
As soon as personnel is active abroad on behalf of the Dutch entrepreneur, there are often costs of accommodation. Think of hotel and restaurant costs, the rental of means of transport, etc. Personnel may also purchase materials and tools locally for a service performed locally.
VAT Refund
In principle, the Dutch entrepreneur is entitled to a VAT refund. If local registration is involved, a refund can be claimed via a local VAT return. If there is no local registration requirement, then VAT paid in the EU can be reclaimed digitally in the Netherlands. A separate digital or written procedure applies for countries outside the EU.
Example 3:
In Belgium, VAT on hotel stays and restaurant costs are deductible if they relate to personnel performing a service in Belgium, such as, for example, building the sorting machine. On costs that relate to the owner of the Dutch company, the VAT is not deductible. If deduction is fully possible, all invoices and receipts (to the extent possible) must be issued in the name of the Dutch entrepreneur. The personnel on site play a role in this, they are the ones who must ask for this on site.
Expenses Abroad
Finally, it is preferable to pay the expenses as much as possible with a payment instrument of the Dutch company, to prove the business connection. For example, if a staff member of a Dutch contractor buys a drilling machine locally for the purpose of work there, the local tax authorities cannot rule out that the drilling machine will also be used for private purposes, especially if payment is made with a private means of payment.
VAT and Immovable Property
Work on immovable property (construction, renovation, maintenance, repair, etc.) is always taxed for VAT purposes at the location of the immovable property. As soon as personnel of the Dutch company is active abroad, the local rules immediately apply. For each country, local legislation must be consulted to assess whether VAT is reversed, or local VAT must be charged. Local invoice requirements must also be applied.
Dutch Personnel Working in Germany Examples
Example 1:
Once part of work is outsourced to a subcontractor, a reverse charge mechanism also applies in several EU member states.
Example 2:
The Dutch contractor also outsources part of the work in the German store to a German subcontractor. The Dutch contractor must still apply for a German VAT number in Germany to declare the reverse charge (and directly deductible) German VAT. The reverse charge of VAT concerning its own invoice simply remains in place. Please note that in some EU member states, the reverse charge mechanism on one’s own invoice expires if one is required to register for the use of a subcontractor.
Brexit and English VAT
The Brexit creates additional challenges for cross-border work. For installation supplies, the goods to be installed must first be imported. Since the goods are still owned by the Dutch seller, an English VAT number and EORI number must be applied for in the United Kingdom. The effect is then that 20% English VAT must be charged to the buyer on the entire sales transaction.
Cross-Border work in the UK
Example:
If the goods to be installed in the UK are invoiced, then two VAT regimes apply! From a Dutch perspective, this is an export for which the zero rate applies; but at the same time, 20% English VAT must also be invoiced. This requires adjustment of the administration and/or administrative software.
Note: the amounts to be invoiced must also be stated in English pounds, otherwise the buyer is not entitled to deduct the invoiced English VAT.
Import Duties
Once personnel travel to the UK with materials and tools, the same rule applies. If the material and/or tools were not manufactured in the EU, then non-refundable import duties may be due. By invoking a specific customs procedure, levy can be avoided, provided the material and tools leave the UK again after the installation work.
In any case, the Dutch entrepreneur will have to discuss the (im)possibilities with an English customs agent before leaving for the United Kingdom.
Conclusion: VAT Levies and VAT Registration
As soon as personnel is active abroad in the context of company activities, in many cases there are also VAT aspects involved. As it turns out, Dutch entrepreneurs may have to deal with foreign VAT levies and foreign VAT registrations.
It is important to establish this before the activities take place locally. Too often we still see that foreign VAT is first reclaimed via the Dutch Tax Authorities, after which the local tax authorities conclude that there is a local VAT and/or tax return obligation (resulting in fines). To avoid problems, contact an international VAT advisor in advance.
