VAT can be applied in different ways in different EU countries. For example, different EU countries have different VAT rates and invoicing requirements. It is thus important to know the place of taxation, as this determines which EU country’s rules should be applied.
The place of taxation for a particular VAT-liable transaction is determined by different rules, depending on the nature of the transaction. There are four types of transactions:
- supply of goods
- intra-Community acquisition of goods
- importation of goods
- supply of services
Supply of goods
For supplies of goods, there are two basic rules:
- Where there is no dispatch or transport of the goods, the place of taxation is where the goods are located when the supply takes place (Article 31 VAT Directive).
- Where the goods are dispatched or transported, whether by the supplier, the customer or a third person, the place of taxation is where the goods are located when the dispatch or transport to the customer begins (first paragraph of Article 32 VAT Directive).
Distance sales of goods - goods sold to private consumers in other EU countries, typically via a platform, telephone or mail order.
The place of taxation of intra-Community distance sales of goods is the place where the dispatch or transport to the customer ends (Article 33(a) VAT Directive).
However, where a supplier’s intra-Community distance sales of goods are lower than EUR10 000 in a calendar year, then the place of taxation is where dispatch or transport begins (Article 59c of the VAT Directive).
The supplier may, nevertheless, opt to follow the normal rules and apply Article 33(a).
The place of taxation of distance sales of goods imported from outside the EU is where the dispatch or transport to the customer ends, even if the goods are imported into the EU via a different EU country beforehand (Article 33 (b) & (c) VAT Directive).
Supplies of goods with assembly
Where goods are installed or assembled by the supplier or on his behalf, the place of taxation is where those goods are installed or assembled (Article 36 VAT Directive).
Supplies of goods on ships, aircraft or trains
If goods are supplied on board a ship, aircraft or train during the section of passenger transport that takes place within the EU, the place of taxation of those goods is the point of departure of the passenger transport (i.e. the first scheduled point of passenger embarkation within the EU) (Article 37 VAT Directive).
Supplies of gas through a natural gas system, of electricity, and of heating and cooling energy through heating and cooling networks
Where such supplies are made to a taxable dealer, the place of taxation is where that dealer is established (Article 38 of the VAT Directive).
Where such supplies are made to someone other than a taxable dealer, the place of taxation is where the customer effectively uses and enjoys the goods (Article 39 VAT Directive).
Intra-Community acquisitions of goods
The place of taxation is determined by where the goods are finally located after dispatch or transportation to the person acquiring them from another EU country, (Article 40 VAT Directive).
However, the acquisition is taxed in the EU country which issued the VAT number of the customer declaring the acquisition (Article 41 VAT Directive). If this EU country is different from the EU country where the dispatch or transport of the goods ended, this will be followed by an adjustment of the VAT paid in the EU country which issued the VAT number.
- A French company acquires goods from a business in Germany using its French VAT number, for use at its factory in Paris. The acquisition is taxed in France (Article 40 VAT Directive).
- A Dutch company acquires goods from a business in Belgium using its Dutch VAT number and the goods are sent to Spain. The acquisition is taxed in Spain and any tax due in the Netherlands will be adjusted (Article 41 VAT Directive).
Goods acquired by a taxable person acting as such (a business acting in its business capacity) or by a non-taxable legal person (for example a public authority) are subject to VAT.
For simplification reasons, goods acquired by a taxable person who only makes supplies for which there is no right of deduction (for example, if they are using the SME scheme), or the flat-rate scheme for farmers, or by a non-taxable legal person, are not subjected to VAT if their annual acquisitions are below the annual turnover threshold set by their EU country (minimum EUR 10 000), though it is still possible to opt for taxation (Article 3 of the VAT Directive).
Importation of Goods
When goods are imported from non-EU countries or non-EU territories, the place of importation is determined by where the goods are at the point of entry into the EU.
In principle, importation is taxed in the EU country where the goods arrive (Article 60 VAT Directive). If upon entry, goods are put under a suspensive customs procedure or similar arrangements, the importation will be in the EU country where the goods leave that procedure or arrangement (Article 61 VAT Directive).
Supply of services
The place of taxation is determined by where the services are supplied. This depends not only on the nature of the service supplied but also on the status of the customer receiving the service. Only once the exact nature of the service and the status of the customer are known can the place where the services are supplied be correctly determined.
A distinction must be made between a taxable person acting as such (a business acting in its business capacity) and a non-taxable person (a private individual who is the final consumer).
For determining the place of supply of services, it should be remembered that a taxable person who makes supplies which are taxable and supplies which are not taxable shall be regarded as a taxable person for services supplied to him/her.
In addition, a non-taxable legal person (such as a public body) who is registered for VAT is considered as a taxable person.
For supplies of services, in principle there are two basic rules:
- For supplies of services between businesses (known as B2B supplies), the place of taxation is the place where the customer is established (Article 44 VAT Directive).
- For supplies of services from a business to a private consumer (known as B2C supplies), the place of taxation is the place where the supplier is established (Article 45 VAT Directive).
There are, however, a number of exceptions to these basic rules, in order to better ensure that the tax accrues in the place where the services are used:
- B2C services provided by an intermediary are taxed at the location where the main transaction in which the intermediary intervenes, is taxable (Article 46 VAT Directive).
- B2B and B2C services in relation to immovable property are taxed where the immovable property is located (Article 47, VAT Directive). For further explanation, consult the explanatory notes on VAT rules for regarding the place of supply of services connected with immovable property (in force since 2017). These notes are not legally binding.
- B2B and B2C passenger transport is taxed according to the distances covered (Article 48, VAT Directive). Example: The price of a bus ticket for a trip from Poland to France through Germany will include Polish, German and French VAT, proportionate to the distances travelled in each of these countries. Should the trip pass through Switzerland, there will be no EU VAT on the distances covered in that country since Switzerland is not a member of the EU.
- B2C transport of goods, other than intra-Community transport, is taxed according to the distances covered (Article 49 VAT Directive).
- B2C intra-Community transport of goods (goods departing from one EU country and arriving in another) is taxed at the place of departure (Article 50 VAT Directive).
- B2C ancillary services to the transport of goods, such as loading and unloading services, are taxed in the Member State where those services are physically carried out (Article 54 (2) VAT Directive).
- B2C services consisting in the valuation of and work on moveable tangible property are taxed in the Member State where the work is physically carried out.
- B2B services relating to admission to cultural, artistic, sporting, scientific, educational, entertainment and similar events will be taxed at the place where those events take place. However, this rule does not apply when attendance is virtual, in which case the basic rule (taxation in the place of the customer) will apply. (Article 53 VAT Directive).
- B2C services relating to cultural, artistic, sporting, scientific, educational, entertainment and similar activities will be taxed at the place where those activities take place (Article 54 VAT Directive). However, where these events are streamed or otherwise made virtually available, the place of taxation is the where the customer resides.
- B2B and B2C restaurant and catering services, other than those supplied on board ships, aircraft or trains during the section of passenger transport that takes place within the EU, are taxed at the place where the services are physically carried out (Article 55 VAT Directive).
- B2B and B2C restaurant and catering services supplied on board ships, aircraft or trains during the section of passenger transport that takes place within the EU, are taxed at the place of departure (Article 57 VAT Directive).
- B2B and B2C short-term hiring of means of transport is taxed at the place where the means of transport is put at the disposal of the customer (Article 56 VAT Directive).
- B2C long-term hiring of means of transport is taxed at the place where the private customer is established, has his permanent address or usually resides ( Article 56 VAT Directive), except in cases where the supplier of a pleasure boat is established in the same EU country in which they put the boat at the disposal of the customer.
Short term covers the continuous possession or use of a means of transport throughout a period of not more than 30 days or, in the case of vessels, not more than 90 days.
Long term covers anything longer than those periods.
B2C supplies of telecommunications, broadcasting and electronic services are taxed where the customer resides (Article 58 VAT Directive).
However, where a supplier of such services is established in a different EU country to that of the customer, and the total value of those services in all EU countries except that in which the supplier is established is lower than EUR10 000 in a calendar year, then Article 58 does not apply (Article 59c VAT Directive).
The supplier may, nevertheless, opt to follow the normal rules and apply Article 58.
Where B2C services such as advertising, consultancy and lawyers, finance, are supplied to a person who is established outside the EU, the place of taxation is where that person is established (Article 59 VAT Directive).
To prevent double taxation, non-taxation or distortion of competition, EU countries may decide to:
- Consider the place of supply of certain services which are inside their territory as being outside the EU if the effective use and enjoyment takes place outside the EU, or:
- Consider the place of supply of certain services which are outside the EU as being inside their territory if the effective use and enjoyment takes place inside their territory.
This applies to services such as those covered by the general rules, telecommunications, broadcasting and electronically supplied services, or B2C supplies to customers outside the EU (Article 59a, VAT Directive).
Legal texts
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax