The general rule defines the place of supply to be deemed as the place where the supplier is established. Consequently, a Belgian business invoicing supply of services to a foreign company is deemed to issue an invoice with Belgian VAT.
However, the general rule has a number of particular provisions specifically planned by law that take into consideration the nature of services to determine its place of supply. For example, place of supply for services of an intellectual nature is deemed to be within the country where the customer is established; place of supply for services connected to immovable goods is deemed to be where the building is located, etc. As a result, a Belgian business invoicing supply of services of an intellectual nature to a foreign company is deemed to issue an invoice without VAT.
The general rule is of auxiliary application to these provisions therefore, in a situation where an exception applies, the general rule doesn’t.
New rules applicable from January 1st, 2010
The European Union Council has adopted, beginning of 2008, a new directive deeply modifying all the rules determining place of cross-border supply of services. From January 1st, 2010, European companies should proceed as follows:
A distinction shall be made between invoicing the supply of services to a taxable person (B2B) or to a non- taxable person (B2C):
1.1. « Business to Business » Services (B2B)
The new regulations to be applied from January 1st 2010 imply a reversal of the general rule. The supply of services between taxable persons will in principle be taxed where the customer is established when supplier and customer are established in different member states.
The company liable for VAT – meaning the one collecting and paying the tax to the local treasury – will be the customer itself. A generalization of the reverse charge mechanism will apply which should have a positive impact on businesses cash flow.
A Belgian company invoices « management fees » to a French company. Applying the current regulations, this supply of services shall be taxed in the country where the supplier is established i.e. Belgium.
The Belgian company shall thus issue an invoice with Belgian VAT which the French company can recover with the Belgian fiscal authorities through the procedure laid down by the 8th directive.
From January 1st 2010, the general rule defining place of supply of services will be reversed. This supply of services will be taxed in the country where the customer is established (France) with consequence that the Belgian company shall issue an invoice without VAT while the French company shall auto-liquidate the VAT in its VAT returns in France.
1.2. « Business to consumer » Services (B2C)
Supply of services to non-taxable persons shall, in principle, remain taxed where the supplier is established (no reversal of the current general rule).
A Belgian company invoices services of intellectual nature to a French individual. According to the current regulations and to the new rules applicable from January 1st 2010 as well, this supply of services shall be taxed in the country where the supplier is established i.e. Belgium. The Belgian company shall issue an invoice with Belgian VAT.
Exceptions to general rules
Exceptions regarding place of supply remain for services of a certain nature:
Common provisions for B2B and B2C supply of services
- Supply of services connected to immovable goods
- Supply of transport for persons
- Supply of services connected to restaurant
- Supply of short-term transport rental services
- Supply of services of a cultural, artistic, scientific, sports, educational or entertainment nature ( congress and conference organisation included)
Provisions specific to B2C services
- Supply of services by intermediaries
- Supply of transport of goods
- Supply of long-term transport rental services
- Supply of valuation of, and works on movable goods
- Supply of electronic services as well as telecommunication services
- Certain supply of services provided to non-taxable persons established outside of the European Union (copyrights, advertising services, services of an intellectual nature, etc.)
New administrative VAT obligations
The implementation of the new rules concerning the place of supply of services will create a new administrative obligation for companies to periodically file a list naming all the foreign taxable clients for which a supply of service was rendered.
The new rules concerning the place of supply of services will have a considerable impact on the VAT accounting and administrative treatment for all European companies:
- On VAT obligations: certain transactions will be reported in other boxes of the VAT return, filing of B2B services in a new intra-community listing, invoices modification, etc.
- On ERP systems: new « tax codes » implementation, adjustment of the clients database, etc.
- On internal control procedures: enquiring of VAT status for each client (B2B and B2C), verification of new VAT obligations consequent to the new rules (especially re-invoicing between entities of a same group) personnel training, formation du personnel, etc.
All current procedures will have to be reviewed and adjusted in order to integrate the new regulations.