VAT reverse charge in the construction sector (art. 394 of the VAT Directive)
VAT is normally due by the person supplying goods or services.
To tackle fraud, Member States in which the VAT is due may provide for that the person liable for the payment of VAT is the person acquiring the goods or services. Such reverse charge is regulated by national regulation.
According to Article 394 of the VAT directive, Member States which, at 01/01/1977, applied special measures to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance may retain them provided that they have notified the Commission accordingly before 01/01/1978. A specific VAT reverse charge mechanism has been introduced for immovable works in Belgium based on article 394 of the VAT Directive and the standstill provision connected to.
What are the rules in Belgium?
According to Belgian law, immovable works including construction, repair, cleaning or maintenance works on an immovable property as well as transaction consisting in incorporating movable goods into immovable property, installation with a building of sanitary, fire, alarm, phone, electrical or air-conditioning equipment, embedded cupboards, stores and shutters, wall or floor-covering provided by a Belgian company are subject to local reverse charge if the recipient is :
- either a taxpayer established in Belgium filing periodical VAT returns,
- either a taxpayer not established in Belgium but VAT registered through a VAT representative.
Let's take an example
A Belgian company provides construction services to a French company registered for VAT in Belgium through a VAT representative. In this case, the domestic VAT reverse charge for construction services is applicable and the Belgian provider issues invoice without VAT.
The model would be different if the French company is VAT registered in Belgium without appointment of a VAT representative. In this case, the special VAT reverse charge is not applicable and the Belgian provider should issue invoice with Belgian VAT.
Good to know
For partial taxable persons - reverse charge mechanism applies regardless of the capacity in which the partial taxable person acts (i.e. whether for its taxable, non-taxable or both activity/ies).