Supply of goods with installation: what does it mean?
In order to have a clear view on the European VAT compliance obligations of your company, you need to understand how VAT regulations treat differents kind of transactions. The EU VAT system defines two type of transactions: supplies of goods and of services.
We describe below the key aspects of supply of goods with installation.
Let's take an example
A Belgian company engages an EU-based company to supply and install a machine in its premises in Belgium. The materials are shipped from Romania to Belgium and installed by the supplier.
How to qualify the transaction for VAT purposes?
Your company can perform several transactions for the same customer. This is the case, for example, when it sells an industrial machine and also takes care of its installation. In this situation, there is on the one hand a delivery of goods (the sale of the machine) and on the other hand a service (the installation).
When a business offers several elements to its customers at the same time, the question arise as to :
- Whether these different transactions are to be treated as two distinct transactions or as a single complex transactions comprisng a number of elements.
- Next, whether the single complex supply should be treated as a supply of services or as a supply of good.
There is unfortunately a lack of harmonization to determine whether the supply of goods with installation is considered as a supply of goods or supply of services. German VAT authorities have for example restricted the concept of supply of goods with installation.
Where to tax?
The place of taxation is determined by where the goods are supplied. In the case of goods dispatched or transported, the place of supply is in principle deemed to be the place where the dispatch or transport begins. However, where the goods are installed or assembled by or on behalf of the supplier, the place of supply is deemed to be the place where the goods are being installed or assembled, if done by the supplier.
VAT registration in the country of installation is normally required…
Supply of goods with assembling/installation is subject to VAT in the country where the goods are installed or assembled. As a consequence of this rule, the supplier should normally be registered in the country where the goods are assembled or installed and issue invoice with local VAT to its customer.
…unless a simplification arrangement is applicable
Simplification arrangements for supplies of goods installed or assembled are however applicable in some EU member States. Your company is therefore not required to be VAT registered in these countries and must issue invoices without charging any VAT (local reverse charge – payment of VAT switched to the client).
For example, simplification arrangements exist in Belgium provided the customer is VAT registered in the Belgium avoiding your company to register in Belgium and charge Belgian VAT. Your company is therefore not required to be VAT registered in Belgium and must issue invoices without charging any VAT (local reverse charge – payment of VAT switched to the client).
Checking the rules in each country
- Determine the exact qualification of the transaction. There is a lack of harmonization to determine whether the supply of goods with installation is considered as a supply of goods or supply of services.Classification of a complex transaction as a supply of goods or a supply of services can have significant consequences, especially where to tax. Submitting a ruling request in order to obtain the official position of the local tax authorities is often required for juridical security purpose.
- Check whether or not special arrangements have been implemented into the country where the goods are installed or assembled;
- In case no special arrangements are applicable, proceed to the local VAT registration.
Contact us
Any VAT question ?
We offer you the opportunity to discuss the subject during a free videoconference.