As of 1 January 2017, EU Regulation No 282/2011 provides clarifications on the supply of services connected with immovable property. The new provisions are self-executing and do not need to be transposed into the national law of EU member states.
The previous situation has led to uncertainty and misunderstandings. On the one hand, the rules were not applied by the EU member states in the same way. On the other hand, it was not easy to define how to apply regulations in daily practice.
General approach: Place of supply in the EU-Member State of location
Services which are sufficiently connected to immovable property are subject to VAT in the EU Member State where the property is located. It is not relevant whether the recipient is a business (B2B) or a private individual (B2C). In cases where services are supplied to a business, most EU-member states have implemented the reverse charge procedure.
What is new
The regulation defines the term ‘immovable property’. It also explains under which circumstances a service is linked to immovable property. In addition, there are examples of services connected or not connected with immovable property by following a common understanding for all EU member states.
Two-step approach
In the light of the new provision a two-step approach is required:
- The first step should be to check whether the service relates to goods that can be qualified as immovable property.
- If this is the case, it’s necessary to determine, whether there is a sufficient direct connection between the service and the immovable property.
Only if both conditions are met the service can be considered as connected with immovable property.
Definition of immovable property
In light of the new regulations, immovable is defined as:
- Specific parts of the earth, on or below its surface, over which title or possession can be created (e.g. trees, resources, oil wells);
- Constructions which cannot be easily demolished or moved (e.g. houses, roads, gas pipelines, wind turbines);
- Installed items which are an integral part of a construction; without the item the construction would be incomplete (e.g. doors, windows, roofs, staircase, lifts);
- Permanently installed items, equipment or machines in constructions, which cannot be moved without destroying or altering the structure (e.g. no items, which are simply hanging on the wall, nailed or screwed, where traces/marks are easy to hide or to repair).
Sufficient direct connections
Services have a sufficient direct connection with immovable property, if at least one of the following conditions are met:
- The service is derived from an immovable property. This property must be a constitute element of the service; it is central and essential for the supplied service;
- The service is provided to, or directed towards an immovable property; the service is focused on the modification of the legal status and / or physical features of that immovable property.
In the following examples services are sufficiently linked to immovable property:
Construction works (reconstruction, alteration, conversion, enlargement, demolition) on buildings;
Construction plans which are designated for a particular piece of land;
- On site supervisions or security services
- Maintenance, renovation and repair of a building or permanent structures such as pipeline systems for gas and water;
- The installation or assembly of machines or equipment which, upon installation or assembly, qualify as immovable property;
- Intermediation in the sale, leasing or letting of immovable property;
- The assignment or transfer of rights to use whole or parts of immovable property (e.g. fishing, hunting rights, access to lounges in airports).
The following example services have no sufficient connection with immovable property:
- Storage of goods if no specific part of the storage room is assigned for the exclusive use of the customer;
- Provision of advertising (e.g. on walls or billboards);
- Provision of a stand location at a fair or exhibition site together with other related services (e.g. design of the stand) to enable the exhibitor to display items;
- Intermediation in the provision of hotel accommodation, if the intermediary is acting in the name and on behalf of another person.
Provision of equipment for carrying out work on immovable property
There is a special provision for hiring out of equipment for works on immovable property (e.g. use of scaffoldings). In this case the service is connected with the immovable property, if the supplier is responsible for the execution of the work. If the equipment is leased with operation personnel, it is presumed that the supplier bears responsibility.
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