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Supply of goods with installation VAT abroad

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Jeroen Mijlof

Jeroen Mijlof

Dutch Tax, Accounting and Brexit Expert

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Supply of goods with installation VAT abroad

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VAT AND CROSS-BORDER WORKING

VAT levy might not be the first thing that comes to mind when thinking about cross-border working.

Nevertheless, specific VAT issues may arise as soon as staff of a Dutch company start performing activities abroad. In this article we discuss a few practical examples.

Below we will give an example of a Dutch entrepreneur who performs taxed services.

VAT EXAMPLES

Installation supplies VAT abroad

Example:

If a Dutch company sells goods to other entrepreneurs and ships the goods from the Netherlands to a destination outside the Netherlands, often only the zero VAT rate is considered. This is possible if the transport of the goods to the destination can be substantiated with customs and/or transport documents, for example. If the goods remain within the EU, the buyer must also provide a valid VAT identification number to be able to apply the zero rate.

Normally, by applying the zero rate in the destination country, the seller has no further VAT obligations. However, this can change as soon as the goods sold must be installed or assembled in the destination country by own personnel who stay in the country of installation for one or more days.

The fact that the transaction involves not only the sale of goods but also has a service component means that the VAT may be different. Such an installation or assembly supply is then no longer a transaction to which the zero VAT rate applies but is a supply subject to taxation in the country of installation/assembly.

This means that the Dutch seller is dependent on local regulations as to how VAT is levied.
Many EU member states have a reverse charge mechanism: the VAT on the installation delivery is then transferred to the buyer. The Dutch seller is still not required to charge VAT or register for VAT in that country. However, this is different if the buyer is not established in the destination country, in which case there is usually no reverse charge mechanism: local VAT must be charged and remitted via a local registration. Such a registration usually takes a few months to realize.

Assembly in Another EU Country

Example 1:

A Dutch entrepreneur sells a machine to a Belgian entrepreneur. The machine is assembled with his own personnel in the Belgian industrial hall. The installation delivery is taxable in Belgium, but a reverse charge mechanism applies in Belgium.

Should the buyer be a Luxembourg company and the machine is assembled in Luxembourg, the Dutch entrepreneur would have to charge and remit 17% Luxembourg VAT. In that case, VAT registration in Luxembourg is mandatory. If the Luxembourg buyer has its own premises in Belgium and the machine is assembled in Belgium, then the Dutch entrepreneur owes 21% Belgian VAT. However, the Belgian VAT is again reversed if the Luxembourg buyer has a Belgian VAT number and has appointed a fiscal representative.

If the personnel are present for several months, the local tax authorities may take the position that there is a permanent establishment for VAT purposes. In that case, local VAT is due (in most cases) even if the client is a local company.

Different VAT Rules

It is therefore important to be aware that different VAT rules apply as soon as personnel start performing installation and/or assembly work in another country. In practice, we sometimes see that this does not happen and an invoice with the application of the zero rate is wrongly issued.

Local costs and VAT deduction

As soon as personnel is active abroad on behalf of the Dutch entrepreneur, there are often costs of accommodation. Think of hotel and restaurant costs, the rental of means of transport, etc. Personnel may also purchase materials and tools locally for a service performed locally.

VAT Refund

In principle, the Dutch entrepreneur is entitled to a VAT refund. If local registration is involved, a refund can be claimed via a local VAT return. If there is no local registration requirement, then VAT paid in the EU can be reclaimed digitally in the Netherlands. A separate digital or written procedure applies for countries outside the EU.

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