Understanding EU VAT rules on supplies of products with installation or assembly

Background: Supplies with installation and assembly from a VAT perspective

For VAT purposes, supplies that are installed or assembled are those that need the expertise of the supplier or manufacturer to be made operational. These kinds of products or supplies may be found in virtually all areas of commerce, from the entertainment industry (where a studio might need audio-visual technology or entertainment equipment installed) to the travel industry (where an airport might need luggage carousels assembled) to the manufacturing industry (where a factory might need a new production line or to have security cameras installed).

These supplies that must be installed or assembled have special VAT treatment in the EU. The treatment covers not only scenarios where the supplier installs or assembles the supplies, but also where the supplier sub-contracts the assembly or installation work to a third party. The same VAT treatment applies even in cases where the assembly or installation work is a relatively minor element of the entire supply.

In general, as long as the installation work is a contractual requirement and the title to the goods transfers upon installation, then the delivery falls within the same type of supply from a VAT perspective. (That is, the transaction is considered a delivery with installation or assembly.)

The rules: VAT treatment of supplies that are installed or assembled

Navigating EU VAT rules and their exceptions, and understanding certain types of transactions, is challenging and at times confusing. Understanding the rules related to cross-border business-to-business supplies of goods that are installed or assembled in an EU country is particularly challenging.

EU VAT rules treat these transactions as a single, mixed type of supply of goods and services. These supplies follow special rules with respect to establishing their place of taxation, the party liable to collect and remit the VAT, and more.

In general, these supplies are taxed where the goods are actually installed. If your business is looking to expand, you may want to make supplies outside of your home country, whether you make them from the UK, Germany, the U.S., China or any other country. If you make supplies in an EU country, you will be subject to the VAT rules applicable in that country.

This sounds simple enough, but there are complexities. These begin when attempting to determine the VAT-liable business in a transaction, among the other VAT consequences for the parties involved.

Country-specific rules: VAT simplification measures and some scenarios

Most EU member states have adopted simplification measures for non-established businesses making taxable supplies of goods with assembly or installation. These measures eliminate the need for the non-resident supplier to register for VAT in that particular country of supply, while making the business customer responsible to charge, account for and report the VAT due in the country where the supplies are received and assembled or installed. Keep in mind that not all EU countries have these simplification measures, and those that do may have other country-specific rules that must be understood and followed.

Consider also that the foreign business supplier may not be established in the country of installation or assembly, but it may already be registered for VAT there. A French supplier that delivers and installs lighting equipment in Germany, for instance, may not have an office in Germany but it may have an existing German VAT registration number. The VAT rules in the country of installation must be carefully studied in such cases to determine the VAT-liable party and how the tax should be remitted.

In other cases, neither the supplier nor the customer will be established and VAT-registered in the country of supply. In this scenario, the supplier is typically liable for the VAT on the supplies they make. However, the VAT rules of the country where the supply takes place may determine the customer to be the party responsible for charging and remitting the VAT due.

Additional considerations

The above scenarios may sound complex or even unlikely. Some may wonder: How often can it be that a company receiving a supply with installation will not be VAT-registered in that country? These and many other seemingly unlikely scenarios are in fact quite common in today’s fast-paced global economy.

No matter where you are located, if your business delivers or receives supplies that are assembled or installed in the EU, you must understand these different scenarios and country-specific rules. Only then can you accurately determine who is liable for collecting and remitting VAT in each situation. Remember that these rules will apply whether or not the supplier is using a third-party contractor to perform the assembly or installation.

In addition to determining the party responsible for paying VAT on a particular transaction, a business must ensure that each of its transactions is taxed in the right jurisdiction and at the right rate, along with ensuring that it’s reported in the correct way. And since VAT is a transactional tax, businesses should understand the VAT implications of their planned supplies well in advance of putting their business plans into action.