Key takeaways
- VAT depends on location: The place of supply determines where VAT is due—typically where goods are located or where transport begins or ends.
- Different rules for B2B and B2C: B2B sales often use the reverse charge mechanism, while B2C suppliers charge VAT based on their location or the buyer’s country.
- Watch for special cases: Installation, distance sales, and exempt supplies have unique VAT rules businesses must follow to ensure compliance.
In short: The VAT place of supply for goods decides which EU country can tax a sale. Goods without transport are taxed where they are made available. Goods with transport are taxed where the transport begins. B2B sales often use the reverse charge, and B2C distance sales above €10,000 a year are taxed in the buyer's country.
EU tax rules can be hard to follow. The place of supply for goods is a common sticking point for businesses. The EU's VAT (Value Added Tax) system aims to align tax rules across member states. Even so, it stays complex, especially for cross-border sales. This guide explains the place of supply rules for goods. It is for businesses and individuals in intra-community and international trade.
How do you determine the place of supply for goods?
You determine the place of supply for goods by where the goods are when you supply them, or where their transport begins. The place of supply matters in VAT because it shows where VAT is due and who must account for it.
The general rules have two parts. One covers supplies with transport, and one covers supplies without it. However, there are exceptions to these general rules, including:
- Installations and assembly: If the supplier installs or assembles goods in a different member state, the place of supply is where the installation or assembly happens.
- Second-hand goods: Special margin schemes can apply to second-hand goods, art, antiques, and collectors' items.
- Exempted supplies: Some goods and services are exempt from VAT, and these exemptions can vary by member state.
In EU member states, the place of supply for goods is fairly simple to find. It is usually where the goods are at the time of supply. For an intra-community acquisition of goods, the place of taxation is where the goods end up after transport from another member state. This helps keep taxation fair. You need to know these rules to apply the right VAT treatment.
What is the place of supply for domestic transactions?
For domestic transactions, the place of supply is usually where the goods physically are. In fact, it is much easier to spot the place of supply for goods than for some services. Legal services, for example, may have more complex rules.
For goods without transport, the place of supply is where the goods are made available to the person getting them. This also applies to ancillary transport services.
For domestic goods with transport, the place of supply depends on where the transport takes place. This rule helps you see where your customer belongs for VAT purposes.
What is the place of supply for cross-border transactions?
For cross-border goods with transport, the place of supply is where the goods are when the transport begins. Cross-border VAT rules also depend on the destination country and the customer type: Business-to-Business or Business-to-Consumer.
For example, say a Maltese taxable person supplies a product with transport to a buyer outside the EU. That supply counts as an export of goods made in Malta, where the transport begins.
Sometimes transport starts outside the EU and ends in an EU member state. Then the importer's supply takes place in the member state of import. The same applies to every later supply until the final customer acquires the goods.
What are the special cases: installation, vessels, and natural gas?
Installation, transport on board, and energy supplies each have their own place of supply rules. For goods that are installed or assembled, the place of supply is where the installation or assembly happens.
For goods sold on vessels, aircraft, or trains, the place of supply is where the transport starts. This rule covers sales on board during the part of a passenger transport operation within the European Union.
For natural gas and electricity, the place of supply depends on the customer type and where the energy is used. For a taxable dealer, the place of supply is where the dealer's business is. For all other customers, the place of supply is where they consume the energy.
What are the VAT obligations for different customer types?
B2B and B2C transactions have different VAT obligations. In B2B transactions, the customer and the supplier must both hold valid EU or UK VAT numbers. They must also follow intra-community VAT rules.
B2B transactions often use the reverse charge mechanism. Here, the customer accounts for the VAT instead of the supplier. This makes VAT compliance simpler, helps prevent VAT fraud, and makes sure VAT is paid.
For B2C transactions, the rules center on the member state the goods are shipped from. For sales below €10,000, the VAT rules of that member state apply. Above that limit, you may face extra VAT obligations. Knowing whether your customer is a business is key to the right VAT treatment. You can also read New EU VAT Rules for Virtual Events.
How does the place of supply work for B2B transactions?
In B2B transactions, the place of supply is usually where the business customer is established. One example is a French company receiving services from a UK supplier.
The reverse charge is common for services supplied B2B. It moves the duty to report and pay VAT from the supplier to the customer. This makes VAT compliance simpler and helps prevent VAT fraud.
You need to know the B2B place of supply rules well to get the VAT treatment right and stay compliant.
How does the place of supply work for B2C transactions?
For B2C transactions, the place of supply is usually where the supplier is based. Suppliers must charge and pay over the VAT on B2C transactions.
You need to understand your VAT obligations in B2C transactions and follow the right VAT rules.
What exceptions and special rules apply?
Distance sales, exempt supplies, and services related to immovable property have their own special rules. These apply on top of the general rules and exceptions above. You need to understand them to charge VAT correctly and stay compliant.
How is VAT charged on distance sales?
Distance sales are subject to VAT in the destination country once the supplier goes over the distance sales threshold. The EU threshold for distance sales is €10,000 per annum.
When your distance sales go over the threshold, you must register and account for VAT in the destination country. You must report and pay VAT on distance sales correctly to comply with the law.
What are exempt supplies?
Exempt supplies are goods or services that are not subject to VAT and do not carry the standard VAT rate. Common examples of exempt supplies include:
- Insurance
- Education
- Health services
- Some food and drink
- Children’s clothes
- Publications
- Some medical supplies and equipment
Financial services may count as exempt supplies if they meet certain criteria. Medical services are also often exempt from VAT. You need to know which of your supplies are exempt to get the VAT treatment right.
What is the place of supply for services related to immovable property?
The place of supply for services related to immovable property is where the property is located. These are services directly linked to immovable property, such as land or buildings. They may include:
- Sale
- Lease
- Rental
- Management
VAT is charged in the country where the property is. You need to understand the VAT effects of these services to comply with the law. Read more in our guide: German VAT Rate Changes 2023.
Conclusion
Understanding the VAT place of supply rules for goods is critical, especially if you trade internationally. The key is to stay informed, keep accurate records, and get professional advice when you need it. That way, you can handle these rules well, stay compliant, and keep your international trade running smoothly.
Do you need help with your VAT compliance? Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers.
How Taxually handles this
Taxually’s CrossTax handles VAT registration, VAT, OSS and IOSS returns and fiscal representation in the countries you sell into, and checks your sales data against 250+ validation rules before each filing. OneTax then pays every tax authority with one bulk payment in your chosen currency.
Related guides
Frequently asked questions
What is place of supply for VAT?
The place of supply for VAT is determined by factors such as customer status, location of suppliers and customers, and the nature of the service being supplied. Complex rules apply to services, especially when multiple business locations are involved.
What is the general rule for place of supply of goods?
Generally, the place of supply of goods to private consumer is determined by the location of the goods when they are placed at the disposal of the person acquiring them.
Is VAT based on shipping or billing address?
VAT is based on the billing address at the time of ordering, not the shipping address. VAT registration also affects whether or not you need to pay VAT.
Is there VAT on delivery of goods?
Delivery charges may be subject to VAT depending on the VAT liability of the goods being delivered. If the cost of delivery is included in the sales price, then VAT must be accounted for on the value of the goods. If the customer is charged for goods but not postage, then VAT is only chargeable for the goods being delivered.
What are the VAT obligations for B2B and B2C transactions?
In B2B transactions, the customer and supplier must adhere to intra-community VAT regulations with valid VAT numbers. Meanwhile, B2C transactions are subject to the rules of the member state from which the goods are dispatched.
