European Union – VAT and supply of services connected with immovable property

Definition of service connected with immovable property and VAT: understand the impact of the EU Implementing Regulation (EU) No. 1042/2013, which took effect on January 1, 2017.

Application of the VAT implementing regulation in Luxembourg

On January 1, 2017, the provisions of Implementing Regulation (EU) No. 1042/2013, which amends Regulation (EU) No. 282/2011 regarding services linked to real estate, came into effect. EU Regulations are directly applicable in all Member States; thus, these provisions have been effective since January 1, 2017.

These provisions are also discussed in explanatory notes published by the European Commission, which, while not legally binding, offer useful clarifications on certain concepts within Regulation 1042/2013. The following includes references to relevant paragraphs in the explanatory notes.

Why these provisions are important to consider

Real estate-related services are subject to VAT where the property is located (per Article 47 of Directive 2006/112/EC), regardless of the client’s VAT status. This aims to tax services where they are presumably consumed.

Consequences of linking VAT to the property location :

– The general VAT rule of taxing services at the client’s establishment (B2B) or provider’s establishment (B2C) does not apply; VAT is charged at the property’s location.

– In B2B situations, the reverse-charge mechanism from Article 196 of the Directive (transposed in Article 61.5 of the LTVAL) is not applicable.

– For B2B relationships with a foreign provider, a local reverse-charge mechanism implementing non-mandatory provisions of Article 194 of the Directive may apply abroad.

Local interpretation differences regarding the location of certain services could lead to double taxation or non-taxation issues. Regulation 1042/2013 aims to prevent these by defining “immovable property” and specifying the characteristics a service must meet to be considered connected to such property.

Lastly, Regulation 1042/2013 provides a non-exhaustive list of services deemed connected or not connected to immovable property, with references to relevant paragraphs in the explanatory notes.

Definition of immovable property

For the application of Directive 2006/112/EC, “immovable property” is defined as:

– Any specific part of land, above or below the surface, to which ownership or possession rights can be attached.

– Any building or structure fixed to the ground or below sea level that cannot be easily dismantled or moved.

– Any component installed as an integral part of a building or structure, without which it would be incomplete, such as doors, windows, roofs, stairs, and elevators.

– Any element, equipment, or machinery permanently installed in a building or structure that cannot be removed without damaging or altering the building or structure.

Characteristics of a service connected with immovable property

The service must have a sufficiently direct connection with the immovable property. A service is considered directly linked to immovable property when:

– It originates from an immovable property, with that property being an integral part of the service and central and essential to the service provided.

– Or when services are provided for or intended for an immovable property, aiming to modify its legal status or physical characteristics.

If a service is not listed in Regulation 1042/2013 (see table), it should be verified against one or more of the criteria above. If it meets any, it is considered linked to immovable property.

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