Where VAT is due when the customer is in the EU

A service worth 10 000 € invoiced to a German taxable customer is billed at 10 000 € excluding tax, not 12 000 €. Sold to the same customer as a private individual, it is billed at 12 000 € with French VAT. The same service, two invoices, and one single question: who the customer is.

Two general rules, according to the status of the customer

The first reflex is not to pick a rate, but to settle the country of taxation. That is what designates the administration to which the tax will be paid, and the rate applying to the service. Everything else follows from it.

Where the customer is a taxable person, the general rule taxes the service in the State where that customer is established. Where the customer is not — a private individual, most often — the general rule taxes it in the State of the seller.

This distinction governs the whole subject. A business customer is generally a taxable person, even where exempt, as a business under the small-business exemption is. A non-taxable customer is generally a private individual.

Six cases where the place of taxation moves

Some services escape the general rule because of their nature. VAT may then be due in the State of the seller, in that of the customer, or in a third State where neither of them is established at all.

• Short-term hire of a means of transport: VAT of the State where the vehicle is physically made available
• Service connected with immovable property: VAT of the State where the property is located, taxable customer or not
• Travel agency service: VAT of the State of the provider's head office, or of its fixed establishment
• Admission to a cultural, sporting, scientific or educational event: VAT of the State where it takes place

Two further cases complete the list. Passenger transport is taxable in a State only to the extent of the leg of the journey taking place there. Catering on the spot is taxed in the country where it is physically carried out.

The forty-eight-hour rule is worth knowing for anyone hiring out equipment. Successive contracts on the same item add up when assessing the short duration, unless more than forty-eight hours separate them: beyond that, each contract counts alone.

Admission to an event carries a useful exclusion: the rule of the place of the event does not apply to a virtual event. Streaming a show or a conference online therefore falls back into the general regime.

The consequences of a derogating case go beyond the choice of a rate. They bear on the country of taxation, on the invoicing terms — excluding or including tax —, on who collects the tax, and on the way the VAT return is then filled in.

A fifth consequence is the heaviest: the duty to apply for a VAT registration number in the State where the tax must be paid over, where neither the seller nor the customer is established there. The case arises more often than one might think.

The intra-Community VAT number, and how to check it

The French administration automatically allocates an intra-Community VAT number to every French business under a standard VAT regime, at the moment of registration. The seller must state it on every invoice and commercial document of the business.

The customer's number matters just as much. It is asked for at the invoicing stage, and both its existence and its validity are checked on the European portal designed for that. An invalid number brings down the reasoning that follows.