VAT Article 5: Place of Supply Rules: Goods and Services

In our Article Series 1, we explained on how to tackle and analyse a transaction from a VAT perspective. In particular, the third question of the methodical approach focuses on determining the place of supply of the transaction under review.

When we determine the place of supply of a particular transaction, effectively we would be establishing where the transaction will fall to take place – whether in the country where the supplier is established or whether in the country where the customer is established.

This is crucial, as the next step is to determine whether the transaction is treated as taxable supply or whether the transaction is treated as exempt.

When the transaction will take place in Malta, prior to charging Malta VAT, reference has to be made to the Fifth Schedule, which effectively lays down the exemptions applicable in Malta. In case the transaction will take place in other Member States, your obligations will not stop there. In principle, one must also establish how that transaction is treated in that Member State, whether taxable or exempt, as this could have a bearing on the input recovery and possibly, it could also have VAT compliance obligations in that Member State.

Before giving practical examples, it is important to understand that there are different rules when it comes to the place of supply. There are general rules pertaining goods and services and then there are specific rules in connection with goods and services.

When determining the nature of transaction, it is necessary to analyse the facts in detail. For instance, if we had to tell you that a taxable person is providing professional services, that would not be enough to determine the place of supply rules, as professional services can take different forms. For instance, architectural services could fall within the category of professional fees, however, possibly this would fall within a specific rule of the place of supply of services rules, as it relates to immovable property.

By way of an example, let me explain this further.

Let’s say if we have a company providing legal services. Such services would be treated as general in nature and therefore, if these are provided to another taxable person established in Italy, this would fall within the remit of the general place of supply of services rules in a B2B context. Therefore, the place of supply would fall to take place in Italy.

On the other hand, let’s say we have another company providing architectural services (such as the drawing of plans of a particular building) to an individual residing in Malta, however, the property will be situated in France. In this case, although the individual resides in Malta, given that the services rendered would fall within the specific rules pertaining immovable property, the transaction will take place in France. Possibly, the Company would have VAT compliance obligations in France.

When it comes to goods, there are also general rules pertaining goods and there are specific rules to goods.

Let’s say we have a company established in Malta, trading in goods (cross-border), meaning that it deals with customers established outside of Malta. The first question one should ask is whether the goods have been transported or not. In case the goods are transported, the transaction will fall to take place where the transport of those goods begins. If the transport of those goods began in Malta, then one has to determine whether an exemption is applicable. Possibly, the transport of the goods will begin in another Member State. What happens in that case? One has to see whether that Company has compliance obligations in that Member State.