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Why it is important to understand the concept of taxable persons, non-taxable persons and non-taxable legal persons?

As briefly explained in Article Series 1, when analysing a particular transaction from a VAT perspective, one must go through a methodical approach which eventually determines the VAT treatment of that transaction.

The first question is to establish the parties involved.  We need to establish whether it will be a Business-to-Business (B2B) transaction or whether it is a Business-to-Consumer (B2C). This will effectively have a bearing on the place of supply rules and also on who will be the person liable for the payment of VAT. For instance, just to get you in the picture, there are general place of supply rules, when it comes to services provided in a B2B context and other rules when it comes to services rendered in a B2C context.

Who is considered as a taxable person? Do we have a definition laid down in the VAT legislation?

Yes, one could make reference to definition of a taxable person in Article 9 of the VAT Directive.

Basically, a taxable person shall mean: any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Let’s break down the definition and go through it in more detail.

When it comes to “any person” what does it mean? It means that that person can be a physical person or a legal person. Whether carrying out an economic activity as a self-employed person or whether carrying out an economic activity as a company, both can be considered as ‘taxable persons’

Independently means that the taxable person who is carrying out the economic activity, is bearing the risks and rewards of the activity. For instance, in case a client is suing a business, eventually that client is suing that business as a whole and not the employees working on a particular project. In fact, Article 10 of the VAT Directive provides that when an economic activity is conducted ‘independently’ shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship

Carries out in any place any economic activity: So, activities of producers, traders or persons supplying services, activities of professions shall all be regarded as economic activity. Also, the exploitation of tangible or intangible property for the purposes of obtaining income on a continuing basis

Whatever the purpose or results of that activity: It means that whether a business is profitable or not, it does not make a difference whether for instance, the business who is making a loss will not be considered as a taxable person. On the other hand, the main purpose of a non-profit organization is different from a company listed on a stock exchange. Again, this will not have a bearing on whether the non-profit organization will be considered as a taxable person or not.

So, what is a non-taxable person?

A non-taxable person is anyone who is not treated as a taxable person. For example, if I am acting in a personal capacity and I will sell my personal car, I will be treated as a non-taxable person, as I will not be considered as carrying on an economic activity.

Furthermore, there is also the possibility that a legal person can be treated as a non-taxable legal person. For instance, a pure holding company, holding shares in another entity, is considered as a non-taxable legal person. However, in case that holding company will be involved in the management of that other entity, then its status would shift to a taxable person.

Matthew Zampa


Christabel Spiteri

VAT Leader

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