Working across the border, what are the VAT consequences?

A Dutch business is asked to paint a number of holiday homes in France. The VAT consequences differ sharply depending on whether the client is a private individual or a business.

Painting a holiday home is a service, and because it is carried out on a holiday home it is in most cases a service connected with immovable property. Such services are taxed in the country where the property is located. The home is in France, so the service is taxed there.

To work out what that means, we split the case in two: the client is a private individual, or the client is a business.

1. The client is a private individual

Where the client is a private individual, the Dutch business must charge French VAT. That VAT must also be paid over to the French tax authorities, and there are two ways of doing so.

A local VAT registration. The business registers in France and pays over the VAT invoiced through that return. The advantage is that costs incurred in France can also be deducted in the French return, such as materials, brushes and paint. The drawback is that a job for a private individual in another member state creates a fresh registration and payment obligation there. Commercially it is also worth noting that these obligations cost money. Factor that in when quoting.

Registering for the One Stop Shop. The business registers for the OSS in the Netherlands and pays the French VAT through that return. The advantage is that similar services to private individuals in other member states can all go into the same return, so the VAT is paid in one go rather than through separate returns to various local authorities. The drawback is that VAT on locally incurred costs cannot be deducted in that return and must be reclaimed through a separate channel.

2. The client is a business

Where the client is a business, the Dutch supplier must in principle also charge French VAT. In this situation, however, the rules vary considerably from one member state to another.

France, for instance, has a broad reverse charge: subject to conditions, the Dutch supplier may reverse charge the VAT to the customer, who then accounts for it to the French authorities. In France that applies where the client provides its French VAT number. The client need not be established in France. No French VAT then goes on the invoice, but the reverse charge must be stated on it.

Note: where the client has no French VAT number or does not provide one, French VAT must be charged after all and a local registration is needed to report the transaction correctly.

One important point: every member state has different rules here. Not all of them have a reverse charge for this situation, and where they do, different conditions may apply to using it.