Services in connection with immovable property play an important role in VAT practice. Due to a separate regulatory framework for defining the term ‘immovable property,’ determining the place of supply and identifying the person liable for VAT, complex questions of demarcation regularly arise.

Errors in classification not only lead to VAT risks such as unrecognised registration obligations abroad, but also to difficulties in practical implementation and invoicing.

The concept of immovable property in VAT 

Article 47 of the VAT Directive stipulates that the place of supply of services connected with immovable property is the place where the immovable property is located. The definition of the term ‘immovable property’ is decisive for the VAT treatment of a supply of service. The provision in Article 47 of the VAT Directive does not constitute an exception but rather represents a separate rule on the place of taxation. It should therefore be interpreted broadly rather than narrowly.

In European VAT law, the term ‘immovable property’ within the meaning of Article 47 of the VAT Directive is explained in Article 13b of EU Regulation 282/20211. Article 13b of EU Regulation 282/20211 regulates what is to be understood as immovable property within the meaning of Article 47 of the VAT Directive. According to Article 13b of EU Regulation 282/20211, immovable property is any clearly defined part of the earth's surface on which ownership or possession rights can exist. This includes not only land itself, but also buildings and structures. The structures may be above or below ground. Structural elements that are considered integral parts of a building or structure are also to be regarded as land. These include, for example, doors, windows, roofs or lifts, provided that they are essential for the use of the structure. Machinery or technical equipment may also be considered part of a property if they are permanently installed and cannot be removed without significantly altering or damaging the structure.

Despite the direct applicability of EU Regulation 282/20211 in all Member States, there are often different national interpretations. This mainly concerns two categories:

• The distinction between when a building element is to be considered an integral part of a building.

• The question of whether an installed machine can be considered permanently installed.

These differences often lead to discrepancies in determining the place of supply, especially for cross-border services within the EU. Unrecognised registration requirements abroad can also result, as different countries apply different criteria for property allocation.

Due to the different interpretations among Member States, differences in VAT reporting may arise, both in the current VAT return and in the EC Sales Lists.

Definition of services in connection with immovable property

Services in connection with immovable property are services that relate directly to a piece of land or where the land is an essential part of the service provided. Article 31a of EU Regulation 282/20211 explains which services are considered services in connection with immovable property. According to this, services in connection with immovable property are divided into two areas.

On the one hand, a service is in connection with immovable property where it is derived from an immovable property. This means that the property makes up a constituent element of the service and is central to, and essential for, the services supplied. On the one hand, there are all services directly related to the transfer (sale/acquisition) of a property or a right relating to the property (e.g. notaries and legal assistance). On the other hand, the standard also covers services whose core lies in the use and exploitation of the property. These are services such as the letting and leasing of apartments or parking spaces and the short- or long-term provision of accommodation.

On the other hand, a service is in connection with immovable property if it aims to change the immovable property, either through physical or legal intervention. Typical property-related services include construction work such as the erection, repair, maintenance, alteration or demolition of buildings. Renovation and maintenance work, repairs to parts of buildings, laying floor coverings, wallpapering or cleaning facades also fall into this category. Services related to the planning and construction of buildings or technical installations are also considered property-related, but only if they are provided for a specific property. The same applies to surveys, site investigations or valuations of land, for example for insurance, financing or legal purposes. Services are also considered to be related to immovable property if they are provided remotely, for example through technical measurements or remote maintenance, provided that there is a clear link to a specific piece of land.

However, general architectural services without reference to a specific property are not services in connection with immovable property. The preparation of plans, concepts or location analyses that do not relate to a specific property also do not constitute services in connection with immovable property. General consulting services, training or project concepts without a specific location are also not considered services in connection with immovable property.

Services in connection with immovable property in the planning phase

Services in connection with immovable property can be provided both in the preparatory phase and in the implementation phase of a project. In the planning phase, it is crucial that the service is provided for a specific piece of immovable property. The following activities are considered services in connection with immovable property, provided they relate to a specifically identifiable piece of immovable property:

• The provision of security services for properties, for example by security personnel or technical surveillance systems.

• The preparation of construction plans, designs and visualisations for a specific property, regardless of whether the planned construction project is actually realised at a later date.

• Surveying work, condition analyses or risk assessments in connection with a specific property.

• Valuations of properties for various purposes, such as for mortgage lending, insurance purposes or to determine damages in disputes.

Services in connection with immovable property in the implementation phase

The following services are considered as services in connection with immovable property in the implementation phase:

• All types of construction work , including the construction, renovation, conversion or demolition of buildings and other structures.

• Maintenance and repair work, e.g. plastering, tiling, roofing, window installation or painting.

• The construction of infrastructure such as electricity, water, gas or sewage pipes.

• The installation or fitting of equipment, machinery and technical systems, provided that they are permanently attached to the building or are essential for its use.

• The exclusive rental of permanently allocated land, for example as storage or construction site space. The prerequisite here is that the tenant can exclude other potential users from using a precisely defined area. If this prerequisite is not met, the rental of the (undefined) space does not constitute a service in connection with immovable property.

Provision of equipment and personnel

Special rules apply to the provision of machinery, equipment or personnel in relation to services in connection with immovable property. The mere rental of machinery or equipment – such as a crane or scaffolding – without involvement in the execution of the work does not constitute a service in connection with immovable property. However, if the supplier is also responsible for the use of the equipment as part of another service it is required to provide – for example, if it provides the scaffolding and carries out the construction work itself – the service is considered to be a service in connection with immovable property.
The same principles apply to the provision of personnel. If specialist personnel are provided who are entirely under the responsibility of the provider and work under his instructions, the service is a service in connection with immovable property. If only personnel are provided without the provider assuming any responsibility for the work, this is not a service in connection with immovable property.

Distinction: Work delivery, supply of goods including installation/assembly, supply of construction work

A precise distinction between work delivery, supply of goods including installation/assembly and supply of construction work is necessary, as this determines the place of taxation, the application of the relevant reverse charge procedure and the related question of a possible registration obligation.

• Work delivery (in Germany) is when a contractor procures materials themselves and processes or works on an item belonging to someone else. The material must not consist exclusively of ancillary materials. This service is considered a supply of goods  

• An assembly delivery is when the contractor delivers their own components that are only assembled at the recipient's premises.  This service is considered a supply of goods.

• Construction work within the meaning of Section 13b of the German VAT Act is when the service is for making, repairing, maintaining, changing, or removing a building. This also includes installing machines, as long as they're permanently attached   This service can be either a supply of goods (work delivery) or a supply of service in connection with immovable property.

Place of performance for services in connection with immovable property

In contrast to other supply of services, where inter alia the place of taxation is determined by the place where the recipient of the service is established (in Germany, Section 3a (2) German VAT Act), services in connection with immovable property are always taxable at the place where the immovable property is located. This follows from Section 3a (3) No. 1 UStG, derived from Article 47 of the EU VAT Directive. The decisive factor is where the property is located. If a domestic taxable person provides a service in connection with immovable property to another domestic taxable person on a property located abroad, the supply of service is not taxable in Germany. Conversely, a service is taxable in Germany if the property in question is located in Germany, regardless of where the taxable person providing the service and the recipient of the service are established.

VAT liability for services in connection with immovable property

Under VAT law, the taxable person providing the service is generally liable for VAT. In certain cases, however, the VAT liability is transferred to the recipient of the service – this is known as the reverse charge procedure.

In Germany, the reverse charge procedure applies to services in connection with immovable property if the supplier is not established in Germany and the recipient is a taxable person (Section 13b (2), (5) sentence 1 and (7) sentence 1 or sentence 2 of the German VAT Act). The shift of VAT liability takes place even if neither taxable person is registered in Germany. This entails a registration obligation for the recipient of the service if they subcontract other (from a German perspective) foreign taxable persons.

Within Germany, a reverse charge procedure applies to construction services   between taxable persons (Section 13b (2) No. 4, (5) sentence 2 UStG). The prerequisite for the application of the national reverse charge rule is that the supplier owes construction works and that the recipient of the service itself performs construction works on a permanent basis (the recipient of the service is also a provider of construction works). The German tax authorities consider the status as provider of construction works of a taxable person to be fulfilled if the recipient of the service includes a share of more than 10% of construction works in its global turnover. This reverse charge rule is subordinate to the cross-border reverse charge rule in Section 13b(2)(4) sentence 2 of the German VAT Act in accordance with Section 13b(2)(4) sentence 2 of the German VAT Act. Therefore, in the case of a service in connection with immovable property (or work delivery) provided by a foreign taxable person, the VAT liability is transferred to the recipient of the service, even if they are not a provider of construction works within the meaning of Section 13b (2) No. 4 German VAT Act. It is sufficient that the recipient of the service is a taxable person.

If the property is located abroad, the following alternatives exist.

• The Member State does not recognise a transfer of VAT liability for services in connection with immovable property. In this case, the service providers would have to register there, charge local VAT, declare it and pay it.

• The Member State recognises a transfer of VAT liability for services in connection with immovable property. In this case, it must first be checked which criteria are used for the shift of VAT liability – this can be either residence or registration for VAT purposes. If there is a shift of VAT liability, the recipient of the service would be liable for VAT and would have to register for VAT there.

• The Member State does not recognise a shift of VAT liability for services in connection with immovable property, but does recognise it for the provision of construction works. In this case, too, the recipient of the service must register in the country where the service is provided on the basis of the services received.

Single supply vs. separate supplies

An economically uniform supply may not be artificially split.   If, for example, a security system is supplied and installed and a monitoring service is also provided, it must be determined whether this constitutes a single supply. The decisive factors are:

• Which supply predominates in terms of content?

• Is the installation dependent on the supply?

• Is the monitoring service permanently connected to the installed system?

This check affects the place of supply, the person liable for VAT and, where applicable, a relevant VAT zero-rate for cross-border supplies with transport.

Risks associated with cross-border services

In the European single market in particular, the VAT classification of services as services in connection with immovable property can lead to legal uncertainty. Although the provisions of Regulation (EU) 282/20211 apply directly, there are some differences in interpretation between Member States. In particular, there are considerable differences between Member States on the question of whether certain machinery or equipment should be regarded as part of immovable property. This can result in taxable persons having to register for VAT in other EU countries, the risk of double taxation or the need to provide different information in advance VAT returns and EC Sales Lists. It is therefore essential to carefully examine the exact service, the applicable place of supply, the question of who is liable for VAT and the procedural framework in the respective Member State.

Particular attention must be paid to cross-border services, the use of subcontractors and complex project structures in which both supplies and services are combined.