Reverse charge of VAT in the construction sector (Article 394 of the VAT Directive)
VAT is normally payable by the person supplying the goods or services.
In order to combating fraud, Member States where VAT is due may provide that the person liable to pay the VAT is the purchaser of the goods or services. Such reverse charge is governed by national law.
According to Art. 394 of the VAT Directive, Member States which on 01/01/1977 applied special measures to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or tax avoidance may maintain them, provided that they notified the Commission thereof before 01/01/1978 r. A specific VAT reverse charge mechanism has been introduced for construction works related to immovable property in Belgium on the basis of Art. 394 of the VAT Directive and the related suspension provision.
What are the rules in Belgium?
From January 1, 2023, according to Belgian law (AR-01, art. 20, 1992), construction works involving construction, repair, cleaning or maintenance works on real estate, as well as transactions involving the incorporation of movables into real estate, installations with sanitary, fire, alarm, telephone, electrical or air-conditioning equipment, built-in wardrobes, storage and blinds, Wall or floor coverings supplied by a Belgian company are subject to a local reverse charge if the recipient is:
a taxable person established in Belgium submitting periodic VAT returns,
a taxable person not established in Belgium, but registered as a VAT payer and submitting periodic VAT returns.
Let’s take an example
A Belgian company provides construction services to a French company registered for VAT purposes in Belgium. In this case, the national VAT reverse charge for construction services applies and the Belgian supplier invoices VAT exclusive.
The model would be different if the French company was notregistered for VAT in Belgium. In this case, the special VAT reverse charge does not apply and the Belgian supplier should issue an invoice with Belgian VAT.
Worth knowing
If the customer submits special Belgian VAT returns, the latter is obliged to inform his supplier. Otherwise, a specific mention must be made on the invoice.
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For partial taxpayers – the reverse charge mechanism applies regardless of the nature in which the partial taxpayer is operating (i.e. whether in relation to a taxable activity, a non-taxable activity or both).