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I have a local client who has inherited some money and wants to buy a residential property in three European cities and rent them out through Airbnb to short-stay visitors. The cities are Lisbon, Madrid and Paris and I am concerned about the current VAT implications. These countries all have low registration thresholds so I suspect my client will need to register separately in each country. But then a colleague said that, since 1 July 2021, the client will only need to register in one of these three countries under the MOSS (mini one-stop shop) scheme. But if that is the case, how will he claim VAT on his expenses in each country – for example, the solicitor’s bills when he buys each property? And how will the VAT on, say, his Spanish property be paid to the Spanish tax authorities if he registers for MOSS in Portugal?
It all sounds very confusing, so readers’ help would be appreciated.
Query 19,846 – Confused.
The non-Union one-stop shop is relevant for accommodation services.
This client is likely to take Confused on a journey to places not previously visited, whether physically or technically. However, guidance is available from the European Commission so Confused can decide whether to continue or to suggest that the client finds another adviser (or invests in holiday accommodation in the UK).
The first stop is the Commission’s September 2020 guide to the new VAT e-commerce rules (tinyurl.com/32zpjvbu). Confused should look at section 3.1 which describes the non-Union one-stop shop (OSS). This confirms that it is the right scheme for ‘accommodation services carried out by non-established taxable persons’. The trader can choose the ‘member state of identification’ for registration and reporting, which does not have to be any of Portugal, Spain or France.
The OSS return will show all the output tax on supplies in all three countries, and a single payment will be made to the authorities in the member state of identification. The fact that all three countries use the euro removes some of the potential complications of that combined report, although the rates applicable may be different. However, input tax cannot be claimed through an OSS return. The client will need to make 13th Directive claims directly to the tax authorities in each member state in which VAT is incurred for the purposes of the taxable activity. Typically, this requires submission of a form completed in the local language, with supporting documents – unlike the intra-EU cross-border refunds mechanism, it has not been updated to an electronic system. – Gardener.
Consider whether exempt rentals are being provided by the client.
My first question is what is meant by local: I have understood this to mean local to the adviser and the client is only in the UK. I use ‘local’ below to mean local to the rental property and in one of the EU member states.
It is also important to determine that the supplies are taxable as interpretations differ between EU member states. The client should consider carefully whether they are making supplies under the tour operator’s margin scheme (TOMS) which prevents recovery of VAT on expenses, but allows significant simplifications and savings. The client should also consider whether they are providing exempt rentals which could also be beneficial, although the short-term nature is likely to prevent this.
If the rentals are determined to be taxable, a one-stop shop (OSS) could be considered for the UK client. Three such schemes came into existence on 1 July 2021, one of these being for services: the non-union OSS. The intention with this OSS was that, rather than having to register for VAT in every EU member state where the service is supplied and a local EU VAT liability arises, the UK client can choose a single EU member state and register there only. The UK supplier only has one administrative expense and one EU VAT return to complete, even if the different VAT liabilities in Portugal, Spain and France must each be calculated separately under the rules of each EU member state respectively. The VAT paid to the member state of registration will be transferred by its government to the member state where the VAT liability arises.
The question asked above is how the UK client will claim VAT on costs. Most services are zero-rated when supplied cross-border by an EU supplier to a UK business, in accordance with the EU’s ‘general rule’. I would recommend that the property owner contact the EU supplier and confirm that no VAT will be charged. The EU supplier might be charging VAT because they did not understand that the UK client was a business and the VAT might then be removed. However, there are exceptions to this general rule, including one for land-related services which will give rise to a local VAT charge by the EU supplier.
If the EU supplier insists on charging local VAT, this cannot be claimed through the OSS. The EU’s guidance is that the supplier should claim VAT on expenses through a mechanism specifically intended for non-EU suppliers: the 13th Directive (Council Directive 86/560/EEC). There are several restrictions to this mechanism, from deadlines, to having no local establishment, to making no supplies. This last requirement is likely to prevent a successful 13th Directive claim because rentals usually have a place of supply in the local EU member state.
If a 13th Directive claim is not appropriate, two further options can be considered: maintain a local VAT registration in each EU member state to recover VAT on expenses (rather than a OSS); or recover no VAT on expenses, accepting this as a cost.
This could all come down to a cost-balancing exercise for the non-EU supplier. – Kevin Hall, VAT partner, Wright Hassall LLP.
