What is a fixed establishment for VAT purposes and why does it matter?
A fixed establishment for VAT purposes is a presence in a country that has sufficient human and technical resources to supply or receive services independently, other than the principal establishment (head office). The concept of fixed establishment determines where a supply of services is deemed to take place for VAT purposes and whether a business must register for VAT in a country where it has a fixed establishment.
What tests determine whether a fixed establishment exists?
Fixed establishment tests (EU VAT Regulation 282/2011): (1) Permanence: the establishment must be permanent, not temporary; (2) Human resources: sufficient staff present or available at the location; (3) Technical resources: infrastructure (equipment, facilities) capable of independently performing the supply or receiving services; (4) Independence: able to make or receive supplies without reliance solely on the main establishment; (5) Name: the establishment may have its own name or operate under the business's name. A mere warehouse (no human decision-making presence) is typically not a fixed establishment for services VAT purposes; it may be for goods supply purposes.
Frequently Asked Questions
- Does a warehouse in the EU create a fixed establishment for VAT?
- A warehouse in the EU typically creates a VAT obligation for the supply of goods stored there, but may not constitute a fixed establishment for the place-of-supply rules for services. Under EU VAT law, physical storage of goods can create a domestic supply obligation (goods sold from the warehouse are domestic supplies, not cross-border). However, whether the warehouse rises to the level of a fixed establishment for services depends on whether there are human resources at the warehouse capable of managing or ordering services. A fully automated warehouse with no permanent staff generally does not constitute a fixed establishment for services.
- What are the VAT consequences of having a fixed establishment?
- A fixed establishment creates: (1) Mandatory VAT registration in the country of the fixed establishment; (2) Obligation to issue local VAT invoices for supplies made from the fixed establishment; (3) Ability to recover input VAT on costs attributable to the fixed establishment; (4) Transfer pricing considerations for services provided between the head office and the fixed establishment; (5) Potential permanent establishment for corporation tax purposes (a separate determination under the relevant double tax treaty).
Related Concepts
- What is a tax representative and when is one required?
- What is the place of supply rule and how does it determine which country's VAT applies?
- What is the principle of fiscal neutrality in VAT?
- What is a simplified invoice and when can it be issued instead of a full VAT invoice?
- What are the mandatory fields on a VAT invoice in the EU?