General VAT rule regarding place of supply of services
VAT on a freight transport service for a recipient who is subject to VAT is considered to be applied in the country where the recipient is established. This is by application of the General rule regarding place of supply of services (Article 21, §2 VAT Law). The physical place of the actual freight transport is, in principle, irrelevant. For example, if a Belgian company were to instruct another Belgian company to transport goods from Amsterdam to Cologne, Belgian VAT will apply. For VAT purposes, the location of the freight transport service is indeed where the recipient is located, i.e. in Belgium. The place of the actual freight transport is, in principle, not important.
The King has the power to derogate from this general rule regarding place of supply of services on the basis of the actual use of the service and has used it in the implementing RD No 57. These rules regarding place of supply based on the actual use of a service are referred to as “use and enjoyment” rules.
“Use and enjoyment” rules
It is important that these “use and enjoyment” rules only apply in a B2B context. In other words, these rules only apply to services supplied to recipients who are subject to VAT, particularly VAT taxable persons with the right to full deduction, but also hybrid or partially taxable persons or non-taxable legal persons with a VAT number. Freight transport on behalf of an authority with a VAT number will therefore be covered under the special rules.
Based on the “use and enjoyment” rules, the place of freight transport services and related services will deviate from the general rule regarding place of supply of services, in the following instances:
- When the entire freight transport service process takes place outside the EU, the place of service will be outside the EU;
- When the entire freight transport service process takes place within Belgium, the place of service will be in Belgium. This is a new rule that did not appear in the previous RD.
Due to several practical difficulties in applying the principle of actual use, where the place of service is normally determined in relation to the distance travelled, it is clarified (and required by law) in the new RD that the “use and enjoyment” rule only comes into effect if the entire process takes place outside the EU or outside Belgium. If the entire process does not take place outside the EU or outside Belgium, the “use and enjoyment” rule cannot be applied and the general rule regarding place of supply of services will apply.
Example: if a Belgian carrier is contracted by a Belgian client to transport goods from Liège to Bern, the service takes place in Belgium. This is by application of the General rule regarding place of supply of services. However, if the client is established in Bern, the service takes place in Switzerland and no European VAT is applicable. Should the entire transport service take place between Zurich and Bern, the service takes place outside the EU, regardless of whether it is a Belgian or Swiss client liable for VAT. The “use and enjoyment” rule is applicable in this instance and ensures that the service for VAT purposes is located where the transport actually takes place.
For services supplied to persons not subject to VAT, it was previously stated that the King has not taken any implementation measures and that the “use and enjoyment” provision does not apply. Since transport other than intra-community freight transport for non-taxable persons in accordance with the usual rule regarding place of supply of services is already located in relation to the distance travelled, the actual consumption was already partly taken into account. For VAT purposes, the transport of goods from Brussels to America and their export through the port of Antwerp for a private individual, will take place partly in Belgium, partly outside Europe.
The “use and enjoyment” rules do not only apply to freight transport services, but also to related services (including loading, unloading, handling of goods and similar activities without changing the nature of the goods). The proposed services are required to be directly related to the transported goods and transport. For example, when goods are repackaged for shipment (e.g. splitting of loading units) from Tokyo to Shanghai, the place of service will be located outside the EU, regardless of where the client is established. The “use and enjoyment” rule applies.
Services other than those related to transport are excluded from the “use and enjoyment” rule. For example, the storage of goods does not fall within the category of these services. If a Belgian citizen stores goods in America for another Belgian person subject to VAT, Belgian VAT will have to be charged (assuming that they represent active logistic services).
Please note that if the place of service takes place in Belgium according to the “use and enjoyment” rule, one must remember to check whether it is possible to apply a VAT exemption on the basis of Art. 41, §1 VAT Law. On the basis of this article, some services such as those directly related to the export of goods or the import of goods (if their value is included in the taxable amount in respect of the importation of the goods) are exempt from VAT.
Example: a Belgian carrier is contracted to transport goods for an American company from Brussels to Antwerp from where they are to be shipped to Asia. According to the “use and enjoyment” rule, the transport service supplied by the Belgian carrier takes place in Belgium. However, since the goods are transported for export, a VAT exemption can be applied so that no VAT needs to be charged in practice on Belgian transport.