Oil and gas contractors; are you aware of EU VAT place of supply rules on services connected with immovable property?
Where do I work?
Practically speaking, this is not a difficult question for most people to answer. However, if the question is in relation to identifying a place of supply for VAT purposes, matters can get a bit more complicated!
EU regulations came into force recently in respect of place of supply rules for services connected with immovable property, as a result, the place of supply for VAT purposes of many contractors in the oil and gas sector may now be deemed to be where a rig is located.
Larger contractors are now grasping the implications of these regulations and reviewing their VAT exposure. A number of our clients have already seen the treatment of their services for VAT change as a result of such reviews.
Are my services covered by the regulations?
The regulations note that services may be provided remotely and the fact that a service is provided at a distance is not itself an obstacle to having a sufficiently direct connection with immovable property. A key consideration is whether the service would be impossible to perform without the underlying property i.e. no rig equals no work.
Some examples of services that are sufficiently linked to immovable property include;
- Drawing up of plans & design services
- Engineering & surveying services
- Construction of permanent structures (which also including demolition of structures i.e. de-commissioning)
- Surveying and assessment of risk and integrity
- Supervision and security services
Where the service has a sufficiently direct link with the immovable property, then the place of supply for VAT purposes will be the location of the immovable propery irrespective of where the work is carried out.
Why is an oil or gas rig defined as immovable property?
The definition of immovable property includes permanent structures that are fixed to the ground (sea floor) by different means: whether by a binding material such as cement or by an attachment such as ropes, chains, bolts or anchors.
Where there is any doubt as to the treatment of a structure as immovable property, what will be decisive is whether it can or cannot be easily dismantled or moved.
What should I consider doing if my place of supply is now deemed to be outside the UK?
If your services are deemed to be the location of a rig (or rigs), and that rig is out-with UK nautical waters, then your supply is no longer subject to UK VAT. So, what should you do?
- You should no longer be charging VAT on your supply of services related to a specific rig.
- If you are still accounting for VAT on the flat rate scheme (see our previous article here on the impact of the low cost trader regulations), you should leave the scheme.
Contractors will then have the choice of;
- De-registering for VAT as the services provided out-with the scope of UK VAT do not count toward a business’s taxable turnover in considering whether the business should be registered for UK VAT.
- Remaining registered and reclaiming all input tax under the standard scheme. Whilst the place of the supply is outside the UK, the supply would be taxable in the UK and therefore input tax can be recovered.
Please contact us if you want further advice on the regulations.