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If your business sells machinery, equipment or other goods that require installation or assembly in another EU Member State, your VAT obligations may be far more complex than they appear. Many businesses discover too late that the physical presence of staff or even subcontractors on a site can change where VAT must be taxable and who is responsible for its payment.
The EU VAT Directive 2006/112/EC is full of nuances that can quickly turn a straightforward sale into a compliance challenge. Articles 36, 47 and 194 are especially relevant when managing supplies that involve both goods and on-site work. Understanding how they interact is critical to avoiding unnecessary VAT registrations, delayed refunds, or, in the worst cases, double taxation.
The Core Principle: Installation Determines the Place of Supply
Under Article 36 of the VAT Directive, when goods are installed or assembled by (or on behalf of) the supplier, the place of supply is deemed to be the country where the installation or assembly occurs. In practice, this means VAT is usually due in the country of installation, often where a foreign supplier has neither a permanent establishment nor a VAT registration.
However, the analysis becomes more complex: where the installation forms a permanent part of a building as, for example, lifts, embedded pipelines, or fixed wiring, the supply may instead fall under Article 47 as a service connected with immovable property. By contrast, freestanding machinery or equipment that does not become an integral part of the building will generally remain classified as a supply under Article 36. Further considerations are required when discussing cases of temporary installations or involving goods not owned, and other special situations.
Determining which rule applies is not just a legal exercise: it directly affects how you invoice, whether you need apply reverse charge to your customers, or whether you should start planning for a VAT registration.
Reverse Charge or Local Registration?
Article 194 allows Member States to shift VAT liability to the customer when the supplier is not established locally. In these cases, if the domestic reverse charge mechanism applies, you can invoice without VAT and avoid a local VAT registration.
However, not every country implements Article 194 in the same way. For general supplies of services, the rule is mostly uniform inside the EU, but it complicates when considering goods with installation or immovable property, you need to examine specific provisions, otherwise it’s safe to assume VAT is due. Where reverse charge is not available, suppliers may face the need for local VAT registration and VAT-charged invoicing.
And if you incur local input VAT on costs (e.g., subcontractor services, materials, or accommodation), reclaiming it may require a slow and paperwork-heavy refund process under the 8th or 13th Directive refund mechanisms. Depending on the value of input VAT, local registration might be the more efficient route.
Practical Steps: Align Contracts and Reporting
Your contracts and invoices should always reflect your VAT assessment:
For Article 36 supplies, highlight the integrated nature of goods and installation.
Where reverse charge applies, list all VAT numbers and required references.
In subcontracting chains, verify that all parties qualify for reverse charge, ensuring VAT liability doesn’t “break” mid-chain.
Member States differ in how they treat certain types of machinery or equipment. These differences can lead to unexpected VAT registration obligations or double taxation risks. Countries like Germany previously adopted a broad interpretation of what constituted a supply of goods with installation, but since 2020 have started differentiating more clearly between the supply of goods with installation and “work supplies”, requiring a local VAT registration for the first type of transactions. Another recent example is Bulgaria, which, in January of 2026, revised their VAT law and removed the reverse charge provision for supplies of goods with assembly or installation carried out by EU suppliers. Businesses that were previously reverse charging their supply of goods with installation will now need to reassess whether a local VAT registration becomes necessary.
Get Ahead of the VAT Curve
If this sounds familiar and you are facing a similar scenario, you may want to start thinking:
Key Question
Why it Matters
Does the installation remain movable equipment, or does it become part of the building?
This determines whether the transaction falls under Article 36 or Article 47.
Can the domestic reverse charge mechanism apply in the installation country?
Reverse charge availability differs by Member State and transaction type.
Are you directly responsible for the installation or are you using a local subcontractor for the effect?
Important to verify that all parties are applying the correct VAT treatment on the transaction
Do you provide additional services (e.g. on-site training or maintenance support) as conditions before or after releasing the installed goods?
Determines whether these elements are separable and fall under the general place of supply rule rather than part of the goods with installation.
In today’s interconnected market, complex VAT situations occur more often than you might think. Businesses delivering or receiving installed goods across borders must take the time to map their VAT exposure early, ideally before any equipment or staff cross borders.
If your projects involve cross-border installations or assembly, now is the right time to review your VAT framework. Our international tax specialists can help you assess obligations, mitigate risks, and streamline compliance so you can focus on delivering value to your clients.
What’s your biggest VAT challenge your business is dealing with right now? Reach out directly to explore how a more strategic VAT approach can benefit your business!
