The Court of Justice has ruled that, for VAT purposes, there is no fixed establishment where the activities consist solely of the letting of property.
Staff
Referring to previous judgments, the Court rules that a fixed establishment exists only if the lessor has its own staff in the country where the property is let.
The case concerns a company based in Jersey. The company lets out property situated in Vienna (Austria). For these letting services, the company has authorised a property manager to act as an intermediary. The intermediary collects the rent, charges operating costs and carries out various administrative tasks (including in connection with Austrian VAT returns).
Relocation
If the landlord has a fixed establishment, they must submit VAT returns in Austria. Without a fixed establishment, this is not required. In that case, the VAT on the rent is shifted to the tenant.
We also have this reverse charge mechanism in the Netherlands. Please note: a reverse charge mechanism can only be applied if the tenant has a VAT number to which the tax can be reversed (and in order to rent subject to VAT, the tenant must use the property for 90% or more for activities entitling them to a VAT deduction).
The advantage for the tenant is that they do not have to pay the VAT up front, but can include the payment and deduction in their own VAT returns.
The landlord saves on administrative burdens, but it takes a little longer for him to get a refund of the VAT that adds to his costs.