From 1 January 2017, changes to the definition of real estate and connected services formally entered into force, with the aim of guaranteeing a uniform treatment of VAT across the EU.
The new EU provisions have no impact on the place where VAT is applied. Therefore, services “connected” with real estate continue to be considered subject to VAT in the State in which the property is located regardless of the establishment of the client and of whether the services are provided to a tax payer (B2B) or to a final consumer (B2C).
At EU level a new definition of real estate was introduced (Article 13-ter of Regulation No. 282/2011). It includes four separate categories:
- a specific part of the soil, surface or subsoil, for which it is possible to hold property and ownership rights;
- any building erected on the ground or incorporated therein, above or below sea level, which cannot be easily dismantled or removed;
- any element that has been installed and forms an integral part of a building and in the absence of which the building is incomplete (such as doors, windows, roofs, stairs and elevators);
- any element, appliance or device permanently installed in a building.
The list, which is to be considered exhaustive and not merely providing just examples, includes categories that are not alternatives to each other and therefore some properties may fall into more than one category.
The new definition includes both properties that cannot be moved, and properties that - even if they are removable - are nonetheless considered to be immovable, as they are closely connected or permanently installed.
Furthermore, a new definition of services connected with real estate has been introduced (Article 31-bis of Regulation No. 282/2011). In general terms, reference is made to all services that have a "sufficiently direct link" with such assets. This is applicable to:
- services arising from an immovable property, if the property is a constituent element of the service and is essential for its performance;
- services provided or intended for a property, having as their object the physical or legal alteration of such property.
The new provision also provides an illustrative and non-exhaustive list of services that have a sufficiently direct link with a real estate, which includes:
- drawing up plans;
- surveillance/security services;
- construction/demolition work;
- real estate valuation, including for insurance purposes;
- financial/real estate leasing;
- accommodation in the hotel sector or in similar sectors;
- maintenance/installation/assembly of machinery or equipment that, once installed, can be considered immovable properties;
- property brokerage activities in the sale and in the renting/leasing of real estate;
- legal services related to the establishment or transfer of certain rights over real estate properties.
The standard also includes a list of services that, by means of negative examples, do not fall within the definition of services connected with immovable property (including the provision of advertising services, even if they involve the use of immovable properties; legal services relating to the transfer of a title to immovable property, to the establishment or transfer of certain interests in immovable property or rights in rem over immovable property; intermediation in the provision of accommodation in the hotel sector or in similar sectors; the provision of stands during trade fairs or exhibitions; real estate portfolio management).
With regard to legal services, it should be noted that there is a misalignment with respect to the position of the Italian Revenue Agency which does not qualify the advisory services for the preparation of the deed of sale as services connected with immovable property (see Circular No. 37/E/2011).
In light of the new definitions, it is necessary to evaluate carefully the nature of services connected with immovable property, as how these services are defined may directly affect the application of VAT rules in different jurisdictions.