A taxable person is generally a business, sole trader or professional. With this status, they are responsible for charging, collecting and paying VAT to tax authorities, and documenting all this in a VAT return.
Taxable persons
The VAT Directive defines ‘taxable person’ as any person or body ‘who, independently, carries out in any place any economic activity, whatever the purpose or results’
- Employees are not treated as taxable persons (Article 10 VAT Directive)
- Economic activity broadly means any business activity (Article 9 VAT Directive)
- EU VAT rules cover taxable persons even if their activity is carried out or they are based (established) outside the EU
Non-taxable persons
There are two types of non-taxable persons:
- Private individuals
- Public bodies
Private individuals are not generally involved in business and will therefore not be classed as taxable persons.
Exceptions:
- Any private person who sells a vehicle that still qualifies as new to someone in another EU country (an intra-EU supply of a new means of transport) is always considered a taxable person for that sale (Article 9(2) VAT Directive)
- Any EU country can choose to class as taxable persons any private person who occasionally produces or trades in goods or supplies services. In particular, this includes the supply of land or buildings (Article 12 VAT Directive)
Public bodies (national, regional or local government authorities or any other body governed by public law) are not regarded as taxable persons under EU VAT law for their activities or transactions if these activities or transactions are carried out in their capacity as public authorities (Article 13 VAT Directive).
Because such a body is therefore regarded as a non-taxable person, its activities fall outside the scope of the VAT and are not taxed.
Exception 1: public sector activities of scale
if the activity of a public body leads to ‘significant distortions of competition’, it will be classed as a taxable person. This is to prevent any major distortions to competition.
Exception 2: activities in Annex I
If a public body carries out - on anything other than a ‘negligible scale’ - any activity which is listed in Annex I of the VAT Directive, it will be regarded as a taxable person for those activities. This is because non-taxation could potentially distort competition. The activities listed in Annex I are:
- Telecommunications services
- Supply of water, gas, electricity or thermal energy
- Transport of goods
- Port and airport services
- Passenger transport
- Supply of new goods manufactured for sale
- Transactions in respect of agricultural products, carried out by agricultural intervention agencies pursuant to regulations on the common organisation of the market in those products
- Organisation of trade fairs and exhibitions
- Warehousing
- Activities of commercial publicity bodies
- Activities of travel agents
- Running staff shops, cooperatives or industrial canteens and similar institutions
- Activities carried out by commercial radio or television bodies
Exception 3: exempt activities
When public bodies carry out activities for which they are to be considered as taxable persons, these activities may still be exempt from VAT (for example, activities exempt under Article 132). However, in these cases Member States have the option of regarding the public body to be acting as a public authority and so be acting as a non-taxable person (Article 13(2)) in respect of these activities.
VAT groups
Under EU VAT law, the tax authorities in any EU country have the option of allowing groups of closely linked companies (including non-taxable entities) to be treated as a single taxable person.
VAT groups enjoy lower compliance burdens because members can account for VAT as a single entity. For example:
- they only need to fill out one VAT return for the whole group
- they do not need to issue VAT invoices for transactions between members (these are not taken into account for VAT purposes)
Conditions for registering as a VAT group
- Members of a VAT group can be any persons established in the EU country where the group is registered
- Members must have close ‘financial, economic and organisational links’ with each other
- National tax authorities may determine more detailed rules on eligibility, joining or leaving a VAT group and other administrative measures
- Any EU country that uses VAT groups is allowed to introduce its own measures to combat any associated tax avoidance or evasion