Machinery and Fixed Industrial Equipment
In the context of VAT in Spain, machinery and industrial equipment that become fixed to a building or land may be classified as immovable property. This is important because the VAT treatment of such items differs from the VAT treatment of movable goods.
If machinery or industrial equipment is installed or assembled in Spain, and this machinery or equipment becomes part of the building or property (i.e., it is permanently affixed), it is considered “fixed” or “immovable” property. As a result, the installation services will be subject to Spanish VAT, regardless of the client’s country of origin.
A starting point to analyze this matter is provided by Article 13-ter of Regulation (EU) No. 282/2011, which establishes a criterion for evaluating when machinery or equipment becomes immovable property and, consequently, determines the location of VAT in Spain.
d) any element, device, or mechanism permanently installed in a building or structure that cannot be removed without destroying or altering the building or structure.
The European Commission has communicated several interpretative criteria, including “when elements are installed in buildings or structures used for conducting economic activity, preference should be given to an objective criterion to determine which types of elements are likely to be permanently installed. Industrial equipment or machinery have a shorter economic/useful life than the buildings or structures in which they are used. For ‘permanent’ in this context, it means that the elements are used for a certain period within the economic activity for which they were acquired.”
This means that the permanence or immobilization of the equipment can also be assessed in terms of the many economic years for which it is expected to be used.
The Spanish VAT Law (Ley 37/1992) considers that VAT is located in Spain for the installation of machinery or equipment completed in this country, as long as it results in the immobilization of the equipment or machinery.
Each case requires an evaluation, but we must consider that both an installation located in Spain for VAT purposes and an intra-community sale do not require VAT to be invoiced if the Italian company providing the equipment is not established in Spain for VAT purposes. In this case, the “permanent” installation of the equipment at the Spanish customer’s premises can be invoiced with the reverse charge mechanism, but not always. For example, when it concerns the installation of air conditioning systems, water conduits, energy generation, and, in general, elements integrated into a building as part of a global renovation project, the reverse charge may not apply, even though the client is required to inform us of this in writing.
