Fixed establishment

What it means

A fixed establishment is a VAT concept for a business presence in another country with sufficient permanence and its own human and technical resources to receive or supply services. The concept comes from the EU VAT implementing regulation and the case law of the EU Court of Justice.

It decides the place of supply of services. If a company receives a service for its fixed establishment in another country, the service is taxed where the establishment is, not at the head office. Likewise, services supplied from a fixed establishment are assessed by reference to it.

It is not the same as a permanent establishment for income tax. A company can have a permanent establishment without a fixed establishment or vice versa, because the concepts have different criteria and purposes, and each must be assessed separately.

How it works in practice

A typical fixed establishment is a branch office with premises and staff who work independently. According to case law, a warehouse without staff or a property let out without own employees usually does not create a fixed establishment.

A foreign company with a fixed establishment in Slovakia must, under certain conditions, register for VAT. For services from Slovak suppliers to such an establishment, self-assessment or the reverse charge may apply.

In groups with subsidiaries in other countries, tax authorities sometimes examine whether a subsidiary is also a fixed establishment of the parent, for example when it provides services to the parent exclusively with its own people and equipment. The outcome can change where services are taxed.

What to watch out for

Misjudging a fixed establishment leads to taxation in the wrong country: the company charges or omits Slovak VAT incorrectly, which in an audit means extra tax and penalties in one country and a complicated refund in the other.

The assessment depends on the facts and can change over time, for example when the company hires staff or opens an office abroad. When expanding internationally, it is wise to review regularly whether a fixed establishment has arisen and to keep supporting documentation.