Why Location Matters for Borderless Workers and Value-Added Tax

The way people work has changed dramatically. Remote jobs, freelance gigs, and short-term international assignments are now part of everyday life.

Global mobility has a variety of tax angles, but discussions often focus on income tax and Social Security. Value-added tax is frequently an afterthought. That’s a mistake.

As work becomes increasingly borderless, understanding how VAT applies is critical. The first step is to know where obligations begin and ensure they’re addressed before they become a problem.

There are two categories of global workers for whom VAT considerations are especially relevant: Employees on international secondments, who remain on their company’s payroll while temporarily working abroad, and digital nomads, who operate their own businesses while moving from country to country.

Employee Mobility

Many professionals work abroad under employee secondments, which are temporary assignments where the individual is employed by one company but performs their duties under the direction of another.

In such arrangements, the employee’s salary typically is recharged to the host company where the secondee is placed.

Tax managers should be alert to the VAT consequences of employee secondments.

In 2020, the Court of Justice of the European Union addressed this issue in its landmark judgment in San Domenico Vetraria. The question was whether seconding staff to another company—without adding any profit margin—still amounts to a supply of services “for consideration” under the EU VAT Directive.

The court was clear: If one company makes personnel available to another and receives any form of payment in return, this constitutes a taxable service. The presence or absence of a markup is irrelevant. What matters is the “direct link” between the service provided and the payment made.

Does this mean VAT must be charged on every secondment? Not necessarily. In many cross-border situations, the reverse charge will apply. Under the standard EU VAT rules for business-to-business transactions, the place of supply is where the recipient is established.

For example, if an Italian company sends an employee to an affiliate in France, the service is considered to take place in France. In that case, the Italian company wouldn’t add VAT to its invoice. Instead, the French affiliate would account for the tax under the reverse charge mechanism for cross-border business-to-business services.

By contrast, if staff are assigned to an entity in the same country as the seconding company, the service is treated as a domestic supply, and local VAT must be charged in the usual way.

Another exception where VAT doesn’t need to be charged concerns VAT groups. If the seconding and receiving companies are part of the same VAT group, the transaction may fall entirely outside the scope of VAT.

This is because, for VAT purposes, the group is treated as a single taxable entity. Whether this applies depends on the rules in the EU member country concerned, as VAT grouping regimes aren’t harmonized across the EU.

Digital Nomads

Digital nomads often provide services such as web design, software development, digital marketing or content writing. In such scenarios, VAT isn’t about where a worker opens their laptop—it’s about where their customers are.

If a worker provides business-to-business services within the EU, they don’t charge VAT on their invoice. Instead, their client accounts for it under the reverse charge mechanism.

For business-to-consumer digital services, VAT must be charged at the rate that applies in the customer’s country. That country is determined using two pieces of non-contradictory evidence, such as a billing address and IP address.

To avoid multiple VAT registrations across Europe, digital nomads selling to EU consumers can use the One Stop Shop system, where they register in a single EU member country and report all EU consumer sales in one place.

This simplifies compliance but has limitations: a worker can’t use it to recover input VAT on expenses unless they also have a local VAT registration.

Although VAT on digital services is based on customer location, the place where a worker provides those services is still important.

Under EU VAT law, this connects to the concept of “establishment”—generally the country where a business has its main legal and economic presence. If no business establishment exists, a worker’s permanent address or usual place of residence becomes relevant.

Establishment matters because it determines whether transactions are treated as cross-border or domestic, whether a worker can apply mechanisms like the reverse charge or must charge local VAT, and what their tax reporting obligations will be.

For digital nomads who move between countries without a fixed office or permanent home, determining a place of establishment can be challenging.

When no obvious base exists, tax authorities may consider other indicators, such as where a business is legally or where it performs substantial business activities. In some cases, more than one country could claim a worker is established there.

Even if a worker is officially established in one country, VAT obligations can arise elsewhere if they create what’s known as a fixed establishment in another country. This can happen if they spend a long period in one location, rent a dedicated office or coworking space, and develop a local client base. In such situations, tax authorities may conclude they have a taxable presence there.

Once a fixed establishment exists, that country can require a worker to register for local VAT, charge it on services supplied to local customers, and comply with domestic reporting requirements. They also may lose the ability to apply the reverse charge mechanism for services provided to customers in that country.

By contrast, a genuinely nomadic approach—working from temporary spaces without any lasting setup—generally avoids triggering a fixed establishment. This is because VAT law requires a sufficient degree of permanence and a combination of human and technical resources before a fixed establishment is considered to exist.

A digital nomad’s mobility therefore challenges traditional VAT rules based on fixed locations. Proactive management of a physical footprint is essential to avoid unexpected tax liabilities.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Aleksandra Bal is global tax technology lead at Stripe and a frequent contributor to tax publications and industry conferences.

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