An underestimated risk: when partnerships turn into a VAT trap

Unformal partnerships frequently arise in everyday business in the context of project consortia, working groups or other forms of collaboration. It is often underestimated that, from a VAT perspective, even an unformal partnership can be regarded as a separate taxable person. This is particularly the case if it acts externally in its own name or appears to third parties as a single service provider.

Situations where the parties involved operate jointly in the market, submit joint tenders or issue joint invoices are particularly risky. It is also problematic if the individual services provided by the partners are not clearly distinguished from one another.

In such cases, the simple partnership may become subject to VAT in its own right. This entails not only additional reporting obligations but also significant liability risks. The joint and several liability of the partners is particularly contentious: each individual partner can be held liable by the FTA for the entire VAT debt, regardless of how the internal division of responsibilities is arranged or whether their own share has been correctly fulfilled. The risk thus clearly extends beyond administrative issues.

Conclusion: A joint market presence can lead to a separate VAT liability more quickly than expected.