What is the difference between goods and services?

Goods vs. Services

Goods or services? What separates a product from a service? What is the definition of a service? Is real estate goods? What are the grey areas between goods and services?

Goods vs. Services

Short answer: Goods are physical objects you can touch, while services are everything else.

Exception: Real estate is not goods.

Gray zone: Gas, Heating, Electricity and Cooling are defined as goods.

Why do you need to know the difference between a product and a service?

It may seem both obvious and self-evident at first glance what a product or a service is, but if you dig a little deeper, it’s no longer quite so obvious. Additionally, it’s required that you keep a close eye on what separates goods from services to handle VAT and taxes correctly in the accounting and when invoicing to customers. For example, it’s often necessary to register for VAT in another country if goods have been sold there over a certain amount (the so-called limit value or threshold value). In the case of services, other rules apply to sales and VAT management. You must also distinguish between goods and services in the periodic reporting (EC sales list), and they also have different requirements for how often you must report sales within the EU (month/quarter).

Definition of Goods

Goods are defined as all material things, i.e., physical objects that you can touch and feel, that is not a Property. In other words, everything you can feel with your fingers is a commodity as long as it’s not a house or a plot. There are some examples where it’s not entirely clear whether it is a product or service: Gas, Heating, Electricity and Cooling are all defined as goods.

The EU definition of goods has a more apparent economic link. This definition originates in a case from 1968 when it was concluded that goods are all products that can be valued in money and which can be the subject of commercial transactions.

NOTE! From a VAT perspective, Real Estate is a commodity. This means that when you have to handle VAT in connection with properties, the properties must be considered goods! As soon as you mix in VAT, everything becomes much more confusing and complicated.

Definition of Services

Services are anything else that does not fit the definition of goods.

But if the product is both a commodity and a service at the same time, then what?

A basic example, such as when you buy a computer, means that you purchase both the computer (product) and at the same time a service (support, guarantees, service, etc.). In these integrated products, which contain both goods and services, the European Commission has decided (1993) that the rules for both goods and services may be applied.

Exceptions to the definitions of goods and services

Weapons, the EU has decided that firearms should not be classified as a commodity even though they meet all the criteria for being defined as goods.

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