European Union value added tax (EU VAT)

General information about Value Added Tax (VAT)

VAT is charged by a business and paid by its customers. Ultimately the tax is paid by the end consumer.

  • VAT is a general (sales) tax that is charged on most business transactions. Businesses add VAT to the price they charge when they provide goods and/or services;
  • VAT is charged as a percentage of prices. The actual tax burden is visible at each stage in the productions- and distribution chain;
  • VAT registered businesses, in most cases, have to charge VAT on the goods and services they provide and they can reclaim the VAT they pay on the purchase of goods and services for their business.
  • If your company is not VAT-registered, you cannot reclaim the VAT you pay when you import or purchase goods and services;
  • VAT is ultimately paid by the final consumers (end user).

Obligation to register for VAT

To be able to import goods and to sell to consumers in one of the EU Member States, a VAT registration is required before you can start.

A monthly or quarterly* VAT declaration has to be compiled and submitted.

*In some EU Member States a monthly and in some a quarterly VAT declaration is required.

B2B sale of goods

Business => Business in same Member State = Local Sales  + Local VAT

Business => Business in other Member State = Cross border sales + No VAT

B2C sales of goods

Business => Business in same Member State = Local Sales  + Local VAT

Business => Business in other Member State = Cross border sales + VAT But Where?

1.   What is Distance Selling?

  • When selling delivered goods to private individual in another Member State – for example: place of supply is UK….
  • Until distance selling threshold exceeded
  • Avoids distortion of competition due to variety of rates
  • Standard rate of VAT in Luxembourg is 15%
  • Standard rate of VAT in Denmark is 25%
  • Danish residents could buy on line in Luxembourg and save 10% VAT
  • Deprives Danish tax authorities of funds

VAT is a so-called consuming tax and the starting point for purchases by consumers is that the VAT is levied in the country in which the goods are bought. As long as there are differences in the VAT rates in the EU Member States, consumers will obviously tend, wherever possible, to make their purchases in the Member State with the lowest rate. Consequently, special regulations affecting distance sales were designed to avoid undesirable effects on the state treasuries and the businesses in the Member States with higher VAT rates.

Till the annual threshold for Distance Sales for a certain EU Member State has been exceeded, you are required to charge place of supply country VAT.

Example:

The threshold for Italy is EUR 35,000. If you are selling during 2013 for a total amount of EUR 30,000 from the UK to Italy consumers (buyers), you have to charge the UK VAT. If, however, during 2013 your sales exceed the threshold of EUR 35,000, from that date you are obliged to charge Italy VAT on the sales. Due to this an immediate German VAT registration is required. The threshold is applicable from January 1 of each year.

If you are already registered in another EU Member State, you are obliged to charge the VAT of that Member State and the VAT legislation concerning Distance Sales is not applicable for that State.

2.   Distance Selling Thresholds

UK = £ 70,000  (€ 83,610)

France = € 100,000

Italy = € 35,000

Spain = € 35,000

German = € 100,000

Thresholds for all Member States available on EU website:

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/traders/vat_community/vat_in_ec_annexi.pdf

3.   B2C invoicing compliance

  • Need to consider requirement for B2C transactions
  • In UK, no VAT invoice has to be issued for B2C unless requested
  • Rules are not consistent across EU
  • Many Member States require invoices to be issued for B2C sales
  • Need to consider how to adapt system to meet different requirements
  • One option is to meet requirements in most onerous Member State but need to be aware of system issues and cost

4.   B2C invoicing requirements

UK => Not required unless requested

France => Required

Italy => Required

Spain => Required

Germany => Required

VAT is not consistent within the EU

  • Whilst VAT is based on a single Directive, implementation can vary considerably
  • Return formats vary substantially
  • Some Member States require additional reporting
  • Very few national tax authorities will allow documentation to be completed in languages other than that of the Member State
  • Tax authorities are increasingly carrying out audits to ensure correct amount of VAT is due

EUGateway works with EU VAT consultants and specialist to ensure VAT efficiency, as well as providing VAT compliance services such as VAT registration in UK, France, Italy, Spain, Germany and VAT filing.