The EU VAT Directive 2006/112/EC constitutes a binding framework for national legislation. However there are national differences in, interpretation, implementation, national regulatory scope and tax rates.
The following presentation is in a nutshell. We advise to discuss your planned transactions with your tax consultant.
The tax is paid by the consumer and completely forwarded to the state through the chain of suppliers. A supplier receives the sales tax, deducts the input tax and pays the difference to the tax administration.
In order to avoid that a supplier who delivers from abroad does not pay the VAT, the last customer has to declare and pay the sales tax in his place (import VAT or reverse charge system for services).
A tax free delivery of goods or services should only be done to contractors. Basically an enterpreneur (contractor) in the EU has to have a VAT number. Authorities of other States may submit another certificate to prove enterpreneurship instead of a VAT number.
If there is a national business in another country, a national VAT number of that other country is required.
Basic Rules – Territory
the rules about VAT do not only concern declaration and taxation but also the jurisdiction where decisions are executed.
- Deliveries: the movements of goods will decide, which form of VAT is applicable (cross-border or local delivery), but place of the issuer of the invoice or the recipient of the invoice are not relevant for VAT purposes
- Goods remain physically in the country: national delivery (national VAT number, even when the invoice goes abroad)
- Cross-border delivery to enterpreneurs in countries outside the EU: no VAT
- Cross-border delivery to other EU countries:
- destination principle for deliveries to enterpreneurs (VAT number),
- destination principle for deliveries to private sector in the area of mail order business or new vehicles
- origin principle for other deliveries to private sector
- Cross-border services to companies in the EU:
- destination principle for deliveries to enterpreneurs, Reverse Charge clause!
- National exemptions
- Transport services: where the transport takes place.
- Services to private customers: in the place of business,”Catalog services” at the residence of the customer.
- Real estate related services: place of the real estate.
- Cross-border services to companies in the EU:
Intra EU supplies to companies and transports of merchandise abroad within a company
- VAT number of the supplier in the country of departure and VAT numberthe of the recipient in the destination country.
- Evidence that the VAT number of the business partner has been checked
- Note “Exempt (zero rated) Intra-EC supply”
- Book and documentary evidence (including proof of shipment)
- Summary report (quarterly)
- Intrastat reports if the limits are reached
- Warning: if the VAT number used by the purchaser is not from the country of destination, in the opinion of the ECJ of 22.4.2010 (C-536/08 and C-539/08), no deduction is allowed. In the third-country VAT will be charged and might only be refunded if there is a proof of taxation in the destination country.
Transactions in a chain
- If there is one delivery combined with several transactions, only one delivery qualifies as an intra-Community cross-border supply, the others have to qualify as national transactions.
- Requirements: 3 parties, VAT numbers from 3 different EU Member States, reference to Article 141 of VAT Directive.
- The first supplier delivers VAT exempt intra Community supply to the intermediary, and in addition there is proof of shipment to the final recipient. For simplification, the final recipient ows the VAT instead of the intermediary who can avoid several registrations.
- Attention: in some legislations triangular transactions are not allowed if B is established in the destination country of C, even if the goods move in 3 countries.
Services and work performance (reverse charge)
- Destination principle, VAT numbers, clause “Reverse Charge”
- Services to non-entrepreneurs: place of the service provider.Exception: electronic services (place of the recipient)
- Some details of the reverse charge processing is regulated differently in the countries. Basically, the tax liability is transferred to the recipient who at the same time declares the input tax.
- if the recipient of a service which he has obtained from abroad is not properly registered for VAT accounting and if a certain amount defined in the local law is exceeded, VAT is payable on the value of imported services without the possibility to claim input tax on it.
- a similar situation is the case with tax exempt entrepreneurs who can claim no or only a part of input tax.
Supply of work
- If the work is completed at the start of transport: taxation in the country of departure as a supply
- Production, finishing, main assembly at the customer: taxation in the country of destination. Often there are different national regulations: either reverse charge (e.g. Austria) or registration for national VAT.
- In some countries, parts of a work that is finished in the country of destination have to be imported by the supplier and not by the customer, in order to qualify for input tax.
Production in an EU country
- Contract manufacturing and subsequent delivery to the recipient: normal delivery
- Deliveries from the production site can be submitted to national VAT (domestic delivery) or intra-Community supplies.
- Local Purchases often require a local VAT number, intra-Community purchases require an international VAT number
Shipping trade arrangements (delivery to non-entrepreneurs)
- Delivery threshold: Settlement in the destination country, if this threshold is exceeded by the supply for this country.
- Acquisition threshold: obligation for registration upon reaching certain amounts of intra-Community purchases.