Here you find the answers to most day-to-day questions, especially how an invoice should be issued, but we advise you to discuss your transactions with your local tax consultant in more detail. The following is a summarized International VAT guideline for deliveries of goods and for services: local VAT number requirements, reverse charge, cross-border VAT and VAT for e-commerce.
How the VAT system in the EU and associated countries works:
The European VAT Directive 2006/112/EC constitutes a framework for national legislation. However, there are national differences in interpretation, implementation, national VAT rules and VAT rates.
The rules about VAT show how an invoice must be issued, where the VAT must be declared and where it has to be paid. The system differentiates between goods and services, and it defines the applicable territory.
Basically, the VAT is paid by the consumers to the state, but indirect. Enterprises (in the terminology called suppliers) are obliged to collect the VAT and to completely forward it to the state or to other suppliers.
If there is only one supplier, then the consumer pays the VAT to the supplier and the supplier hands it over to the state.
If there is a chain of local suppliers, then every supplier receives the sales tax, applies the input tax in the VAT return and pays the remaining difference to the tax administration. In total, the tax administration receives exactly the same amount that the consumer had paid.
What is the “Reverse Charge” system?
Countries want to avoid that a foreign supplier who delivers from abroad does not pay VAT at all.
The foreign supplier must issue his invoice without VAT, and the importer declares and pays the VAT (no matter if the importer is registered for VAT). If the importer is registered for VAT, he can deduct the amount as input VAT.
Therefore, in an international context, a tax free delivery of goods or services should only be done to enterprises. The entrepreneur (contractor) status in the EU is defined by an international VAT number which can be verified at the VAT Information Exchange System (VIES). Companies in countries outside the EU may submit other evidence of entrepreneurship instead of an international VAT number.
Some countries have thresholds for purchases of services, so a private recipient, a company that is not registered for VAT purposes or a company that is partially exempt for VAT purposes can receive services below this threshold without declaring and paying local VAT.
If there is a national delivery from another country to a destination in the same country, a national VAT number of that country is required.
Ancillary services receive the same VAT treatment as the main supply.
Suppliers of goods or services with “Reverse Charge” system are required to submit a periodical “Recapitulative Statement” with a breakdown of all customers, their VAT numbers and the total amount of goods or services provided to them within the last quarter. These data are collected for all member states in the VIES system for control purposes.
Requirements for invoices:
Electronic invoices are equivalent to paper and must be stored in a country within the EU.
For Intra EU supplies B2B and transports of merchandise abroad within the same company:
- Requirements for a simplified invoice:
- date of issue,
- full name, address, and VAT number of the supplier,
- type of goods or services,
- VAT amount payable,
- total amount payable.
- Requirements for a full invoice:
- date of issue,
- invoice number,
- full name, address, and VAT number of the supplier,
- full name, address, and VAT number of the customer,
- quantity and type of goods or services,
- unit price of goods or services,
- VAT rate and VAT amount payable by VAT rate or exemptions,
- total amount payable,
- transaction date or prepayment date (if different than the date of the invoice).
- Additional clauses where applicable:
- “Reverse charge” clause,
- “Exempt (zero rated) Intra-EC supply”,
- “Self billing” if the customer issues the invoice instead of the supplier.
- “Cash accounting” if the supplier uses a cash accounting system.
- In case of supplies from or deliveries to third countries, it is not permitted to simply use the VAT number of the supplier or the recipient:
- If goods depart from another country as the country of the supplier, the invoice needs the VAT number of the supplier in the country of departure.
- If goods arrive in another country as the country of the customer, the invoice needs the VAT number of the customer in the destination country.
- The European Court of Justice (ECJ) stated (22.4.2010, C-536/08 and C-539/08): a purchaser used the VAT number at the country of his registration and not at the country of destination. Consequence: in the country of his registration, the VAT had to be paid, because the number was written on the invoice. This VAT could only be refunded if there was a proof of taxation in the destination country. In the destination country, however, a local number was not used and therefore a deduction was not allowed there. In total, the VAT had to be paid twice and could only be recovered once.
- If a tax representative is liable for VAT: the VAT number of the representative.
- Evidence that the VAT number of the business partner has been checked in the VAT Information Exchange System (VIES).
- Book and documentary evidence (including proof of shipment).
- Summary report (quarterly)
- Intrastat reports if the thresholds of the country for Intrastat arrivals or for Intrastat dispatches are reached. Please note: the EU countries have defined completely different thresholds.
What are the applicable criteria for VAT purposes ?
- B2B or B2C
- Goods or services
- National delivery, cross border within EU/EEA or cross border with a country outside EU/EEA
How to define the applicable territory for VAT purposes:
Delivery of goods:
The movement of goods decides, which form of VAT is applicable (cross-border or local delivery), but the place of the issuer of the invoice or the recipient of the invoice are not relevant for VAT purposes (see above).
- National delivery of goods B2B – goods remain physically in the same country: the invoice must have the national VAT numbers both of the supplier and of the recipient of the country where the delivery happens. This does not change when the issuer and/or the recipient of the invoice has its seat abroad.
- If the recipient picks up the goods in the country of the supplier and exports them then cross border, the first step is a national transaction and subject to national VAT. (In order to avoid to pay and recover VAT in the country of the supplier, it can be agreed that the supplier organizes the cross border transport; this saves liquidity).
- Cross-border export delivery B2B to entrepreneurs outside the EU: the invoice must be issued without VAT. In case of goods, there shall be a proof of the export- delivery available.
- Cross-border delivery to other EU countries:
- B2B: for deliveries to entrepreneurs: destination principle (place of the recipient), the invoice needs both VAT numbers; zero rate of VAT and the clause “Reverse Charge”,
- B2C: for deliveries to private sector in the area of mail order business or new vehicles: destination principle
- B2C: other deliveries to private sector: origin principle, the invoice needs the VAT number of the supplier and VAT is paid in the country of the supplier
- Cross-border import delivery from outside the EU/EEA:
- VAT must also be paid, just as if the buyer orders goods that are already located within the EU. VAT is taxable at the customs in the country where the goods enter the European Union (standard rate or reduced rate depending on the legislation of this country). The tax basis is the value of the goods plus duties, shipping, and insurance costs.
- Usually, the VAT formalities are organized by the customs clearance agent. He declares the goods to the customs, makes sure that the duties are paid and handles the formalities for the permission (“release”) of the goods for free circulation within the EU. Tariffs and some legislations can be seen in the TARIC database. Excise duty rates can be seen in the Taxes in Europe database of the EU (TEDB).
- VAT may be charged by the supplier of the goods and included in the price. In other cases, the importer pays it at the customs office or to the customs clearance agent. The invoice from the customs clearance agent and the attachments show the price of the goods, additional costs and the VAT. The accountant then needs to book the positions correctly.
- Cross-border services to companies in the EU – general rule is the destination principle: the services are deemed to be provided at the destination of the recipient of the invoice. The invoice needs both VAT numbers; zero rate of VAT and the clause “Reverse Charge”.
- Services in certain categories are deemed to be provided at the place where they actually happen – restaurants, hotels, cultural, artistic, sporting, scientific, educational, entertainment and similar services. Then the invoice needs the VAT number of the supplier in the performance country, and in case of B2B the VAT number of the customer (example: participants in a congress).
- Most services to private customers are deemed to happen at the place where the supplier is established (at his seat or where the permanent establishment is located where the service takes place). The invoice is issued with the VAT number at the place of the company or the permanent establishment of the supplier.
- Car and ship hire services are deemed to happen at the point of disposal.
- Transport services:
- Transport services of passengers and of goods to private customers outside of the EU are deemed to happen where the transport takes place. VAT is charged in relation to the distances covered.
- Transport services of goods to private customers within the EU: VAT is charged where the transport begins.
- Real estate related services, including experts, real estate agents and accommodation in hotels or similar businesses: the VAT has to be declared in the place where the immoveable property is located. The invoice needs therefore to have a VAT number of the recipient in this country.
- Financial services, health services, gaming and some other services are exempted from VAT. In most countries, they are not allowed to recover input VAT on their purchases, but in some countries there are loopholes in this context.
TEDB – Taxes in Europe database
This database shows VAT rates, EU harmonised excise duties, corporate income tax and social security contributions within the EU. It allows to search for VAT rates using the CN code for goods and the CPA code for services.
IOSS and MOSS:
- IOSS (Import One Stop Shop): from 01.07.2021, VAT IS PAYABLE for all commercial goods imported into the EU, the free threshold of 22 Euro is eliminated. If suppliers from the EU or from non- EU countries use an electronic interface to sell imported goods with a value less than 150 Euro to buyers in the EU, the entity with the interface is considered tax subject. In the IOSS; the VAT for all such sales to buyers within the EU can be registered in one platform at one member state. For the sales, the tax rate of each destination country has to be applied. Suppliers that are not based in the EU normally need to appoint an EU-established intermediary to fulfill their VAT obligations under IOSS.
- MOSS (Mini One Stop Shop): also allows to submit the VAT declaration for multiple EU countries in just one EU country, without registering in the destination countries. The target group are service providers who deliver digital services to non-taxable persons.
- There are special rules for activities with low annual turnovers (e.g. less than 10.000 Euro in the current and the preceding year in a destination country): to have reduced bureaucratic burden, they are allowed to charge VAT to their customers at the rate of their own country, declare and pay it there. This option is attractive if there is a difference in the VAT rate for a certain category of goods or services.
VAT for transactions in a chain:
A chain transaction is one delivery from the first supplier to the final customer. However, the ownership changes several times on the way.
- only one delivery qualifies as an intra-community cross border supply, while the other transactions will be treated as domestic supplies (and in most cases, additional VAT registration necessary)
- there are different steps which have to be individually planned, depending for example:
- If two or more parties are located in the same EU member state
- If one or more parties are located outside the EU
- If the way of the goods begins outside the EU, there has to be an import procedure
- If the way of the goods ends outside the EU, there has to be an export procedure
VAT for triangulation or triangular transaction:
The supplier ships goods directly to the end client, but he invoices them to an intermediary who in turn invoices the goods to the end client. This way, the intermediary can avoid several registrations.
- Requirements: 3 parties, VAT numbers from 3 different EU Member States, reference to Article 141 of VAT Directive.
- The supplier invoices a zero rated Intra Community supply (ICS) to the intermediary and registers this in the VIES system. In addition there is proof of shipment to the final recipient. The intermediary accounts an Intra Community acquisition (ICA) in his VAT return.
- The intermediary invoices a VAT free supply to the end client. The end client therefore owes the VAT (Reverse charge system) and can deduct the VAT if he is entitled.
- In most countries, Triangular Transactions must be marked in a special way in the VAT declaration.
- Attention: in some legislations triangular transactions are not allowed if the intermediary is established in the destination country of the final customer, even if the goods move in 3 countries.
- If there are more than 3 companies involved, national registration is required.
Supply of work:
- If the work is completed at the start of transport: territory for VAT purposes is 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, it is recommended that the customer also imports some goods that are parts of a work that is finished in the country of destination, in order to simplify the input tax.
Production in an EU country:
- Contract manufacturing and subsequent delivery to the recipient: normal delivery
- Deliveries from the production site can be subject to national VAT (domestic delivery) or intra-Community supplies.
- Some countries issue local VAT numbers for local transactions (e.g. if there are special rules for the construction industry), but intra-Community purchases require an international VAT number
(Updated December 2023)