THE EU, as it stands in its current state, has been active since 1993 – but, even though UK accountancy firms have had more than ten years to catch up with the growing internationalism of their clients’ businesses, Accordance has found that a significant proportion of them still struggle when clients face an international VAT issue.
With this in mind, here are answers to ten frequently asked questions that UK accountants may face from their clients.
1. When is a foreign EU VAT Registration required?
In the EU, VAT law is determined by the VAT Directive. Member states implement the Directive into their own law, often interpreting the legislation differently, which results in varying rules across member states. Where VAT is due is determined by the place of supply rules, and if the place of supply is in another member state, this is where VAT is due so businesses may have to register.
2. We sell goods to overseas businesses – when will I have to register abroad?
There are a number of situations where businesses selling goods will have to register in other member states and it is important to know the rules, in order to determine if your client is liable to register. The sort of sales that are affected are selling goods in other member states without transport (for example, the sale of goods in a concession in a shop in another member state) and also when your client delivers goods to another member state. As well as your clients’ need to register, you may have to consider exemptions and the need to meet reporting and invoicing requirements.
3. We sell goods to private individuals – when will I have to register abroad?
There are a number of situations where sales to private individuals will create a liability to register in other member states. In a business-to-business setting, it may be when your clients buys and sells goods in another member state – for example if they have shop in another member state. However, an increasing number of businesses are involved in distance-selling.
Distance-selling relating to goods occurs when a business sells and delivers goods to private individuals in another member state – most commonly through an e-commerce website or a mail order service. Until the distance selling threshold of the country where the goods are being sent is exceeded, the business must account for VAT in the country in which they are based. However, when they exceed the distance-selling threshold of the member state where the goods are being sent, a VAT registration is required and they must start charging local VAT. This creates a liability to complete local VAT returns and possibly Intrastat reports.
4. What if I sell services to business customers?
The General Rule which came into effect from 1 January 2010 for B2B supplies stipulates that services are subject to VAT where the customer is established. VAT is accounted for by the customer applying the reverse charge and, in cases like this, there is no requirement for supplier to be registered in other member state, but there is a need to meet invoicing and reporting requirements. However, there are exceptions to the General Rule. Some of these include:
• Services related to land or immovable property
• Admission to cultural, artistic, sporting, scientific, educational, entertainment services or similar services
• Passenger transport
• Restaurant and catering services
• Short-term hire of means of transport ( < 30 days)
5. What if I sell services to private customers?
The General Rule for B2C supplies states that VAT is charged where supplier is established. There are the same exceptions as for B2B transactions with a few extras, including:
• Acting as undisclosed agent for supplier
• Transport of goods
• Work on goods
• Ancillary transport services.
6. Will I always have to be registered if the place of supply is in another member state?
Some member states have implemented legislation to avoid non-residents having to register. This transfers liability to account for VAT from supplier to customer. If it applies, the supplier may not be required to register for VAT, although in some member states the supplier cannot register; there is a need to appreciate that the rules differ hugely between member states.
7. How do I recover foreign VAT if I can’t get a VAT registration?
When your clients purchase goods locally, they will be incurring local VAT which they cannot recover via a VAT return. The Refund Directive allows EU businesses to reclaim VAT incurred in other member states by submitting a claim electronically to their local tax authority portal. The aim of the Refund Directive is to simplify the procedure for making claims but there is often an issue with the time it takes to receive refunds from tax authorities.
8. What VAT can my client recover in other member states?
Each member state applies its own rules in respect of deduction of VAT – the UK is among the most generous in EU – therefore, restrictions will apply in many member states and it is vital that you take account of local rules. Once you are sure what VAT you are entitled to recover, you need to ensure that you have the necessary evidence from your client to make that claim – the tax authorities will disallow claims if the invoices are non-compliant.
There is also an issue with businesses trying to claim back VAT that has not been charged correctly when invoiced. Your clients must have the necessary controls in place to ensure recovery because you cannot recover incorrectly charged VAT.
9. When should my client not be charged VAT by foreign suppliers?
There are a number of situations where UK clients should not be incurring EU VAT. Acquisition VAT should be accounted for on the acquisition of goods, on B2B transactions, for the intra-EU movement of goods into the UK. UK business customers should not be charged EU VAT on services unless it falls under one of the specific exceptions to the general rule discussed earlier. Rules differ outside the EU, so it is important that you know the rules on how to avoid double taxation that your client cannot recover.
10. What are the implications if I make these supplies outside of the EU?
VAT is, increasingly, an international tax and is being introduced around the world; when countries introduce VAT, many base their laws on the EU VAT Directive but there is still a need to consider the rules if your client supplies goods or services in other territories. Issues can arise if the supplier imports goods into other territories. And registrations can be created by holding events and you must recognise that you cannot apply UK or even EU rules. In cases like this, we recommend seeking specialist advice.
Andy Spencer is head of consulting at Accordance
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