In this brave new world of globalisation, it is easier than ever to create an international business selling goods and services throughout the world. With this extra global reach comes the obligations of different countries tax rules and regulations. It is important to understand these obligations in order to build a sustainable business. Falling foul of local VAT laws can result in penalties and interest payments for late or non-compliance. Ultimately there is the threat of not being allowed to sell at all in a country if a business continues to flaunt the local rules.
The International VAT Rules – What To Think About
In order to understand the potential VAT treatment on your particular supply, there are some fundamental questions which need to be asked:
- Where are your customers – Inside or outside the EU?
- What are you selling – Goods or services?
- Who are you selling to – Businesses or consumers?
You can also read our International VAT Essentials guide for selling goods.
Selling Services Online Internationally
Selling Services To Businesses Within The EU
The general rule for supplies for B2B services states that the supply is subject to VAT in the country where the customer is established. In a cross-border situation, this means that the supplier does not charge VAT to its customer. Inside the EU, there are certain criteria to fulfil, namely, the supplier obtains a valid VAT number from the customer and applies this to an invoice along with an obligatory phrase containing the words ‘Customer accounts for the VAT under the Reverse Charge’
VAT numbers can be checked on a European Commission website known as VIES http://ec.europa.eu/taxation_customs/vies/ . Valid VAT numbers from some countries such as Spain and Italy may not automatically appear on VIES, if this is the case, ask your customer for a copy of their valid VAT certificate.
The customer then must account for the VAT as both input and output on their VAT return.
If the supplier is not VAT registered, it is not a VATable transaction and does not need to be recorded anywhere.
There are of course exceptions to the rules, for example, you may need to register and account for local VAT in the country of supply when it comes to land related services, events/conferences, transport etc. It is therefore important to find out which VAT treatment is relevant to your particular supply of services.
Selling Services to Private Consumers Within The EU
Business to Consumer (B2C) supplies of services are, in general, subject to VAT in the country where the supplier has its place of establishment.
Please note, again, there are special rules that may mean VAT is accounted for where the service is carried out e.g. Services relating to immovable property, cultural, artistic, sporting activities. This differs when supplying e-services to private consumers – see below.
Selling Services to Businesses in Non-EU Countries
If you have business customers outside the EU – VAT is usually accounted for where the customer is based, therefore it is outside the scope of UK VAT. There can, however, be an exception to this if a Member states decides to implement the ‘Use and Enjoyment’ rule and applies VAT on a service ‘used and enjoyed’ on its territory.
Selling Services to Non-EU Private Consumers
B2C services to non EU customers should attract VAT of the country of establishment of the supplier, however, certain B2C services supplied to non-EU customers are taxed where the customer is based therefore outside the scope of UK VAT such services are advertising, consultants, lawyers, accountants, financial services, amongst others.
Selling e-Services to Businesses Within The EU
Unlike the sale of e-Services to private consumers (see below), the sale of e-Services to business customers is treated as the supply of a normal service – ie. the customer accounts for the VAT – as detailed above.
Selling e-Services to Private Consumers Within The EU
If you are selling broadcasting, telecommunications and electronic services to consumers –new rules were introduced at the start of 1st January 2015 – it was a fundamental change – instead of VAT being accounted for where the supplier is – the VAT will be charged where the consumer resides.
You, as the supplier, need to collate all the relevant information on where your customer is as well as know which VAT rate applies to your particular service in that EU country.
This information needs to be given to the relevant tax authorities and any VAT owed, paid over.
There are 2 x ways of doing this –
- Through a local VAT registration – where your customers are, or
- Through VATMOSS – the mini one stop shop
VATMOSS was designed to make the process easier. You will need to register through one member state e.g. HMRC – this registration will allow you to submit the VAT data through that one tax authority – who will in turn distribute the information and payments to the other tax authorities where your customers are.
Please note, many other countries outside the EU require VAT registration for non-resident sellers of digital services such as South Africa. It is important to find out before launching into a new market. There are software solutions such as Taxamo that can facilitate the collation of data and the application of the VAT treatment on e-Services in numerous countries world-wide.
Please remember VATMOSS currently only applies to e-Services and NOT the sale of goods to private customers. There are, however, plans to introduce VATMOSS for the sale of goods in 2021.
Selling e-Services to a Non-EU Business Customer
For B2B e-services to non EU customers, again the supply is usually subject to VAT in the country where the customer is established and therefore outside the scope of UK VAT. As previously stated, here also, there can be an exception to this if a Member states decides to implement the ‘Use and Enjoyment’ rule and applies VAT on a service ‘used and enjoyed’ on its territory.
At SimplyVAT.com, we provide VAT registrations and returns in all the 28 EU countries and other territories where local laws prevail, we can also help with any consultancy questions you may have. Please don’t hesitate to get in touch at firstname.lastname@example.org, any one of the team will be more than happy to help you.
Bite Sized Chunks – International VAT Essentials
SimplyVAT.com are very proud to present Bite Sized Chunks – International VAT Essentials in partnership with the Institute of Export. There are 4 modules which cover in detail the aspects of international VAT which are relevant to UK exporters – including much more detail than given in this article – the nuances of the application of VAT on different services and goods. The final module covers International VAT Recovery and is a free bonus module when any other module is purchased.
If you are a member of The Institute of Export, completion of the modules count towards your Continuing Professional Development points.
We wish you all the best with your international expansion plans!
Claire Taylor, CEO of SimplyVAT.com