European Union VAT
As can be seen in the diagram below most countries around the world have some form of VAT (Value Added Tax) system in place.
In the EU all 28 member states act as a single market and share one common VAT system. If you trade in the EU then you should to be aware of some of the more basic rules and compliance requirements that apply. As with most taxation regimes the EU has many rules and exceptions to the rules that you will need to consider. Below, however, we highlight some of the more general VAT guidelines that apply to trade within the EU. If you have already setup the NetSuite International Tax Reporting bundle in your NetSuite account then it will be good to know that most of these guidelines and compliance requirements are automatically accounted for when you process transactions within NetSuite.
VAT on the Sale of Goods
Business to Business
Where ever you ship from is the place of supply for recording and compliance purposes. VAT levied is generally based on the Ship to address. If you are shipping domestically your Standard rate of VAT is applied. If you are shipping cross border within the EU then the Zero rate is applied and VAT is self-assessed by the business customer on “Acquisition” in the member state. To ensure compliance you as the seller must retain evidence the goods left your member state. You must also keep a record the Customer VAT number and the invoice narrative, as well as file the necessary EC Sales List & Intrastat reports.
Business to ConsumerGenerally if you as a vendor are shipping goods to B2C customers in another EU member state then your member states standard VAT rate is applied. However this is not the case if you breach the distance selling thresholds requiring separate VAT registration for sales in other EU member states.
VAT on the Supply of Services
Business to Business
Generally B2B services are taxable where the Customer is established. Generally VAT is charged if the vendor has an establishment in the same EU member state as the customer. If the vendor does not have an establishment in the member state VAT is not levied by the vendor but rather is self-assessed by the customer via the reverse charge mechanism. A customer VAT Number is required for invoicing and Intra-community cross border reporting.
Business to Consumer
Generally B2C services are taxable where the EU vendor is established. Except that since 2003 digital and electronic services provided by non-EU vendors have been taxable where the private consumer is resident. With effect from 1 January 2015 this exception will also apply to EU vendors providing digital and electronic services.
Next month we will look at some important changes to EU VAT reporting that will come into effect on 1 January 2015 and the implication to companies trading in the EU.