VAT questions answered

More and more business people will use EU companies for their business organisation. EU VAT is one of the first issues they would come across.

FIRSTLY, WHO MUST REGISTER FOR VAT?

Any company formed in the EU must register for VAT as soon as its sales turnover reaches the established by Law thresholds. Each EU Member State determines the limits for obligatory VAT registration. A company may as well apply for VAT number voluntary, even if the minimum turnover is not reached yet.

Other questions: How to use VAT 0%? What is Intra-Trading? What is triangulation?

Let’s review these interesting issues together.

INTRA-TRADING – DELIVERY OF SERVICE AND GOODS WITHIN THE EUROPEAN UNION

There are no borders or customs between the EU Member States. For this reason VAT is not charged when the goods or services are delivered from one EU State to another. But this is possible only if the buyer is a VAT registered party in the country of delivery.

VAT 0% and the conditions to apply zero-rate VAT.

When goods or services are delivered within the EU, 0% VAT is applied in the following cases:

The buying company has its own valid VAT number and provides this number to the selling company, which will indicate this number in its invoice

The delivery MUST take place and the movement of goods must be supported by the documents. Besides the invoice, the tax authorities may request for CMR, goods or services delivery acts or other documents confirming delivery.

NB! The delivery itself will be taxed. VAT rate will correspond to the country, where the goods will be delivered.

Finally and as a result, the VAT will be charged in the country of the client, when the goods are sold to the end consumers.

WHAT IS TRIANGULATION?

Triangulation takes place when the goods are purchased in one EU (1st company) from a company in another EU State (2nd company) and are sold to the client in the third EU State (3d company). In this course the goods can be delivered directly from the initial supplier to the end client. It turns that, the 1st company the supplier and the client at the same time.

VAT: EC Article 28 Simplification invoice discribes the taxation of the above case:

The 1st company must provide its VAT number to the supplier, who will issue his invoice with VAT )%.

The same 1st company will issue invoice to its client and will indicate the simplification procedure of the EC Article 28 Simplification invoice.

All 3 parties must report to their own tax offices about this deal. The VAT declaration of each company must feature the issued invoice, irregardless the fact of zero-rates VAT.

Ask us about VAT rules for your business. If you would like to set up a company in Europe, consult with us about the best choices for your business.