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VAT on Cross-Border Transactions Within the EU

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VAT on cross-border transactions within the EU

Common EU VAT law applies to all countries in the EU but each country can adapt these and set their own VAT policy. The place of supply determines where VAT is charged and hence what rate of VAT is applied.

Receiving Services From Another EU State

Under EU VAT legislation, the place of supply for business to business services is the place where the business receiving the services is established, i.e. VAT is chargeable where the services are consumed, not where the supplier of the services is established, and the business customer self accounts for VAT under the reverse charge process.

Self accounting for VAT under the reverse charge principle essentially means that the purchaser charges itself on his/her Member State VAT rate on the transaction and also allows itself a corresponding VAT deduction for the VAT suffered. Basically, there is no VAT payment involved, it is essentially a VAT compliance matter.

For example if a company in Ireland receives a professional legal service from other EU country, the Irish company is obliged to register for VAT and account for VAT on its Irish VAT return, claiming a credit for the VAT paid on the same VAT return, known as Reverse charge VAT or self accounting for VAT.   

Related: A Refresher on Irish Tax Filing and Payment Deadlines

Supplying Services & Goods To Another EU State

The general place of supply rules for supplying of services are as follows:

    • Services supplied to business customers – place where the customer is established (as mentioned above);
    • Services supplied to private consumers – place where the supplier is established.
    • Telecommunications, broadcasting and e-services supplied to consumers located in EU – place where the consumer is resident.

Place of supply in relation to goods shall follow the physical movement of the goods. The following place of supply rules apply generally to goods (subject to some exceptions):

    • General rule is where goods are located at time of supply;
    • Goods which are transported – place where the transport begins;
    • Goods which are installed or assembled – place of installation or assembly;
    • Distance sales (supplies to private consumers) – place where transportation ends once certain thresholds are exceeded (otherwise where the transport begins).
    • Supplies of new means of transport (e.g. motor vehicles, boats or aircraft) to business or private customers – place of destination.

A VAT registered trader in Ireland may apply zero rate of VAT to the supply of goods to a business customer in another EU country if certain conditions are satisfied.

The VAT implications of intra-Community supplies of services and goods can become complicated when supplies are warehoused, transported, processed, installed or assembled, bought and resold between various member states.

VAT registered traders involved in intra-community acquisitions and supplies of goods have responsibilities in the VIES and INTRASTAT regime.

Related: Upcoming Changes to the UK VAT Grouping Rules

Conclusion

Advice on VAT should be sought before transactions and agreements are entered into in order to avoid unnecessary costs and remain compliant with EU VAT law.

Disclaimer: Please note that this commentary does not purport to be a comprehensive review of the VAT on cross-border transactions within the EU. Detailed appropriate advice should be taken before any particular transaction is entered into. 

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