EU VAT returns
The rules governing the European common system Values Added Tax on goods and services are contained with the EU VAT Directive. It is created by the European Commission in Brussels, and all 28 EU member states are obliged to incorporate it into their local VAT laws – although there are certain optional elements, and opportunities to apply of derogations from the Directive.
The Original 6th VAT Directive was updated on 26 November 2006 as the Council Directive 2006/12/EC.
The Directive provides the framework for determining EU VAT’s: the scope; place of supply; the tax point; taxable amount; VAT rate; compliance obligation; exemptions; taxable persons; and a range of special schemes. Below is a summary of the main areas covered by the Directive
Transactions carried out for consideration on the territory of a Member State by a taxable person acting in that capacity are subject to VAT. Imports by any person are also subject to VAT. This includes the import of goods into the EU, and intra-Community acquisitions and by companies across EU internal borders.
EU VAT applies to all 28 member states. There are a number of territories where it does not apply, e.g. Gibraltar and Channel Islands (UK); and the Canary Islands (Spain).
It is applied to all taxable persons, corporates and individuals, carrying out regular supplies, and this typically exempts public offices, government etc.
A supply of goods is the transfer of the right to use and dispose of tangible property as its owner, and all other transactions are regarded as the supply of services. The import of goods into free circulation with the EU is also considered a taxable supply, and liable to import VAT.
Place of supply
It is important to determine the place of supply of goods or services to understand which countries’ VAT rules apply to the transaction. For goods, the place of supply is:
- The location at the time of supply
- Where goods are delivered, the place of supply is the point of the start of the journey. However, for intra-community supplies, the place of supply is where the customer is located. For imports, the place of supply is the country where the goods cleared into free circulation.
- The place of supply for gas, electricity and similar power supplies in where the customer is.
The Tax Point & Amount
The point in time when the VAT tax falls due is known as the Tax Point. It is generally when the goods or services are delivered to the customer. Most EU countries no longer treat the date of the issuance of the invoice as the tax point.
The taxable amount is the whole consideration, including any duties and incidentals – but excluding VAT. For imports, it is the same value as declared for customs’ purposes, including non-EU duties and tax, plus and packaging.
Members of the EU must apply principle, ‘standard’ VAT rate of at least 15%, although all countries are now above this minimum. See all EU VAT rates here. There is no restriction on the maximum rate, and Hungary currently charges 27% VAT. Countries may also apply two reduced rates on goods, and this must be at 5% and above. The types of goods which may benefit from the reduced rates are provided within the Directive. Countries may also apply other rates in force at the date of their accession into the European Union.
There are a range of scenarios and goods or services for which VAT is not charged. In some situations (VAT Exempt), companies may not recover the input VAT incurred when buying goods or services to be incorporated in their final product. For example: financial services, property-related and international air transport. In other cases, the company may be able to recover the VAT (Nil VAT). For example: medical supplies, children’s clothing, education, food, books.
Right to deduct VAT
The VAT Directive provides extensive guidance on what input VAT incurred as part of their entrepreneurial activity.
This includes the ability to recover VAT from other EU states other than where it is located.
Provision for Distance Selling to Consumers
To reduce the EU VAT compliance burden, and encourage intra-community free trade, companies are provided for a special exemption on the place of origin rules are provided. If a company sells goods via the internet or catalogue to a foreign customer from within the EU, they must charge their local VAT rate. They can then register in the country of their consumers once they start to sell amounts above a set annual threshold. You may read more about ecommerce EU VAT sales here.
- EU VAT compliance
- Invoice requirements EU VAT
- Triangulation EU VAT registrations
- Supply and install of goods for European VAT
- Reverse charge on EU VAT
- Electronic VAT invoice requirements
- VAT Recovery
- EU VAT returns
- EC sales list (ESL)
- 2018 Intrastat reporting thresholds
- Intrastat declarations
- Importing goods and EU VAT
- Call off & consignment stock VAT
- VAT information exchange system (VIES)