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What transactions does VAT apply to?

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Brexit has changed how EU member states interact with the UK. Please consult with your tax adviser on how Brexit has impacted your tax situation.

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Note

Avalara AvaTax is a tax compliance solution that automates the complexities of calculating sales tax, VAT, and GST. Please ask your Customer Account Manager about Avalara AvaTax and how it can help with your VAT calculations.

Generally, VAT is applied to four groups of transactions:

  • The supply of goods
  • The supply of services
  • The import of goods
  • Intra-community goods acquisition

Depending on the nature of the goods and businesses involved, certain transactions will be exempt from VAT, please consult with your tax adviser for questions about your specific tax situation.

Supply of goods

During the production of goods, VAT is determined whenever value is added to the goods during the production lifecycle. Based on the costs and value-add of each of the steps, output and input VAT is determined. The amount of VAT required to be paid during each of these steps is determined by calculating output VAT minus input VAT.

Supply of services

VAT is also applied to certain services. Taxable services can include digital services, consulting fees, events, and transportation services.

Import of goods

The taxing of imported goods is dependent on:

  • Type of goods
  • Countries involved

Imports and the EU

The following points provide a high-level summary of how imported goods are treated within the EU:

  • Import into EU: Importing goods into an EU country from a non‐EU country is considered to be an import that will attract VAT. The EU country in which the goods first arrive will charge their applicable VAT rate to the goods. The goods will not be released by customs until the import VAT is paid. Certain countries do have VAT deferment schemes that provide importers with a grace period for VAT payment.
  • EU intra‐community trade: The transfer of goods between EU countries will not attract import VAT. When importing goods from a non-EU country into an EU country, import VAT is only paid on arrival in the first EU country, subsequent movements of those goods between EU countries is often considered VAT free and is termed EC supplies.
  • Import into non-EU countries: For countries outside of the EU and the GCC (Gulf Cooperation Council), there is often no concept of the intra‐community transfer of goods between countries so cross‐border trade will attract import VAT.

EU Intra‐community transfer of goods

Sales to private individuals

A key exception for the intra-community transfer of goods is when the recipient is a private individual and the trade crosses an EU border. When selling goods from one EU country to a private individual in another EU country, the sale is deemed a distance sale, and VAT will often be due.

Distance sales are often governed by a distance selling threshold, once your total sales per annum exceed the destination countries distance selling threshold, you will be required to register and pay VAT on your distance sales into that country. 

Sales between businesses

For intra‐community supplies (EC supplies), VAT is not charged when selling or moving goods from one EU country to another. There are however certain conditions that need to be met:

  • Both businesses must have a VAT number. It is imperative that VAT numbers are validated and included in the sales invoice. 
  • The goods must move from one EU country to another and this movement also needs to be documented. 
  • For intra‐community acquisition, when selling goods from one business to another across an EU border, the supply must be exempted. The buyer will pay VAT on the goods in the form of acquisition VAT, local VAT is then charged but immediately recovered making the effective VAT zero.

See also

Learning VAT Home
VAT Product Home

EU VAT Directive

 

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