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How does Avalara Support Place of Supply Rules for VAT?

Overview

You want to know how Avalara supports Place of Supply rules for VAT, Permanent Establishment, and Seller Importer of Record.

Environment

Avalara AvaTax

Resolution

Place of Supply rules for VAT depend on a settings and the transaction details:

  • If you have nexus and Permanent Establishment in the corresponding jurisdiction (country). 
    • Default value for Permanent Establishment is True for each country you select
    • Transactions tax differently depending on if the Destination is a country where you have selected nexus
    • Transactions for physical goods are taxed differently if you have set nexus in the destination country, and are physically present or are not physically present
  • Set Seller is Importer of Record at the nexus or transaction level (please note that the transaction level will override the nexus setting)
  • Seller is Importer of Record will default to false unless you change it to true in the nexus settings
    • You have the option to use the Advanced Tax Calculator for testing VAT without creating a transaction in AvaTax
    • Transactions for physical goods are taxed differently, depending on whether the Seller is Importer of Record is true or false
    • If your connector is hard-coded to pass “True” or “False” this will always use the transaction level field value and will disregard the default setting in nexus  
      • If this is not desired by your company, you may contact support and request they update your Importer of Record configuration to prioritize the default nexus setting over the transaction level values.  This will force the engine to use the nexus default.
  • The product or service taxability for your item can be set by a Tax Code at the line level for each transaction
  • The setting Seller is Importer of Record has a different effect on Physical, Freight, and Digital goods
     

NOTE: On January 23, 2018, Avatax was enhanced to better support cross-border calculations and VAT by allowing the you to manage more complex nexus configuration options. If you were live on Avatax calculating VAT on or before January 23, 2018 - we made the following changes to your Avatax setting for Seller is Importer of Record:

If you are a customer whose global transactions always include the United States or Canada in the Origin or Destination, in your nexus configuration for Seller is Importer of Record:

  • The Importer of Record (IOR) nexus default was set to True.
  • The goal of this setting is to maintain consistent tax results for you.  Setting the IOR to true will always trigger tax calculation in the destination country. In most cases previously, this approach is how AvaTax calculated.   

If you are a customer whose global transactions do not include the United States or Canada in the Origin or Destination, in your nexus configuration for Seller is Importer of Record:

  • The Importer of Record (IOR) nexus default was set to False. We expect that your cross-border business model is more advanced and you will want to leverage these new capabilities.

 

Note: Some key features to consider:

  • If any specific custom tax rules are required they are added on top of place of supply rules 
  • Reverse Charge is only supported when destination address is an EU country
    • For Non-EU to EU purchase transactions Reverse charge will not be calculated for Tax Codes that start with "P" (Goods) and Tax Coded that start with "D" (DigitalGoods) with IsPhysical=True
  • Reverse charge will be calculated for both conditions when Business Identification No is present or absent. 
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