Do you or your clients offer services to foreign customers? Does your company provide services abroad? Then VAT compliance can be quite a hurdle. On one hand, the services were delivered by a company settled in the Netherlands. The beneficiary of those services, on the other hand, is situated abroad. This makes filing taxes a confusing affair.
VAT compliance on cross-border services
The VAT of delivered products is mainly based on the physical transport of those products. But when it comes to services, the levy of Value Added Tax is less transparent. Several aspects determine where to file VAT. The customer’s status as entrepreneur or non-entrepreneur is the first main criterion. The second is the kind of service provided. Thirdly, where the company delivering the services is seated, is an indicator as well.
Besides the seemingly contradicting rules, various exceptions instigate the opacity of the matter. In addition, you still need to actually file VAT once you determined where to file them. Again, various criteria might trouble the compliance. The following outline hopes to clarify the matter for you.
Where to file VAT?
Generally, VAT compliance is to be done in the customer’s country of residence. This rule holds when the customer is an entrepreneur. If that is not the case, VAT should be filed in the country where the service provider is located. Therefore, it is to your benefit to inquire after the status of your customer and the VAT-number. Despite the simplicity of the directive, the compliance of VAT might still deviate.
VAT compliance in the country where the actual transport takes place is mandatory in the case of passenger transport. Hence, for cross-border transport, you divide the taxes among the countries in question. This division should reflect the proportion of the distances traveled in each country.
Restaurants and catering
This system also applies to restaurant and catering services. The country where the services took place charges VAT. For services on board of boats, trains and airplanes, though, the country of departure will levy VAT if the international transport remains within EU borders.
Rental means of transportation
VAT on the rental means of transportation is to be filed in the country where the vehicle is delivered. The maximum duration to let means of transportation is 30 days. For ships, however, the leasing period reaches up to 90 days.
The country where an art, culture, sports, science, education and/or pleasure event occurs, will charge VAT for the admission of entrepreneurs. Services other than granting access, are in line with the general directive.
For the services an agent or intermediator provides to non-entrepreneurs, VAT compliance takes place in the country where the mediated service is levied. This directive only applies to mediations on behalf of another person. The mediator himself or herself cannot be a party in the settlement.
Rental means of transportation
Rental periods that surpass the period of 30 days – 90 days for ships – are met with VAT compliance in the non-entrepreneur’s country of residence. In case of pleasure crafts, the country of disposal is entitled to the tax.
Value Added Tax on freight transport is twofold. The country where transport between EU countries departed, levies the tax. However, VAT compliance of transport transgressing EU borders depends on the distances traveled.
Load and offload
For VAT on transport, you should also take other transport services into account, such as load and offload. The country where the services happened is entitled to the tax.
The previous rule also applies to chattel services to non-entrepreneurs. The country where those services are delivered will levy VAT.
VAT on all event services, including the organization of the event, applies to the country where the event is located. The rule holds for a variety of event themes, such as arts, culture, sports, science, pleasure and education.
Furthermore, the country of the non-entrepreneur’s residence will issue VAT on telecommunication, television and broadcasting services. The IP-address and IBAN number reflect the customer’s country. In case it is an EU member, the VAT rate of the country in question applies.
How to file VAT?
VAT calculation and compliance mainly depend on the customer’s entrepreneur status.
If the customer is indeed an entrepreneur residing in the EU, the reverse charge rule for inter-community services applies. Nevertheless, VAT should not be filed when the entrepreneur lives outside EU borders. Contrary, local VAT registration and compliance are in order for customers that aren’t entrepreneurs. In this case, the MOSS compliance (mini-one-stop-shop) suffices for electronic services.
Please note that Dutch VAT compliance and ICP declarations only mention services between EU members.
VAT compliance on cross-border product deliveries
International businesses require a structured approach to VAT. This also applies to services and deliveries of products. As their VAT compliance differs, it is important to distinguish services from products. VAT on the latter focusses on the product. In case of deliveries, however, the countries where the product departed or arrived are the main indicators.
When the country of departure and arrival differ, an international delivery occurs. How such export deliveries are charged, depends on whether or not the delivery surpassed EU borders. If the products are delivered outside the EU, the VAT rate is 0%. This should be justified in the VAT compliance (section 3a) with the necessary documents:
- Order or order confirmation;
- Credentials on the invoice;
- Payment from abroad;
- Export and Import documents;
- Transport documents;
- Transport insurance:
- Invoice of the transporter;
- Track and trace messages of the transporter;
- Communications with the customer about the transport, such as a delivery order or arrival confirmation.
There are several conditions for the invoices of international deliveries. First of all, they should stipulate the VAT identification number of the customer (in case of an entrepreneur customer). Second, they need to mention the international character of the delivery as well. Thirdly, including both the address of departure and of arrival is always to your benefit. This will facilitate the administration later on. Finally, you should always keep in mind that simplified invoices are strictly forbidden when it comes to export deliveries.
Deliveries to entrepreneurs
Delivering products from the Netherlands to customers residing outside the EU is levied with 0% VAT. This advantage, however, comes with a condition. The customer must prove his entrepreneur status by his VAT identification number. In addition, you should demonstrate that the products have left the Netherlands. Here, the previously mentioned documents are of use. The matter gets more complicated in case of collection transport or transport arranged by the customer. You can hardly prove these deliveries took place. Yet, the 0% VAT still applies if the customer is a regular client in possession of a collection statement.
Deliveries inside the EU, on the other hand, must be justified in section 3b of the VAT compliance. Second, ICP compliance is obligated as well. In this statement of inter-community transactions, you clarify your revenue per VAT identification number. If the revenue of international deliveries on the VAT compliance does not meet the revenue mentioned in the ICP compliance, tax authorities will issue a tax investigation letter.
Deliveries to private individuals
Besides entrepreneurs, you might also deliver products to private individuals. Nevertheless, the distinction between deliveries within or outside the EU once again determines VAT compliance.
The country of departure levies VAT on deliveries across EU-borders. Contrary, accidental or limited deliveries restricted within EU borders should be filed in the Netherlands. It applies a VAT rate of 6% or 21%. However, the story differs for large-scale inter-EU deliveries. It is to your benefit to account for their revenues per EU destination, since every EU country operates with a revenue threshold. Deliveries surpassing this threshold will be charged with VAT in the country of destination. This implies a local VAT registration and VAT compliance for the revenue concerning private, non-entrepreneur, customers. Finally, in case your revenue transgresses the threshold for VAT to be filed in the Netherlands, you should mention them in section 3c.
Simplifications on the horizon?
The European Commission proposed simplifications to the VAT filing system. The motion suggests a MOSS compliance for VAT on distance selling, starting January 2021. If the bill goes into effect, VAT registration in several EU members will no longer be needed. Furthermore, the current difference between revenue thresholds will be leveled out. The new threshold of EUR 10 000 will apply to all distance selling and digital services within the EU. Despite the advantage of a single compliance system for all export transport, you will more easily be faced with the VAT rates of different EU countries.
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