Q1. What is VAT?
VAT, or Value Added Tax, is a consumption based tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought. It is a tax ultimately borne by the final customer.
It is charged as a percentage of the price, and is therefore visible. The purpose of VAT is to generate tax revenue for the government. The tax, whilst paid by the buyer through the purchase price, is collected and paid over to the government by the seller, and is therefore known as an indirect tax.
Q2. Who pays VAT?
In general, if you purchase a taxable item or use a taxable service, you are liable to pay VAT to the seller or service provider on the purchase price of what has been bought. The seller or service provider is then obligated to pay the collected VAT to the government. If you are not the end customer, you may be able to recover the VAT paid.
Q3. How is VAT charged?
VAT is charged as a percentage of the purchase price. The rate charged will depend on the jurisdiction involved. The amount charged is usually visible on an invoice. Click here to see our Standard VAT Rate Chart.
Q4. Explain VAT rates?
Each jurisdiction charges VAT at rates determined by its own government and therefore, these will differ from country to country. There is a standard rate of VAT, but there could also be reduced rates, which would apply to the supply of certain goods and services.
A zero-rate can also be applied by some jurisdictions to the supply of certain goods and services e.g. children’s footwear.
Q5. What is the difference between exemption and zero rating?
A government may decide to exempt the supply of a good or service, which means that the supply is not considered for VAT, and no VAT registration is required if only exempt sales are made. However, it also means that the related input VAT is not recoverable.
Where a supply is zero-rated, this is considered for VAT purposes, but a rate of 0% is applied to the supply. Related input VAT is deductible subject to the deductibility rule of the jurisdiction in question.
Q.6 Who can claim back VAT?
VAT is usually claimable by a taxable person who incurs VAT in the course of carrying out a business, in the furtherance of that trade.
Q7. Who needs to register for VAT?
Anyone carrying out a taxable activity will need to consider their obligation to register for VAT. When a business only carries out business with customers in its country of establishment, it should register subject to the local VAT registration threshold.
Q8. What are the rules on 'place of supply'?
For most B2B (business to business) supplies, the place of supply is where the customer is based, and the seller applies the reverse charge to such sales. It is important that the required statements are on the invoices, explaining why no VAT has been charged.
However, there are exceptions to the normal rules.
For B2B and B2C, some are as follows:
- Services relating to immovable property
- Provision of passenger transport
- Entrance to events, fairs, sporting events etc
- Provision of catering services on board a means of transport
- Short-term hire of vehicles
For B2C, there are further exceptions:
- Services of intermediaries.
- Intra-community transport of goods.
- Ancillary transport services.
- Supply of electronic services from outside the EU.
- Supply of electronic services from within the EU (from 1 January 2015).
- Services provided to non-EU customers by EU suppliers.
The above is subject to consideration of the effective use and enjoyment over-ride, which applies in some jurisdictions.
Q9. How long does it take to get a VAT number?
Typically the VAT registration process takes between 4-6 weeks to obtain a VAT number. However it can take longer.
Q10. What are the ramifications of not having a VAT number?
If a company is found to be behind on their tax payments or non-compliant within an EU Member State, then they are forced to repay all of the tax owed, plus interest and fines of up to 200% per cent of the total VAT liabilities, depending on the jurisdiction involved. In some countries, VAT can be backdated up to ten years along with penalties and interest on the unpaid VAT, along with interest on the unpaid penalties. So this can all add up pretty quickly. A saying goes that it is far more costly to be non-compliant than it is to be compliant.
But we are not just talking about financial penalties. The reality is that the authorities have the power to seize products not only at a first port of arrival in to the European Union but also after they have been imported and while they are in transit.
Not declaring VAT to the correct authorities can be interpreted as tax avoidance, and in some jurisdictions fraud or even a criminal offence.
Q11. Where can I find the forms to get set up?
Each European country has different procedures for setting up a VAT registration. Application forms are in each countries official language and each country has its own individual documentation requirements. In addition, the ongoing filing of VAT returns is a time sensitive function with penalties for late submissions or errors. The whole process is best outsourced to a VAT compliance service provider such as Meridian.
Q12. What does Meridian do?
Meridian is an International VAT-related service provider. We have approximately 300 VAT compliance staff based in our global service centre in Dublin, who provide VAT compliance to a world-wide database of clients.
To complement the VAT compliance team, we have a consultancy team based in Ireland, the UK, Germany, France and the US, who are experts in the field of international VAT. These international consultants are available as an internal and external resource.
Our teams are multi-national, and therefore, have extensive language skills along with international experience.
Q13. What VAT services does Meridian provide?
VAT returns and other forms required by individual jurisdictions.
EC sales lists
EC purchase lists
Final words of advice for sellers
Take your obligations seriously
Do not ignore the issue
Monitor your turnover closely
Plan ahead and act quickly if you need to be registered elsewhere
Understand the rules in each country and stay on top of any changes
Know your limitations