Cross-border VAT obligations

Every day I receive several requests regarding the determination of the tax liabilities of the cross-border VAT operations. I will try to explain the general approach for the determining cross-border VAT obligations.

The first question

What is "the cross-border VAT mechanism” and who needs it

The cross-border VAT is an indirect tax, which is charged on almost every operation of supply of goods or services within or outside the EU. Questions related to the cross-border VAT mechanism are important for business owners, which sell or buy goods or services within or outside the EU.  

The second question

What is the main purpose of the cross-border VAT system

The cross-border VAT system is devoted to implementing an equal standard for the charging and declaring VAT obligations in conditions where the supply of services or goods is carried out between the residents of different countries.

The third question

The main schemes of VAT obligations

Selling goods to businesses based in another EU country

If you sell goods to a business and these goods are sent to another EU country, you do not charge VAT if the customer has a valid EU VAT number. You may still deduct the VAT that you paid on related expenses, such as for goods or services purchased specifically to make those sales. If your customer doesn't have a valid EU VAT number, you should usually charge VAT on the sale at the rate applicable in your country.

Selling goods to the final consumer in another EU country

A VAT threshold of EUR 10,000 applies to distance sales for customers in the EU. Below this amount, TBE (telecommunications, broadcasting, and electronic) services and distance sales of goods in the EU may be subject to VAT in the EU country where the taxable person is established.

If you are an online seller, including on online marketplaces and platforms, you can register in one EU country for the declaration and payment of VAT on all distance sales of goods and cross-border supplies of services to customers in the EU.

Selling services to businesses based in another EU country

If you sell services to businesses based in another EU country you don't usually need to charge your customers VAT. Your customers will pay VAT on the services received at the applicable rate in their country (using the reverse charge procedure). You may still deduct the VAT that you paid on related expenses, such as for goods or services purchased specifically to make those sales.

Selling services to the final consumer in another EU country

You must usually charge your customers VAT at the rate that applies in your country, except for telecommunications, broadcasting, and electronic services, which are always taxed in the customer's country (where a private person has a permanent address or usually resides, or where a non-taxable person is established).

Buying goods from another EU country

If you buy and receive goods for business purposes from another EU country, you must declare and pay VAT on the transaction as if you had sold the goods yourself, at the applicable rate in your country. You can usually deduct this amount later on when you make your VAT declaration.

Buying services from another EU country

If you buy and receive services for business purposes from another EU country, you must declare and pay VAT on the transaction as if you had sold the services yourself, at the applicable rate in your country (using the reverse charge procedure). You can usually deduct this amount later on when you make your VAT declaration.

Selling goods to customers outside the EU

If you sell goods to customers outside the EU, you do not charge VAT. However, you may still deduct the VAT that you paid on related expenses, such as for goods or services purchased specifically to make those sales.

Selling services to customers outside the EU

If you provide services to customers outside the EU, you usually do not charge VAT. However, if the service is used in another EU country, that country can decide to charge VAT. You may still deduct the VAT that you paid on related expenses, such as for goods or services purchased specifically to make those sales.

Buying goods from outside the EU

If you buy goods for business use from a supplier based outside the EU, you must generally pay VAT at the point of import. If you make taxed sales, you can usually deduct this amount later on when you make your VAT declaration.

Buying services from outside the EU 

If you receive services for business purposes from a supplier based outside the EU, you should usually pay VAT at the applicable rate in your country, as if you had supplied the service yourself (using the reverse charge procedure). You can usually deduct this amount later on when you make your VAT declaration.

The fourth question

Why you need to have a status of the VAT-taxpayer

The VAT-taxpayer status allows to deduct input VAT for the operations. The VAT-taxpayer status also allows to use the mechanism of the reverse charge by your customers and makes positive influence on your business reputation as a taxpayer.

Due to the status of a VAT-payer you can fulfill your tax obligations by the way of deducting the input VAT.

In conclusion to the above mentioned, I would like to add that there is nothing difficult in the understanding of the cross-border VAT system and it's obvious that it is profitable to be a VAT-taxpayer.