For businesses that trade internationally, understanding the VAT implications of their supplies and purchases is crucial to ensure international VAT obligations are met and that businesses are maximising their VAT position on a global level. For these purposes, the VAT treatment of supplies made internationally varies dependent on whether these are supplies of goods or services. In addition to this, the VAT obligations arising from an international supply of goods or services may also impact the means by which businesses can recover input tax incurred abroad.
International supplies of services
In order to determine where a supply of services is liable to VAT, it is necessary to consider the place of supply rules for services, which determine where a supply takes place for VAT purposes and therefore where VAT is due.
The general place of supply rules for services state;
B2B – where supplies are made to business customers, VAT is due with reference to the country where the customer belongs.
B2C – where the customer is a non-businessperson, VAT would be due in the country where the supplier belongs.
However, there are a number of exceptions to this general rule, one of which concerns land-related services, or supplies of installed goods, which may require a business to register and account for VAT in the country in which the land is located. Therefore, it is important to consider the nature of supplies made and confirm the appropriate means of accounting for VAT in the context of the place of supply rules for services.
Where supplies fall under the general rule, the customer may be required to self-account for VAT under the reverse charge mechanism in their country of establishment, and so an understanding of how this mechanism works in practice is required.
International supplies of goods
The world of global trade can be a complex and intimidating place. Companies of all sizes, from small businesses to large multinational firms, must navigate a mountain of customs regulations in order to get their goods across borders safely and on time, particularly in a post-Brexit world, as all movement of goods between the UK and EU now constitute imports and exports, giving rise to a requirement to consider the impact of additional customs complications.
When moving goods internationally, consideration should be given to who will act as importer of record into the country of destination as where this is not a business established in that country, this may give rise to the requirement to register for VAT in that country. It is therefore crucial to plan effectively prior to the shipment of goods, and ensure this strategy is reflected in declarations submitted.
There is a myriad of factors that need to form part of a business’s strategy when shipping goods, aside from the constantly changing rules and regulations of the relevant countries involved, including the classification of goods, valuation, preferred trader agreements, the application of customs procedures where relevant and the accurate completion of import/export declarations, ensuring that shipments meet all necessary requirements for entry into the country of import.
Understanding VAT and customs procedures and compliance is an integral part of any company’s success when it comes to doing business internationally. Having expert VAT guidance every step of the way is essential to ensure international obligations are met, and the business VAT and duty position is maximised.
