Value Added Tax (VAT) Rules

[PeterSt]

I thought to spend a little topic on this subject, because people will often not know how things work regarding VAT in the European Union, and therefore won't understand what they will be invoiced.

The VAT as applied in the EC is subject to the Inter-community Rules. More general stuff here : European Union value added tax.

The subject is fairly huge and let me notice that whatever you may find on the net (like that Wikipedia article) most probably will be incomplete somewhere, because of the complexity on how transactions can happen. And oh, since I am the manufacturer/owner of a world wide servicing ERP software package in some other job, I should know it.

With that pile of rules and exceptions, this is what it comes down to, which in the end is fairly easy :

When a country is member of the European Union we can be 99% sure VAT applies in such a country. 99%, because some Spanish isles are excluded. Never mind those.

General outlay of VAT

VAT is a tax which needs to be payed over the gross price as how a company sets that; in the shops though, the price is always including VAT because shops target consumers, and consumers *ALWAYS* need to pay VAT net. How come this expression of "net" ? because companies can always get back the VAT. What happens with companies is that they sell something for a gross price of 100, add VAT on the invoice so what's to pay is e.g. 119, and when the recepient is a company, that company will get back that 19. Is the receipient a consumer, he can't get back the 19.

When do companies charge VAT ?

Keep in mind : Companies charge VAT. Private persons do not. And btw, Phasure is a company, so it is not "me" selling to you as a private person.

The before general outlay concerned local VAT charging, thus within the country in order. In that situation both consumers and companies 100%-always will be charged with VAT.
Things become different when the transaction crosses the border of a EU country;

No matter what, consumers are 100%-always charged with VAT. For companies it depends, but generally they will not be charged with VAT. All that takes is the company needing to provide the official VAT number of the company of the country they are in. When that VAT number is provided, the sending company (like Phasure) should not charge VAT. The sending company still might (it would be legal) but it is good usage to do not, because it is more hard in such a cross boundary transaction for the recepient to receive back the VAT amount.

Before proceeding, there's a very important rule, and when that is clearly understood, 100 other rules can be skipped right away :

VAT follows the goods.

This says : When Phasure sends a DAC to a "person in Finland (part of the EU) it is NOT sufficient that the recepient tells to charge the invoice to his German (part of the EU) company with German VAT number, so no VAT will be charged. Why ? because the goods go to Finland and so the company must be in Finland with Finnish VAT number. This obviously will let go the invoice to Finland as well and it will be without VAT; When the invoice had to go to Germany, VAT will be charged (no matter there's a German VAT number provided), because the goods go to the "person" in Finland where he does not have a company.
Whether next that VAT can be gotten back from the (German) Government is up to how it is arranged for, but officially not, because the goods didn't end up there, and it is and remains about where the goods go to.

Keep the above in mind for *all* situations !

The goods go from a EU country to  a non-EU country

This is easy : VAT will never be charged (but many Internet suppliers will anyway because this is all computer systems related and it is difficult stuff). Anyway, in this case VAT should not be charged. There is also a "why" :

Import duties

Whether the goods go from a EU country to Norway (non-EU) or to the US (non-EU) or to any other non-EU country, in exactly those countries import duties need to be payed. This is no coincidence !
This is not related to where the goods come from, but only related to where they are received. So, as soon as this is non-EU, import duties are in order. They vary vastly per country. Generally though, we can say that where we in The Netherlands pay 19% VAT, in countries like Norway something else applies, and where no VAT is (to be !) charged, import duties will take care of government tax income.

The percentage of VAT that is charged cross-border is always determined by the country of the sending company. Thus, when a company in The Netherlands sends an invoice to Germany and VAT applies, there will be 19% VAT charged, and not the 21% which applies in Germany.

To be clear : consumers in non-EU countries also are not charged any VAT, or otherwise they would pay twice.
(and on a side note, when we import from non-EU countries, we are charged VAT *and* import duties, but the import duties are relatively low because we already pay VAT which in this case is not charged by the sending company, but by customs)

So what you can just as well forget about ?

Answer : that you can manipulate this and avoid VAT *OR* the sort of other way around : that you can avoid import duties *and* VAT (the latter is needed, or otherwise the operation will be moot).

I can openly say that there's one means of "manipulation" only, and this is travelling to another country, open your trunk there and don't get caught by customs on the way back. So, for this too some rules exist and these rules will enforce you to be charged with VAT anyway, but this can be manipluated unseen by the delivering company (I won't explain further, not because of non-legit stuff, but because this is too complicated really). It is enough to state that even with this kind of transaction, it is you that now risk to be caught and the sending company is not responsible (you will be smuggling).
All 'n all, forget about manipulating this, and know that exporting to non-EU countries comes along with export invoices which will tell all.

Hopefully this clear up things for some, and I can now refer to this instead of explaining it over and over again.
It is perfectly allowed to respond to this, ask questions, or doubt the truth of it. I will be happy to respond back, already due to clear up things better or add little pieces of rule applicable to us.

Peter

[PeterSt]

One addition in a separare post :

I see people going in all kind of wrinkles to get rid of taxes and stuff. Aren't we all like that ?

As was stated in the opening post : only companies charge VAT, private persons do not.

Now, when this is related to me and knowing that I might be looked at as a private person halfly to say the least, you might wonder whether I would be able to send you e.g. a PC by me as private person because in that case I won't be charging VAT. Well, that won't work either, because for the components "I" buy VAT is charged, and VAT can only be gotten back by companies. I as a private person can not. This means that I have to buy components with a cost price including VAT, and obviously I have to put that through to the buyer.

Couldn't Phasure not buy the components and me as a private person sell them to you ? no, it can't because the components would be in pocession of the company and in the books they would be on stock forever. And when not, they would have been sold to me, and VAT will be charged to me (by my own company).

It's all pretty waterproof ...