Update: 3 May 2024 by Dilara İnal
The Israeli Tax Authority (ITA) has postponed the rollout of the continuous transactions controls (CTC) mandate.
The deduction of input tax is allowed with this second postponement, even in the absence of an allocation number, until 4 May 2024. The previous cut-off date was 31 March.
Starting 5 May 2024, businesses engaged in B2B transactions exceeding 25,000 NIS (approx. EUR 6,500) are required to obtain an allocation number assigned by the ITA.
Contact our expert team for more information on Israel’s CTC changes.
Update: 2 November 2023 by Dilara İnal
On 23 October 2023, the Israeli Tax Authority (ITA) announced that it had extended the continuous transaction controls (CTC) implementation timeline to offer businesses more time to complete their technological development. According to the announcement, the ITA will allow the deduction of input tax from a tax invoice, even in the absence of an allocation number, until 31 March 2024.
The new Israeli invoicing framework will require businesses engaged in B2B transactions that exceed a specific threshold to obtain an allocation number. The first phase starts on 1 January 2024 for invoices exceeding 25,000 NIS. Businesses must ensure that their invoices include the allocation number to be eligible for input VAT deduction as of this date. In light of this recent announcement, buyers will receive an additional three-month period to comply.
It is important to emphasise that although the ITA has extended the time for input tax deductions, the clearance platform will be fully operational as originally planned from 1 January 2024. From this date, invoice issuers who will request allocation numbers will receive them.
Looking for more information on Israel’s invoicing developments? Find out more.
Update: 6 July 2023 by Enis Gencer
The Israel Tax Authority has released a set of guidelines encompassing technical details and other relevant information regarding the implementation of the Israeli Invoice model.
The guidelines state the new model will be a phased implementation that begins with a pilot program in 2024. A key objective of this new model is to address and mitigate the long-standing issue of fictitious invoices in Israel.
Under the newly introduced Israeli Invoice model, taxpayers involved in B2B transactions which exceed a specific threshold will be required to obtain an invoice number. This will be done by contacting the designated tax authority service via APIs and sending the invoice information prescribed by the tax authority.
The guidelines define the set of information that must be reported to the tax authority, including:
Once acquired, the invoice number must be included on the tax invoice. Without this number, taxpayers will not be eligible to deduct input VAT. It is important to note that the tax authority reserves the right to not assign the invoice number if there is reasonable suspicion of any legal inconsistencies concerning the invoice.
Buyers can use the invoice number to access invoice details through the tax authority service. This feature is designed to optimise the process of incorporating the invoice into the taxpayer’s accounting system.
The Israeli Invoice model will be a phased implementation, beginning with a pilot program in January 2024 for invoices exceeding 25,000 NIS (approximately 6,500 euros). During this phase, the tax authority can only reject the request for invoice numbers in cases of technical errors.
As implementation progresses, the threshold will be gradually reduced as follows:
Israel is quickly taking steps towards the introducton of its invoicing system by publishing technical details and its implementation timeline soon after introducing the system formally in February 2023. Taxpayers should now prepare their systems according to the legal and technical guidelines that the tax authority has recently published.
Looking for more information on Israel’s upcoming regulations? Contact our team of experts.
Update: 26 May by Enis Gencer
More details have emerged regarding the implementation of the continuous transaction control (CTC) model in Israel, which was announced to be introduced in the country in February 2023.
As we reported earlier, Israel’s government approved the 2023-2024 budget on 24 February 2023, setting the stage for the adoption of the CTC model. Since then, the proposal has gone through the standard legislative process and it has recently received approval from the Finance Committee, with some modifications.
According to the latest announcement, the modified plan introduces a CTC e-invoice clearance model for invoices exceeding NIS 25,000 (approximately 6,500 Euros) in business-to-business (B2B) transactions. Under this model, invoices must be issued through the tax authority’s system and obtain real-time approval. Taxpayers will not be allowed to use unvalidated invoices for deducting input tax.
The implementation of the CTC e-invoicing model is scheduled to start in January 2024, and by 2028, the threshold will be reduced to NIS 5,000, thus covering smaller amount transactions.
Despite the short implementation timeline, it is important that the authorities publish regulatory and technical specifications in time for taxpayers to prepare their invoicing systems to fully comply with the new requirements by January 2024.
Find more information about Israel’s current e-invoicing system here.
Update: 14 March 2023 by Enis Gencer
Israel’s government approved the 2023-2024 budget on 24 February 2023 to introduce a continuous transaction control (CTC) model in its tax system.
This long-awaited move will have significant implications for businesses operating within the country. It is essential to know the changes that may impact your company.
The new plan, prepared by the Ministry of Finance and approved by the government, envisages an e-invoice clearance model for invoices over NIS 5,000 (appx. 1300 Euros) issued between businesses. Under this model, invoices must be issued through a tax authority system and receive real-time approval.
The tax authority system will issue a unique number as proof of clearance for each invoice, which businesses can then use to deduct input VAT. The government has also proposed that the tax authority be entitled to refuse a request to assign a number and not clear the invoice if there is a reasonable doubt that the invoice is not issued legally.
While this plan is an exciting development, it is only the beginning of a long journey towards implementing a CTC model. The above proposal is currently only outlined in a budget document, which will be subject to further readings and approvals before the government can implement it.
Additionally, an amendment to VAT Law and the publication of technical details will be necessary to make it legally and technically enforceable.
For further information on the digitization of tax in Israel, speak to a member of our team.
Update: 9 April 2020 by Joanna Hysi
With the long-lasting problem of fictitious invoices in Israel, a move towards some form of mandatory e-invoice clearance might be the answer. After having been withdrawn once due to failing support, the idea of a continuous transaction control (CTC) model is being revived by the Israeli tax authority. The proposed model, similar to Chile’s e-invoicing system (clearance), would include a direct connection between the tax authority and businesses in real time for each transaction. The proposal, which is currently being reviewed with interested stakeholders, will be presented to the Knesset Finance Committee, with the hope of promoting legislation for implementing the planned reform measures as soon as a new government is formed.
Subject to final adoption in law, the core points of the reform are:
It’s an interesting observation that for years Israel appeared to be heading towards the EU approach of a post-audit system, yet recently they seem to have pivoted and be heading towards the more Latin American style of continuous transaction controls.
Either way, the Israeli tax authorities are now taking firm measures to combat VAT fraud, as to whether they go for a model similar to Chile, or something close to home in India or Turkey, we will have to wait and see.
Note: The Finance Law for 2024 has been officially adopted and published in the Official Gazette on 30 December 2023. Our blog, France: B2B E-Invoicing Mandate Postponed, is promptly updated whenever there are changes to the rollout of the French mandate.
France will implement a mandatory B2B e-invoicing and an e-reporting obligation. Every company operating in France is affected.
Electronic invoicing in France requires using a (partner) dematerialization platform. The already enacted legislation leaves the choice of which platform up to companies.
Should you use the public platform (‘PPF – Portail Public de Facturation’, i.e. Public Invoicing Portal) or a third-party private platform (‘PDP – Plateforme de Dématérialisation Partenaire’, i.e. Partner Dematerialization Platform)? And which organisation registered as a PDP should you opt for?
There is a lot to consider – including the type of invoices, data management, customer/supplier relations, transmission, functionalities, and more – this blog will help you make a decision.
The electronic invoicing process includes formatting, controlling, reporting, routing tracking, transactions, whether between trading parties (domestic B2B e-invoices) or with the PPF (domestic B2B e-invoices, cross-border B2B sales and purchases, B2C sales, payments received on services). In this respect, PDPs are essential.
French legislation allows companies to choose their dematerialization platform for submitting and/or receiving domestic B2B invoices and reporting transactions. A public solution exists, the PPF, alongside which other PDPs position themselves.
What parameters should you consider when choosing a dematerialization platform? What are the conditions for becoming a PDP and when will they be operational?
This blog discusses the elements that enable companies to understand the role of dematerialization platforms in managing electronic invoicing. If you wonder how to choose the right PDP for your organization, read this blog about Choosing the right PDP – 5 Questions to ask Yourself.
The need to use a dematerialization platform is part of the electronic invoicing requirements, which come into force for business-to-business (B2B) transactions with go-live of the mandate.
An electronic invoice must be delivered in a structured format, leaving it to the trading parties and their PDPs to agree on the standard. By default, PDPs must be able to process the three core set formats, UBL, CII, or UNCEFACT, with the obligation for the platforms to produce a legible version of each invoice, or Factur-X hybrid format (XML+PDF/A-3).
PDPs may also offer to process any other structured formats (e.g. EDI formats such as EDIFACT), subject to acceptance by both the buyer and the seller. In both cases, PDPs will have to extract mandatory data from the issued e-invoice and map it into one of the core set formats – and then report them to the PPF within 24 hours of the e-invoice issuance.
The corresponding flows can be exchanged under various communication protocols (EDI, API, etc.)
Using a PDP isn’t mandatory from a legal point of view. However, using a PDP will be necessary for companies who want to exchange invoices in specific formats due to the specificities of the invoice flow (not supported by the PPF).
The PPF will be used for the obligatory transmission of invoice data to the tax authorities.
It will manage the following for companies:
The PPF performs other functions including management of the Central Directory (in which any registered company subject to VAT will be identified), data collection and transmission to the tax authorities, and retention of e-invoices.
Like the PPF, a Partner Dematerialization Platform (PDP) ensures the submission of invoices and conversion into one of the three core-set formats – CII, UBL or Factur-X.
But, contrary to the PPF, they will allow the exchange of invoices in any EDI format (other than the three core-set formats).
The PDPs will allow the following:
In addition to these mandatory functionalities, they may also offer the following:
A PDP is a platform registered and authorised by the French tax authorities. The official registration number will be issued based on an application file submitted by an operator. This file will have to document how the regulation requirements (decree and order published in October 2022) are met, particularly the ability to perform the functions expected of a PDP. These requirements are meant to be slightly revisited with a new decree/order to be published beginning of 2024 (more precisely, with the removal of connectivity tests with TA Platform as a PDP Registration Criteria)
In addition to the guarantee provided by this registration (mainly from the point of view of compliance with stringent security rules), what distinguishes a registered platform from a simple dematerialization operator is the possibility of transmitting invoices to other dematerialization platforms (PPF or other PDPs).
This registration is valid for three years and then must be renewed, based on audits to be regularly provided by the PDPs (first audit to be conducted no later than 12 months after the registration entering into force).
The first certified PDPs should be announced in the beginning of 2024 and will be published on the tax authority’s website.
Find out how Sovos can help you comply with e-invoicing regulations by speaking with one of our experts.
It’s essential to stay on top of your company’s VAT requirements. This requires sound knowledge of the rules and what authorities expect of businesses. This includes dealing with supplies of goods and services outside standard VAT obligations.
Not every product or service incurs VAT. This is VAT exemption.
Some goods and services are exempt from VAT. This depends on the sector and country you are selling within.
For more information on how to comply with European VAT, download our free eBook or read our comprehensive guide to the EU VAT e-commerce package.
If a supply is exempt from VAT, it may be because the EU considers the goods or services as essential. VAT exempt supplies include:
If your company only sells VAT exempt products or services, your business operates differently. It is a VAT exempt business and:
For example, if a company solely provides education and training services in the UK, the government would consider it an exempt business. The above rules would apply.
In some circumstances, a business might be partially exempt from VAT. Partial VAT exemption applies to VAT-registered companies that carry out both taxable and VAT exempt supplies of goods or services.
If your business is partially exempt from VAT, you can still reclaim any VAT incurred when producing or acquiring non-VAT exempt goods or services you sell to customers.
Additionally, partially exempt businesses need to keep separate records. These records should cover VAT-exempt sales and provide details on how VAT was calculated for reclamations.
VAT exemption is not the same as 0% VAT. No extra charges are added to the original sales price for either zero-rated or VAT-exempt supplies, but there are a few significant differences.
Unlike VAT-exempt supplies, zero-rated goods and services are part of your taxable turnover. Zero-rated supplies should be recorded in your VAT accounts – whereas, in some countries, businesses might only record non-taxable sales in regular company accounts.
Furthermore, in contrast to VAT exemption, you can reclaim the VAT on any purchases for zero-rated goods or services.
VAT rates and exemptions vary across the world, so we will use the UK as an example to illustrate the concept.
In the UK, most goods and services are subject to a standard VAT rate of 20%. However, some are subject to a reduced VAT rate of 5% or 0%.
Goods and supplies with a VAT rate of 5% include:
Goods and supplies with a VAT rate of 0% include:
These reduced rates may only apply to certain conditions, or in particular circumstances depending on the following:
Continuing with our UK example, if you sell, send or transfer goods out of the UK, UK VAT is often not included as they are considered an export.
You can send most exports to a destination outside the UK with a zero rating if you meet the necessary conditions:
VAT exemptions are always changing. Don’t get caught out. Contact our team for advice on how your business should manage its VAT obligations if it is exempt from VAT.
The EU Commission’s VAT in the Digital Age proposals include a single VAT registration to ease cross-border trade.
Due to enter into force on 1 July 2028 (1 January 2027 for electricity, gas, heating and cooling), the proposal is part of the commission’s initiative to modernise VAT in the EU. The single VAT registration proposal would mean only registering for VAT once across the EU under a wider number of in-scope transactions, reducing VAT administration costs and time.
The One Stop Shop (OSS) is a pan-EU single VAT registration. While optional, it can be used to report and pay the VAT due on Business to Consumer (B2C) distance sales of goods and B2C intra-community supplies of services in all EU Member States.
The scheme has been well-received and implemented by many companies. There are discussions of broadening the scheme to further simplify VAT in the region.
To further modernise the EU VAT system, the Commission has proposed an expansion of the OSS scheme for e-commerce to include:
Despite rumours of altering the Import One Stop Shop (IOSS) threshold, the current EUR 150 consignment threshold for imported B2C sales will remain for the foreseeable future. The scheme will also stay optional for businesses.
Regarding Business to Business (B2B) supplies, the EU Commission wants to harmonise the application of the extended reverse charge in article 194 of the EU VAT Directive. When implemented in the EU Member State, it applies to non-resident suppliers and reduces their obligation to register in a foreign country for VAT purposes.
Currently, some of the 27 EU Member States have implemented the article mentioned above – and not all in the same way.
Introduction of the new mandatory B2B reverse charge will be for certain sales of goods and services if transactions meet the following conditions:
Although the reverse charge mechanism will be mandatory in certain cases, Member States can choose to apply it universally for non-established taxable persons.
Finally, the EU will abolish provisions in the VAT Directive regarding call-off stock arrangements from 1 July 2028. Beyond this date, new stock transfers under those arrangements cannot be affected as the simplification will not be needed.
However, goods supplied under pre-existing arrangements can continue with the regime until 30 June 2029.
Get in touch for expert help with easing your business’s VAT compliance burden, reviewing your Tax Code mapping and verifying how you can improve your cash flow. If you want to learn more about VAT in the Digital Age have a look at What is VAT in the Digital Age? ebook or at this blog about the platform economy and VAT in the Digital Age.
In the past year, the Greek tax authority published a series of legislative acts introducing new requirements (the QR code and prefilling of VAT returns) and amending existing ones. It’s been more than three years since the rollout of myDATA as a voluntary scheme, but the system is far from complete.
myDATA is a broad and multi-faceted project covering multiple areas of compliance, ranging from e-invoicing to e-accounting and e-bookkeeping. The system, being quite complex, is still largely under development, technically and legislatively, and prescribed deadlines keep receiving push-back from businesses not ready to comply in time.
In response to continuous feedback from businesses and accountants the tax authority more than once has relaxed requirements, offered grace periods and imposed no associated penalties so far (except certain petty fines for 2021 related to recapitulative statements).
One of the latest amendments is the second postponement of transmission deadlines for certain, mainly historical, data which ought to have been reported in the past two years. The Ministry of Finance jointly announced a press release with the head of the IAPR and published a Decision amending the myDATA law (L. 1138/2020). The deadlines for transmitting certain data generated in 2021, 2022 and 2023 are postponed, giving businesses more time to collect and transmit data according to the myDATA specifications.
For 2023, the obligations pertain to the transmission of historical data which took place in the last two years. Current data generated in 2023 may be transmitted within certain deadlines in 2024.
For 2024, the obligation pertains to upcoming data which take place in 2024. Current data generated in 2023 may be transmitted within certain deadlines in 2024.
The tax authority’s intention with these changes is to provide more time for businesses who haven’t complied with the previous transmission deadlines to report the required data to myDATA. However, starting from January 2024 the tax authority is expecting businesses to comply with the required deadlines without providing a grace period, at least as of yet.
Certain major aspects of the myDATA system have been the center of much discussion among businesses, accountants and the authorities. This includes mandatory reporting of expense data and any penalties relating to 2022 and onwards which are currently left unregulated. However, the tax authority has announced that a decision regarding the penalties will be published in the next months.
Have questions about Greece’s myDATA requirements? Speak to our tax experts
Did you know? Over 170 countries worldwide have implemented VAT or GST.
Despite how common VAT is, the tax is difficult at the best of times to understand. Knowing who pays VAT – the buyer or the seller – is straightforward, though, if you take the time to learn about the tax or have help.
That’s why we share plenty of knowledge on the topic, from an in-depth introduction to EU VAT to how VAT changes when trading between different EU countries.
With this specific blog, we explain who collects VAT and what governments expect of businesses. For questions around the EU VAT eCommerce package read this comprehensive guide.
Let’s start with the burning question, what is VAT?
VAT is a tax collected as goods and services move through a supply chain. In other words, manufacturers, distributors and retailers collect VAT as an item or service makes its way to a final consumer.
But wait. What’s GST?
Similar to VAT, GST sees tax authorities levy GST (Goods and Services Tax) on goods and services sold for domestic consumption. Consumers pay GST, and businesses remit it to the government.
Both GST and VAT share characteristics but have different names. How they work depends on the country and local legislation. For example, the EU has specific VAT compliance requirements as our free guide outlines.
Let’s start with a seller. Sellers collect VAT by adding the tax to the selling price.
The VAT charged by the seller is ‘output tax’. Sellers report this to the local tax authority on behalf of the buyer. The VAT paid by the buyer is ‘input tax’. The buyer can credit this against the VAT they charge.
Yes, we know this sounds complicated so here’s the concept in simpler terms.
In certain scenarios, VAT can be instead reported and remitted by the buyer. This is a ‘reverse charge’.
You are an eCommerce business? Read more about VAT compliance for eCommerce here.
The main differences between Sales Tax and VAT are who pays tax to the local governments and when.
VAT and Sales Tax occur at different stages in the production chain. As a tax authority, you levy Sales Tax on retail purchases of goods or services. You impose VAT on each step of the production process.
The challenge with Sales Tax is that tax authorities have no record of transactions to verify retailers’ tax payments. However, with VAT, the chain of transactions and credits creates a natural audit trail due to the cross-reporting between businesses.
The government can issue fines if tax authorities detect errors through an audit.
Usually, VAT is charged at the same flat rate across the board. This is set by a national government. However, other rates – such as a zero rate – can apply to specific supplies like children’s clothes and food.
Supplies such as financial and property transactions can also be exempt from VAT – in which case, no VAT is chargeable, nor can the related VAT be recovered by businesses.
The seller should issue a valid VAT invoice containing the following:
Local legislation defines whether additional information is required. Simplified and retailer invoices are allowed in some circumstances.
VAT encourages everyone in the production chain to maintain documentation for all transactions, making each subject accountable for their amount of revenue and compliance with tax laws.
This becomes particularly important when a business wants to reclaim VAT, as they will be required to produce evidence that the tax was incurred in the first place.
Businesses will document and report the VAT paid to their suppliers and the VAT collected on their sales. To claim a VAT credit, businesses must keep proof of the VAT incurred, such as purchase invoices and import documents.
Not all businesses may need to register for VAT. Some circumstances may trigger a VAT registration. These include:
In certain circumstances, it’s possible to register for VAT voluntarily, with the main benefit being the ability to recover the input VAT incurred on purchases.
Registered businesses file periodic VAT returns in respect of each prescribed accounting period. The format and frequency may vary from country to country.
Registered businesses also keep VAT records, charge the right amount of VAT to their supplies, submit VAT returns, and pay any VAT due in a timely manner.
There are specific triggers that could prompt queries from the tax office. Usually, these are changes in the company’s status – such as a new registration, a de-registration, or structural changes. VAT refund requests also fall into this category.
Due to their structure and business model, certain businesses are naturally subject to audits. Groups commonly selected for scrutiny include large companies, exporters, retailers, and dealers in high-volume goods.
Tax authorities, especially those trading with the European Union, often identify individual taxpayers based on past compliance and how their information compares with specific risk parameters.
Therefore, unusual trading patterns, discrepancies between input and output VAT reported, and many refund requests may appear unusual from the tax office and produce questions.
Finally, another common reason for the tax authorities to request further information from taxpayers is the so-called “cross-check of activities”. In this case, the tax office will contact their counterparts to verify that the information provided is consistent on both sides.
Whether a business decides to handle the audit in-house or request the support of an external advisor, it is essential to consider the consequences of the audit – especially if high amounts of recoverable VAT are at stake. In the case of an audit, the main objective should be a successful and fast resolution to limit any detrimental impact on the business.
Our explanation about who pays VAT, the buyer or the seller, has explained things but do ask our experienced team any extra questions you might have. They are here to help.
A seller collects VAT from sales and reports it to the local tax authority on behalf of the buyer. A buyer may also end up charging VAT if it is selling its own goods or services.
Yes, a buyer pays VAT to sellers and if a buyer sells goods or services to its own customer base and meets the threshold for VAT registration, it will charge VAT itself and pay this to the government.
Sellers do pay VAT, as it’s a consumption tax involved in every step of the supply chain.
This depends on the transaction, where the buyer or seller sits in the transaction supply chain, and whether the goods are exempt from VAT.
Sales Tax is different to VAT. The consumer only pays Sales Tax when buying the final product, whereas businesses collect VAT at every stage of production – meaning all purchasers pay VAT.
Speak to our sales team to find the right solution for you or take a look at our VAT solutions.
Following the publication of various circulars by the Federal Ministry of Finance in Germany in 2021, rules on the taxation of guarantee commitments were made effective 1 January 2023. This blog explains how this affects insurers and other suppliers.
The Ministry of Finance published its initial circular in May 2021. This was in response to a Federal Fiscal Court judgment. It concerned a seller of motor vehicles providing a guarantee to buyers beyond the vehicle’s warranty.
In these circumstances, the circular confirmed that the guarantee is not an ancillary service to vehicle delivery but is deemed to be an insurance benefit. As such, it would attract IPT instead of VAT – unless the guarantee is considered a full maintenance contract.
The circular did not prompt immediate concern within the insurance sector. Markets outside the motor vehicle industry weren’t concerned either. The presumption was that it was limited to the specific context of the motor vehicle industry.
Matters changed the following month. The Ministry of Finance clarified that the tax principles it outlined in fact applied to all industries. As a result, the scope of these rules became potentially limitless in Germany. All guarantees provided as additional products to goods or services sold are now within the scope of the application of IPT.
The clarification could impact industries like those organisations selling electrical items and household appliances.
The effect on traditional insurance companies should be relatively limited as they do not usually provide guarantees as part of the sales of goods and services. There could arguably be a significant impact on other suppliers that do provide such guarantees.
First and foremost, there is a potential increase in the cost of providing the guarantees caused by the application of IPT. Unlike input VAT, a supplier cannot deduct IPT from its taxable income – it must either increase prices to compensate or accept a less favourable profit margin.
Any companies that purchase the guarantees cannot reclaim the IPT either, as they can do with VAT. The standard IPT rate of 19% in Germany is high compared to most European countries. This exacerbates these issues.
There are also practical considerations to bear in mind for suppliers obliged to settle IPT with the tax authority. They are presumably required to be registered for IPT purposes like insurers, although the Ministry of Finance has not formally confirmed this.
Perhaps more difficult is the issue of licensing. The Ministry of Finance circulars focus on taxation, leaving it unclear whether other suppliers are now required to obtain a license to write insurance under German regulatory law.
Looking for more information on general IPT matters in Germany? Speak to our expert team. For more information about IPT in general read our guide for insurance premium tax.
The European Union is a collective but its Member States have their own rules and nuances where VAT is involved. Knowing what rules are at play is essential when trading in the EU, and that’s where Sovos’ EU VAT Buster comes in.
Each Member State has its VAT threshold for sales. Though, collectively, things changed when the EU VAT Reform came into force. Bookmark this blog so you always have the key facts available when dealing with EU VAT.
For intra-EU B2C supplies, the VAT registration threshold in the EU changed on 1 July 2021. The EU introduced a new lower threshold of €10,000 for businesses established in the region, while a threshold does not govern those outside the region.
For European businesses, that threshold applies annually and is related to all sales in the EU. There is no revenue threshold for non-European companies, and they must be VAT registered in all Member States they sell within.
For other activities, many EU Member States have domestic supplies for established companies, whereas in most instances non-established companies do not benefit from any threshold.
The table below highlights a selection of EU Member States and the VAT number format for the country.
The below table shows VAT details for several countries. The VAT rates were last updated on 17 February 2023 and include the main reduced rates (countries may also have zero rates – read our blog to better understand how VAT works between European countries).
For more information, including relevant data on additional countries, speak to our expert team.
| Country | Current VAT Rate | VAT Number Format | |
| Standard | Reduced | ||
| Germany | 19% | 7 | Format: Nine characters.
Example: DE 123456789. |
| Hungary | 27% | 5, 18 | Format: Eight characters.
Example: HU 12345678. |
| Romania | 19% | 5, 9 | Format: From two to 10 characters.
Example: RO 12, 123, 1234, 12345, 123456, 1234567, 12345678, 123456789, 1234567890. |
| Spain | 21% | 4, 10 | ES X12345678, 12345678X, X1234567X
Format: Nine characters. Includes one or two alphabetical characters (first or last or first and last). |
| Switzerland (non-EU) | 7.7% | 2.5%, 3.7% | Format: Nine characters, ends with MWST/TVA/IVA.
Example: CHE 123.456.789 MWST. |
| United Kingdom (non-EU) | 20% | 5% | Format: Nine characters.
Example: GB 123 4567 89. |
EU VAT is a vast topic, especially considering each country within the union has its own nuances. As such, many questions are asked of us regarding it. Here are some of the most common phrases you may encounter, as well as some frequently asked questions – and the answers.
The Destination Principle is a concept which allows for VAT to be retained by the country where the taxed product is being consumed. It’s applied to the Goods and Services Tax in India, and on many EU supplies.
The VAT Origin Principle is a concept which requires that the applicable VAT rate for a transaction is determined by the Member State where the seller is based.
The Union OSS (One Stop Shop) is a scheme for intra-EU business-to-consumer supplies of goods and services. It was introduced in July 2021.
The Non-Union OSS (One Stop Shop) is a scheme for companies that are not established in the EU. It allows them to register and pay VAT for all business-to-consumer supplies of services in a single EU Member State. It was extended from the previous Mini One Stop Shop (MOSS) in July 2021.
All goods imported into the EU are subject to VAT. Businesses selling imported goods under EUR 150 can utilise IOSS (Import One Stop Shop) to simplify their VAT Compliance. To obtain an IOSS VAT registration, most non-EU companies need to appoint an intermediary – such as Sovos.
Marketplaces may become the deemed supplier of some business-to-consumer transactions when they cross borders, taking on VAT obligations. This means that a marketplace would gain responsibility for collecting and reporting VAT from the consumer.
To stay compliant with tax regulations, companies need to know the varying VAT thresholds of the EU Member States. In July 2021, the EU introduced a universal distance selling threshold of €10,000. For other activities, many EU Member States have domestic supplies for established companies, whereas in most instances non-established companies do not benefit from a threshold.
Cross-border supplies involve goods being transported from one country to another. In some cases, goods may cross multiple borders on the journey from the supplier to the final destination of sale. When dealing with cross-border supplies, you may create a requirement to register for VAT.
There are no customs charges when goods are transported from one EU Member State to another. There are customs charges for goods originating outside the EU. Such charges are generated from customs controls at borders and are dependent on a specific set of rules.
In the EU, Import duty is tax payable based on the value of imported goods and can include VAT and customs duties.
Hungary has the highest standard VAT rate of any European country, sitting at 27%. Croatia, Denmark, and Sweden are joint-second at 25%.
Luxembourg has the lowest standard VAT in the EU at 16% for 2023, though this will return to 17% in 2024. No country can charge a standard VAT rate below 15%.
No EU Member State can charge under 15% as a standard VAT rate. Luxembourg has the lowest standard rate among the Member States at 16% (albeit temporarily).
Although the European Union has somewhat created a uniform tax protocol, each EU Member State has its own VAT rates.
If you buy or receive goods for business purposes from another country in the EU, you must pay VAT on the transaction at the rate dictated by the type and place of supply.
Businesses need to know the unique VAT threshold of the EU Member States. As of July 2021, the VAT threshold for distance selling in countries in the EU is €10,000. For other activities, many Member States have domestic supplies for established companies – though, typically, a threshold is not applicable for non-established companies.
VAT registration is applicable for non-resident companies to trade in a country, with specific requirements outlined by the EU and individual tax authorities.
Interested in finding out more about VAT registration options and the various OSS schemes? Contact our sales team today. Refer to this page for our solutions around VAT compliance for eCommerce.
Aimed at making life easier for businesses, the EU E-Commerce VAT Package simplifies the VAT reporting requirements when trading across European Union Member States. This package is part of wider EU VAT reform.
Our live blog collates vital information on the package, with updates whenever governments or tax authorities provide new information. Bookmark this blog or subscribe to our newsletter to stay updated with the latest developments.
Download our eBook, Understanding European VAT Compliance for more information on EU VAT.
Update: 14 June 2023 by Russell Hughes
Following Brexit and the introduction of the IOSS, EU customs has seen a significant increase in trade volumes. Now, the EU Commission has put forward proposals to reform current EU customs practices.
The new measures will embrace the digital transformation and lead to a simpler customs process by introducing a data-driven approach to EU Customs that will replace traditional declarations. The aim is to provide customs authorities with the tools and resources to prevent fraudulent behaviour from traders, enabling them to pick out those imports that threaten the EU’s tax take.
The new framework would simplify customs reporting requirements for traders, reducing the time needed to complete import processes by providing a single EU interface and facilitating data use.
The EU Commission has proposed a new EU Customs Authority to oversee an EU Customs Data Hub. Over time, the Data Hub would replace the existing customs IT infrastructure in EU Member States, which they believe will save up countries up to €2 billion a year.
The idea of the new Data Hub is that businesses can log all the information on their products and supply chains into a single online environment. This technology will compile the data provided by businesses, providing customs authorities with a 360-degree overview of supply chains and the movement of goods through machine learning, artificial intelligence and human intervention.
Based on the transparency of inputting information into the portal, these businesses will become trusted traders – allowing them to release their goods into circulation into the EU without any active customs intervention. This will allow customs authorities to prioritise their resources and prevent illegal and unsafe goods from entering the EU.
The Data Hub is looking to open by 2028 for e-commerce traders and 2032 for other importers. This will initially be voluntary up until it becomes mandatory in 2038.
The final pillar of the new reforms will be the abolishment of the €150 threshold at which customs duties are charged, effectively expanding the IOSS scheme. Currently, any goods imported at €150 or below are exempt from customs duties, whilst VAT is collected and reported on the IOSS return.
However, this reform will remove that threshold to ensure all goods will be brought into the customs duty regime and prevent fraudulent traders who look to undervalue goods for customs purposes. It is currently believed that around 65% of parcels entering the EU are undervalued.
Under the new reforms, online platforms and e-commerce sellers will become ‘deemed importers’ responsible for ensuring goods sold online to EU customers comply with customs obligations. Such platforms and sellers will charge VAT and duties at the point of sale and settle this via the IOSS return, no matter the value of the order. Therefore, import VAT and duty charges at the border for imported goods will no longer hit the consumer.
Looking for advice on how to handle these proposed changes? Contact our team of experts.
Update: 28 June 2022
In this episode of the Sovos Expert Series, Cécile Dessy speaks with Russell Hughes, Consulting Services Manager at Sovos, to explain how these new schemes have evolved during their first year.
Still have questions on how to stay ahead of OSS? Speak to our experts.
Update: 15 April 2022
It’s been just over nine months since the introduction of one of the most significant changes in EU VAT rules for e-commerce retailers, the E-Commerce VAT Package.
Under the new rules, the country-specific distance selling thresholds for goods were removed and replaced with an EU-wide threshold of €10,000 for EU-established businesses. Non-EU-established businesses now have no threshold.
Initially, the thought of charging VAT in all countries businesses sell to was overwhelming. Though, businesses now see many benefits from the introduction of OSS.
The biggest benefit for businesses is VAT compliance requirements simplification. OSS implemented one quarterly VAT return instead of meeting many different EU Member State filing and payment deadlines.
Businesses that outsource their VAT compliance have reduced their costs significantly by deregistering from the VAT regime in many previously VAT-registered Member States. Businesses also receive a cash flow benefit under the OSS regime as VAT is due quarterly instead of monthly or bi-monthly.
As part of this EU VAT reform, we saw the removal of low-value consignment relief. This change meant import VAT was due on all goods entering the EU. It brought many non-EU suppliers into the EU’s VAT regime, with the European Commission (EC) announcing over 8,000 currently registered traders.
EU Member States had some hiccups, including not recognising IOSS numbers upon import, leading to some double seller taxation. But for most businesses, IOSS enables them to streamline the sale of goods to EU customers for orders below €150. The EC recently hailed the initial success of this scheme by releasing preliminary figures showing €1.9 billion in VAT revenues collected to date.
Want to know more about the EU VAT reform and One Stop Shop and how it can impact your business? Download our detailed guide.
Update: 22 November 2021
As with any new initiative, IOSS has not been without its issues. Here we look at some of those issues early into the new VAT system.
Some clients tell us there is some confusion with their freight forwarders, who continue to operate the “landed cost” model even though the seller intended to sell under IOSS.
Under this model, the seller charges the customer an amount including VAT. The freight forwarder then imports the goods in the name of the customer. Then, the freight forwarder settles the customer’s import VAT liability and seeks reimbursement from the seller.
In this case, the local tax authority receives the VAT due as import VAT. However, freight forwarders still use this model in cases where the seller has provided its IOSS registration number.
Although the customer pays import VAT, the seller also accounts for supply VAT on its IOSS return. Double taxation must be funded by the supplier if the seller reimburses the freight forwarder without correcting the error.
The EC removed low-value consignment relief on 30 June 2021. It levelled the playing field and reduced the VAT gap by dealing with fraud. However, there appears to be a gaping hole in the system, meaning fraud is just as possible, and the playing field is anything but level.
Where a shipping document includes an IOSS number, the underlying assumption is that the goods are under €150, and the seller will pay the VAT due. The IOSS number is checked for validity but not identification of IOSS number ownership.
IOSS numbers are widely available online, especially for online marketplaces. We are hearing that some unscrupulous sellers are using valid IOSS numbers that belong to other businesses.
This activity allows them to sell goods knowing they will never have to account for VAT in the EU, thereby undercutting local suppliers. The owner of the IOSS number does not account for this VAT, and the tax authority will find this discrepancy during an audit.
There is confusion around certain categories of goods and their IOSS treatment. Businesses can sell magazines and other goods under a subscription service, and the subscription period can often be more than one year.
In an annual subscription scenario, there will typically be one payment at the beginning of the subscription and then a succession of deliveries of goods – 12 for a monthly subscription.
So, the question is, how are subscriptions treated under IOSS? Where IOSS is applicable, if the seller reports the full amount at the outset, there will be a mismatch between the VAT return and the imports. If the seller reports an amount equal to one month’s subscription month, then VAT is accounted for late since VAT is generally due at the earlier of the issue of the invoice or the receipt of the payment.
How is the IOSS eligibility assessed? Is it the value of each shipment or the value of the subscription considered when determining whether the intrinsic value is less than €150?
There is speculation that each consignment’s value determines if a seller can use IOSS. We put this question to one EU tax authority. They replied that we could find the issue of subscription treatment within the rules on when the seller must account for VAT. The rules clearly state that tax authorities consider goods supplied at the time when the seller accepts payment.
In this case, the tax authority recognises all 12 magazines as supplied when the seller accepts payment. If that payment is above €150, then IOSS is not available. Not all Member States share this view. It raises the question of which tax authority decides – where the business is registered for IOSS or where the VAT is due?
Need more information on IOSS and how it could impact your tax compliance? Get in touch with our team.
Update: 8 September 2021
Unfortunately, there were initial delays and teething problems when the EU introduced the E-Commerce VAT Package. We expected this with the adoption of such significant EU VAT reform, but as with any new scheme, the tax authority can resolve this over time.
Some examples include:
Some Member States disallow the import of specific categories of goods due to local restrictions, e.g. foodstuffs, plants, etc.
It’s sometimes unclear if freight forwarders have used IOSS or not. This confusion could lead to repeated errors of VAT underpayment or overpayment.
Some non-EU vendors are trying to avoid an IOSS registration by stating that the customer is the importer of record. While this occurred before IOSS, it did not occur as much as it does now – and was not always spotted or queried.
However, since the introduction of the IOSS, some tax authorities, including Germany, have questioned this approach. In some cases, the carrier who imports the goods acts for the non-EU vendor and the buyer is unaware of their identity.
Sovos is here to help you understand the latest EU VAT reform. Download our e-book or contact our sales team for more information.
Update: 29 October 2020
On 30 September 2020, the EC published its Explanatory Notes on VAT E-Commerce Rules. It provides practical and informal guidance on upcoming e-commerce regulations. The EU initially adopted this EU VAT reform under Directive 2017/2455 and Directive 2019/1995.
The Explanatory Notes set out to explain the practical aspects of the upcoming changes to place of supply rules and reporting obligations for certain online supplies in Europe. It specifically addresses: B2C distance sales of goods imported from third countries, intra-community distance sales of goods, and cross border supplies of services.
The explanatory notes provide further guidance on applying OSS and IOSS schemes. It includes scenarios where Electronic Interfaces (such as marketplaces) are liable for VAT collection and remittance relating to underlying suppliers transacting on their platforms.
For EU-EU goods deliveries, suppliers are no longer required to register and file VAT returns in every EU Member State where they’ve exceeded distance selling thresholds. Instead, a new EU-wide threshold of €10,000 applies, after which VAT must be collected and remitted based on the destination of the goods.
Under the OSS, suppliers (or deemed suppliers) may elect to register once in their Member State of identification and file a single, simplified OSS return for all their EU distance sales.
A similar scheme, the Mini One Stop Shop (MOSS), already exists for electronically supplied services by EU and non-EU suppliers. The EU will broaden its scope to include all B2C services where the VAT is due in a country where the supplier is not established.
B2C suppliers participating in OSS must use it for all supplies under the scheme. However, it shouldn’t be seen as a drawback because the EU designed the OSS scheme to reduce admin burdens.
For example, in addition to simplifying registration requirements, OSS imposes no obligation to issue a VAT invoice for B2C supplies. (An EU Member State may opt to impose invoice requirements for service invoices only, but not for goods).
Distance sales of goods imported from third countries, with an intrinsic value no greater than €150, may be subject to the new IOSS simplification regime. It is designed to facilitate smooth and simple VAT collection on B2C imports from outside the EU.
With the concurrent repeal of the €22 low-value consignment relief, IOSS is an attractive option for suppliers looking to reduce administrative and compliance burdens.
Under this new EU VAT reform, a supplier (or deemed supplier) may elect to register – via an intermediary for non-EU suppliers – for IOSS in a single Member State. It allows them to collect VAT in the respective EU country of destination and remit monthly IOSS VAT returns.
The new e-commerce rules explanatory notes emphasise the overriding goal of making VAT collection more effective, reducing VAT fraud, and simplifying VAT administration.
Nevertheless, businesses must be careful to ensure that their internal systems are properly configured prior to the changes taking effect.
To learn more about this new EU VAT reform, listen to our on-demand webinar: A Practical Deep Dive into the New EU E-Commerce VAT Rules
Singapore’s new Low Value Goods (LVG) rules came into effect at the beginning of the year. As of 1 January 2023, private consumers in the country must pay 8% GST on goods valued up to SGD 400 imported via air or post from GST-registered suppliers.
From 1 January 2024, the GST will increase to 9%.
Prior to this change , Low Value Goods procured locally from GST-registered businesses were subject to GST. Goods imported overseas via air or post were not. This change treats all goods consumed in Singapore in relation to GST.
The SGD 400 threshold does not include:
For example, a private individual orders an item that costs SGD 390. Additional transportation fees are SGD 20. As the threshold excludes transportation fees, the product’s value is SGD 390. The consumer will have to pay GST on the purchase to the supplier.
Since 1 January 2023, GST is also levied on supplies of imported non-digital services purchased from GST-registered overseas suppliers. As a result, all B2C supplies of imported services – digital or otherwise – that are supplied and received remotely are taxed.
Non-established suppliers – such as electronic marketplace operators and re-deliverers – must register, charge and account for GST where:
Companies may also voluntarily register.
Businesses should assess if these changes trigger the need to register for GST and other compliance challenges.
Still have questions about GST in Singapore? Speak to our tax experts.
Thailand has permitted e-invoicing since 2012. From 2017 – following regulations issued on e-tax and e-receipts – taxpayers may prepare, deliver, and keep their invoices and receipts electronically, subject to prior approval from the Thai Revenue Department.
Currently, the Revenue Department and the Electronic Transactions Development Agency (ETDA) are working together to improve the e-tax invoicing system in Thailand. As a result of this joint effort, they’re developing new regulations.
Thailand´s voluntary e-invoicing system aims to promote and support their e-payment policies and electronic transactions, reduce the cost and management of the government and private sector and increase confidence and safety according to international standards.
According to the Revenue Code documents that can be voluntarily issued electronically are tax invoices (known as e-tax invoices), credit notes, debit notes and receipts.
E-tax invoices are electronic tax invoices, including regular invoices and debit and credit notes prepared in a specific electronic format.
Formats may include a Microsoft Word file, a Microsoft Excel file, PDF, PDF/A-3, XML or other forms established by the Revenue Department. Finally, the e-tax invoice must be signed using a digital signature or time stamp before being delivered to the buyer.
Thailand currently has two e-invoicing systems for taxpayers to adopt voluntarily. These are e-tax invoices and e-receipt RTIR, and e-tax invoices by email.
Any taxpayer can voluntarily register for this system without a turnover threshold.
Entrepreneurs can prepare electronic tax invoices and electronic receipts in an XML file or other electronic formats with a digital signature. However, to submit the data to the Revenue Department, the information should only be in an XML file format (Bor Thor. 3-2560). They must also have an electronic certificate provided by a Certification Authority.
In this system, the supplier must submit the e-invoice to the Revenue Department by the 15th day of the subsequent tax month after delivering it to the buyer.
This system is designed for small entities with an annual turnover of less than THB 30 million. Taxpayers can email the invoice to the buyer and include the central system of the agency that develops electronic transactions in the CC field for time stamping.
The system then sends both trading parties an e-tax invoice with a time stamp. In this system, the file format is PDF/A-3. Information is automatically sent to the Revenue Department.
It’s important to note that once approved by the Thai Revenue Department to issue electronic invoices, taxpayers must comply with all the regulations and rules for preparing and storing electronic invoices and receipts.
The Thai Revenue Department has recently published new announcements from the Director-General of the Revenue Department regarding VAT, namely: no. 48, 247, 248 and 249.
E-tax invoices and credit and debit notes should include specific statements from those announcements. As of January 2023, they must specify that electronic invoices were prepared and sent to the Revenue Department electronically.
The Thai Revenue Department also set forward new standards in the Announcement of the Director-General of the Revenue Department No.48 regarding forms, method of delivery, storage and documentary evidence or books and information security for operations relating to electronic invoicing.
These new standards entered into force on 19 August 2022.
This regulation reinforces the need for prior approval and permission from the Revenue Department to connect with the electronic systems to issue e-tax invoices. It is subject to the requirement that a data security system can ensure the fulfilment of e-tax invoices and e-receipts.
The taxpayers opting for e-invoicing must follow the rules and conditions for this process. They need to inform the Revenue Department of the e-tax invoice by submitting a receipt for the tax invoice and the certificate used for digital signature.
The Thai Revenue Department also issued new standards in Announcement No. 48 for storing and archiving e-tax invoices and e-receipts.
Taxpayers who are obligated to issue an invoice and choose to do so electronically have to keep the electronic invoice or receipt according to specific criteria:
(a) Use reliable methods to maintain message integrity from the time the message is completed and can display that message later.
(b) Keep information on tax invoices or receipts, which can be accessed and reused, and the meaning does not change.
(c) Keep the information of tax invoices or receipts in the format in which they were created, sent, or received – or in a form that can display messages correctly, and
(d) Retain information indicating the origin and destination of the tax invoice or receipt and the date and time they sent the message.
According to the Thai Revenue Code, electronic invoices must be stored electronically for no less than five years but no more than seven years. Taxpayers must keep tax audit e-invoices until the completion of the audit.
These were significant steps towards the digitalisation of taxation in Thailand. Although there is no future timeline or mandate, they’ve taken more measures to solidify and mature the e-invoicing mandate.
While e-invoicing is still not mandatory in Thailand, the government intends to promote e-tax invoices to help businesses to increase efficiency and decrease costs. These measures could be applicable in a future compulsory e-invoicing mandate.
If you want to learn more about e-tax in Thailand or have any other question please feel free to get in touch with a tax expert today.
It can be difficult to know where you stand regarding EU VAT changes and European tax laws. There have been sweeping changes implemented in recent years.
This blog breaks down the major updates, including the EU VAT reform, to help ensure your business is on the right path. Additionally, you can speak with our team of experts for personalised assistance with VAT compliance or have a look at our solutions for VAT compliance for e-commerce.
To keep up with the digital age, the EU changed how its VAT system works in July 2021. The EU e-Commerce VAT Package was part of this. So was the One Stop Shop (OSS), which intends to make cross-border trade less of a headache.
With OSS, companies can declare and remit the VAT due on certain sales in a single language and within just one Member State tax administration.
OSS introduced three schemes:
Prior to the EU VAT reform, e-commerce sellers of goods needed to have a VAT registration for each of the EU Member States that they traded in – providing they had a turnover above a particular threshold. The threshold was dependent on the country.
With the changes that arrived on 1 July 2021, these thresholds were replaced by a single, universal threshold of €10,000 for EU businesses. If turnover exceeds that figure, VAT must be paid in the Member State where the goods are delivered. Non-EU businesses have no threshold.
While the EU’s lowest agreed standard rate is 15% as per the VAT Directive. Luxembourg has the lowest standard rate at 17%, whereas Hungary has the highest at 27%. Other countries fall within that range.
On 8 December 2022, the European Commission proposed changes in relation to the VAT in the Digital Age initiative.
While nothing was been implemented at the time of publishing, the proposal offers up significant changes and is one of the more prominent developments in the history of VAT in Europe.
The Commission proposes changes to the VAT Directive, specifically affecting:
Again, the regulatory change is yet to come into effect. It requires formal adoption by the Council of the European Union and the European Parliament, as well as a unanimous positive vote by the Member States but if approved these will include significant changes.
If your company is based in the EU then VAT is likely to be chargeable on both purchases and sales of goods within the region. Exceptions do exist, however.
Where VAT is charged depends on the type of supply and is determined by the EU’s place of supply rules which determine where VAT is due, i.e., country of supplier or country of delivery.
The One Stop Shop abolished distance selling thresholds that were in place and created a centralised electronic platform for VAT. The change means that where intra-EU supplies exceed the €10,000 EU threshold (no threshold for non-EU companies), VAT is due in the Member State of the delivery – regardless of the level of sales in that country.
European businesses can take care of all their VAT obligations for sales across the entirety of the EU through the OSS. The scheme allows for any VAT due to be accounted for in a single VAT return, making life easier for businesses that trade across the EU. Companies trading in the EU are eligible to utilise OSS, and there is also a non-union OSS scheme for businesses outside the EU for digital supplies.
Visit our OSS guide for more in-depth knowledge of the scheme.
Get in touch today to understand how ever-changing VAT e-commerce rules in the EU affect your business.
Still have questions? Maybe we have answered them already below:
The most recent country to leave the EU was the United Kingdom. The UK hasn’t changed its VAT system however businesses selling into Europe have needed to change their business practices.
No, the UK maintains its own VAT rate and tax system. Different rules apply for businesses in Northern Ireland.
Yes, an EU country can change its VAT rate within the guidelines set by the EU VAT Reform.
All European countries charge VAT on goods and services. VAT is a consumption tax added during each production stage of goods or services.
Although VAT is near-universal according to the EU VAT Directive, VAT rates within the EU do differ.
This is because the EU VAT Directive allows Member States to choose whether to implement specific measures. Our guide on understanding VAT compliance explores this in more detail. Refer to this resource for VAT compliance for eCommerce.
Authorities in the EU charge VAT on all taxable supplies of goods or services at each stage of the supply chain. Our blog on who pays VAT, the buyer or seller, explains why in more depth. This is a significant distinction from Sales Tax, which only applies to the final supply. Some goods and services, such as healthcare and financial services, are exempt from VAT.
Companies must also distinguish if they are supplying goods or services to another business (B2B) or a private individual (B2C). This difference dictates how and where they need to charge VAT.
The general rule for B2B is that the product or service is taxed where the customer is established, while B2C services are taxed in the supplier’s country.
There are some special rules, however, such as those related to immovable property or events.
The situation starts to get complicated when transporting goods between countries. The taxable person must take the nature of the goods supplied and how the supply takes place into account.
When dispatching or transporting goods between businesses in different EU Member States, Intra-Community Supply (ICS) and Intra-Community Acquisition (ICA) of goods occur. An Intra-Community Supply of goods is a transaction where the goods are dispatched or transported by, or on behalf of, the supplier or customer between the EU Member States and is exempt, providing it meets certain conditions.
At the same time, a customer making an Intra-Community Acquisition is a taxable transaction. Where the ICA has been carried out define the location of tax, namely the location of the goods after the transport has finished.
Different rules apply to the export of goods to countries outside of the EU where the VAT is charged in the country of import. Instead, the location of the goods once they’ve arrived sets where the supply is. It is then treated as zero-rated in the Member State of export if it meets specific evidence requirements.
We know how complicated this sounds and our experienced team can answer your questions about this side of VAT. Contact our VAT experts here.
Generally, the business charges output VAT on the supply when the supplier carries out a taxable supply. The customer then deducts input VAT on the purchase, if valid to do so.
In some instances, the reverse charge mechanism applies. The reverse charge requires the customer to account for the VAT and is also known as a ‘tax shift’.
Where it applies, the customer acts as both the supplier and the customer for VAT purposes. The company charges itself the applicable VAT and then, where that service relates to taxable supplies, it recovers the VAT as input tax in the VAT return. The VAT charged is instantly reclaimed.
Typically, the customer must provide the supplier with a valid EU VAT number to use the reverse charge.
For an entry-level explanation of VAT, why not read our blog ‘An Introduction to EU VAT?’ or our EU VAT Buster.
Whilst the general rule on supplies of goods above applies, the rules have changed over the years to apply VAT where the goods are consumed.
When a business sends goods from one Member State to a private individual residing in another Member State, the VAT rate of the country of the customer should apply – unless the supplier can benefit from the EUR 10,000 threshold per annum.
In such a case, the supplier can charge the domestic VAT rate and report the sales below this threshold in the domestic VAT return. However, this exemption does not apply to suppliers established outside the EU or keeping stock in several EU countries.
To minimise the administrative burden of businesses registering in all EU Member States where the goods are delivered, the EU launched the OSS (One Stop Shop).
OSS schemes have simplified the supply of goods by taxable persons to private consumers:
Businesses established in the EU are entitled to use the Union and Import schemes, whereas non-EU companies can take advantage of the non-Union, Union and import schemes.
IOSS (Import One Stop Shop) simplifies the registration obligations for sellers established outside of the EU that sell goods to private individuals in the EU. Similar rules apply for the OSS, allowing the seller to register in one Member State where they account for VAT in their VAT returns.
Other advantages of using this scheme include exemption from import VAT and avoiding customs duties. This scheme, however, is restricted to consignments up to EUR 150.
As per the legislative proposal published by the European Commission on 8 December 2022, the EU intends to widen the scope of OSS to cover more goods and services.
Ready for a deeper dive into VAT rates? Here’s an overview.
The EU’s lowest agreed standard VAT rate in the VAT Directive is 15%, but it is not applicable in any of the EU Member States. The lowest standard VAT rate in the EU is in Luxembourg at 17%, followed by Malta at 18% and Cyprus, Germany and Romania at 19%. Hungary is one of the EU countries with the highest VAT rate at 27%, followed by Croatia, Denmark and Sweden with 25%.
Annexe III of the VAT Directive mentions the threshold for applying reduced rates within the EU Member States. The rate cannot be below 5%.
There are three types of special rates:
When concluding if you should charge VAT to your customers in the EU, consider the following:
EU VAT is always subject to change, so don’t be caught with outdated information. Follow our blog for the latest news on EU VAT rates and analysis of major developments the moment they happen or speak to an expert.
The EU VAT E-Commerce package has been in place since 1 July 2021. This applies to intra-EU B2C supplies of goods and imports of low value goods. Three schemes make up the package. These are based on the value of goods and the location of the sale of goods.
All OSS schemes are currently optional. The schemes mean taxpayers can register in a single EU Member State and account for the VAT due in other Member States.
For companies outside of the EU, the package schemes that apply are:
Want to understand how OSS and IOSS work? Keep reading!
Have IOSS specific questions? Our tax experts answer common questions in our IOSS guide. Or learn more about VAT compliance for eCommerce here.
Exporting products to the EU is challenging. Couriers often have a bewildering number of services. Prices differ from service to service.
There’s no easy way to find fast, cost-effective shipping services, but here are tips to help:
Businesses with a certain turnover must register for VAT. This varies from country to country. For example, the UK’s VAT threshold is £85,000 for established businesses. If you are interested in a business solution, please get in touch with our sales team.
Registering for VAT takes time. Each Member State has its own process for obtaining a VAT number. VAT compliance differs from Member State to Member State.
For non-EU companies, appointing a Fiscal Representative might be necessary. A Fiscal Representative acts on behalf of companies in a local VAT jurisdiction, managing VAT reporting and other requirements. For IOSS, most non-EU businesses will need an IOSS intermediary.
We know registering for VAT is difficult and involves understanding place of supply rules, fiscal representation and many other elements.
The EU VAT E-Commerce package enables taxpayers to register in one Member State to account for VAT in all Member States.
In most cases, a VAT number will be mandatory because of your business’ activity; in some cases, it will be voluntary. There are many benefits to applying for a VAT number.
These include preventing financial penalties and receiving EU VAT refunds. EU VAT refunds depend on certain circumstances, such as on VAT exempt items.
The OSS scheme is currently optional. Before registering businesses should consider the benefits and impact on their supply chain.
When a supplier obtains either an the Member State that grants the VAT number becomes known as the Member State of Identification.
As the UK is no longer part of the EU, registering for OSS as a UK business means using the Non-Union OSS, Union OSS or IOSS schemes. There is no need to have a normal VAT registration in the EU to apply for IOSS or a non-Union OSS VAT registration, however, a local EU registration is required before obtaining the OSS registration.
The first step is to understand if an needs appointing. The intermediary, usually an agent or broker, submits the IOSS returns on behalf of the company.
The UK business will need to choose the Member State it wants to register with for the non-Union OSS scheme.
If the UK business has warehouses in the EU, then the company will still need local in each Member State with a warehouse, but they can choose one Member State for OSS registration.
The Northern Ireland Protocol adds even more complexity to cross-border trade. Stop browsing the internet for unhelpful answers; contact our experts for advice instead.
Our team of experts can help you understand OSS and IOSS further. Don’t hesitate to get in touch today, especially about the Northern Ireland Protocol’s effect on trade.
The USA doesn’t have VAT. The equivalent is Sales Tax, with its own permit and tax ID.
If a US company wants to sell goods into Europe it can register for a VAT number with the relevant Member State tax authority. The business’ supply chain will determine if / where a VAT registration is required.
This depends on the product or service and whether the US company has activity in the UK that requires it to become VAT registered such as selling low value goods or importing in its own name into the UK.
The cost of international shipping to Europe varies, depending on where you send goods from and how quick delivery is.
Costs for shipping from the USA to Europe vary, depending on if they are express or standard shipping times. Different couriers charge different prices too.
This depends on package size, insurance and delivery speed.
Shipping from the EU to the US can take anywhere from four days to four weeks, depending on customs and import requirements.
Speak to our experts. They will navigate you through the complexities of the EU VAT landscape.
Tax has always been challenging and ever-changing VAT regulations across Europe add to the complexity, requiring technology adoption to support compliance- related activities.
It’s time for businesses to evaluate how efficiently they’re handling their VAT compliance obligations.
We created this checklist to help you assess whether you already have an effective, scalable solutions that’s optimized for the diverse range of compliance requirements and future-proofed to adapt to coming changes.
If you can tick all the boxes, you’re on the right path to mitigate risk and meet the demands of VAT digitization.
How does your current VAT compliance solution measure up?
Can’t check all the boxes? Don’t worry, Sovos helps ease the increased demands of tax digitization so you can prioritise your core business . We take a future-facing approach to always-on tax compliance with intelligent tools that provide data insights for a competitive advantage.
Let us remove the stress of constantly changing legislation: Get in touch with an expert now.
Learn more about Sovos’ periodic reporting solution for VA T and SAF-T and mandatory e-invoicing solutions.
Nearly every major economy has a form of VAT. That’s 165 countries, each with its own compliance and reporting rules. The main exception is the United States. VAT is by far the most significant indirect tax for nearly all the world’s countries. Globally VAT contributes more than 30% of all government revenue.
Levying VAT is a term used to describe when a company collects VAT on behalf of a tax authority. This happens at each stage in a supply chain when a taxable event occurs. A country’s tax rules define what a taxable event is.
In a nutshell, VAT essentially turns private companies into tax collectors.
VAT is due on nearly all goods and services. This is up to, and including, the final sale to a consumer – that’s you and me.
Applied correctly, VAT should be cost neutral for most businesses. Companies collect VAT from their suppliers, then pay this money to the government. In the UK, this is normally every three months.
As a business this means:
Companies can reclaim the VAT on some of their purchases. When applicable, this means your business pays less VAT when its VAT return is due.
Essentially, this encourages businesses to spend and help an economy grow.
Another thing a company can do is postpone its VAT accounting. There are different reasons why this is allowed, for example, in relation to import VAT.
We know VAT isn’t easy. Speak to one of our tax experts today about overcoming your VAT compliance headaches. Or read this easy-to-understand guide to learn more about the EU e-commerce VAT package.
So what is a VAT return?
A VAT return is a document listing all the VAT you have collected and what you are reclaiming VAT on along with various other information on sales and purchases in the period.
Submitting VAT returns is a legal requirement in most countries. The format and frequency vary around the EU, so it’s essential to keep
In addition to VAT returns, businesses might have to submit other declarations. This depends on the company’s trading activity and the requirements in the Member State of registration. This could include or . These can be quite complicated, as we explain here.
Understanding your VAT obligations also requires mapping a supply chain for the country of registration.
The following information applies to larger businesses or businesses selling into the EU.
EU VAT can be overwhelming and exhausting. For some relief, why not download our European VAT guide or read more about VAT compliance for eCommerce here.
So, what is the difference between Sales Tax and VAT?
VAT is a broad-based consumption tax and a form of indirect taxation. It is imposed on goods and services at each stage of the supply chain, with each party paying the government the tax and passing the final cost onto the ultimate consumer.
The idea is that each party effectively only pays VAT on the value added to the product or service. This is because the party can recover the VAT on associated costs (of course, there are exceptions). One of the disadvantages is that it requires accurate accounting.
On the other hand, sales taxes are generally taxes placed on the sale or lease of goods and services.
Usually, the seller collects the tax from the purchaser at the point of sale. Sales tax is calculated by multiplying the purchase price by the applicable tax rate. The seller at a later stage transfers the tax to the responsible government agency.
The EU VAT Directive 2006/112/EC establishes the rules for where VAT is due in the EU. Member States must implement these rules in a uniform way to avoid the possibility of double or no taxation. This blog goes into details how VAT between European countries works.
VAT in the EU happens when:
There’s a supply of goods – Where goods are not transported, the place of taxation is where the goods are made available to the customer. Where the goods are transported, the place of supply is where the transport starts (unless an exemption applies).
There’s a supply of services – For B2B transactions the place of taxation is generally where the customer has established their business. This applies to “intangible” services where the place of consumption cannot be determined easily.
There are certain where the place of consumption can be determined. These are:
A thing called intra-community acquisition of goods occurs – The place of taxation is the place where the transport ends (i.e., the EU country where the goods are finally located after transport from another EU country).
At the point goods are imported – The place of taxation is where goods imported from non-EU countries are generally taxed (i.e., in the EU country where they are cleared for free circulation).
There are many reasons why an EU country uses VAT.
VAT can be adjusted up and down depending on how a country’s economy is performing quickly. This means a country can raise taxes quickly or support a certain sector by reducing VAT.
Once collected, the money can be spent on public services, infrastructure, healthcare and other important growth initiatives.
But wait, what about those pesky questions like “should I charge VAT to EU customers?” or “do I pay VAT if buying from Europe?”. We hear these all the time from customers who struggle with VAT rates across different EU countries.
Standard rates, reduced dates, special rates. What’s the difference?
And then you have super reduced rates and zero rates? Let’s not forget intermediary rates.
If your business is expected to charge VAT to EU customers, or you yourself are faced with paying VAT on a purchase when buying from Europe, it’s important you feel confident applying the right VAT rate each and every time.
Have a question about the many different types of VAT rates in the EU? Our tax experts are yet to receive a question that stumps them, and they will happily help unload you from this burden.
Sometimes companies don’t have to pay VAT. This happens when the goods or products they sell fall into an exempt category.
Some examples of exceptions include education and training, charity fundraising and insurance. Insurers instead pay a tax called (IPT).
A VAT exempt business cannot register for VAT, nor can it reclaim VAT. This is slightly different to zero-rated goods or services. In that case, VAT is charged, but at 0%. Some companies can be partly exempt too.
VAT exemptions differ country to country so it’s important to check a tax authority’s website to see whether your business needs to pay VAT. ? We love setting our clients free from their tax compliance burdens so they can focus on growing their business.
Read our blog to VAT exempt goods and services in Europe.
The seller collects VAT from their buyer and pays to the relevant tax authority.
Learn more about buyer and seller VAT in our blog.
Yes. A person or company buying a service or product pays the tax when the item is chargeable.
Sellers pay VAT on any items they purchase for their own business. The VAT they collect from their own customers is paid to HRMC. In some cases, sellers also need to self-account for the VAT due from their customers.
VAT is 20% in the UK. A buyer pays this to the seller when they purchase an item, product or service. There are also some cases where the seller pays the VAT by way of a self-accounting mechanism.
Sales tax is found in the United States and is a tax applied at state government level on the purchase of goods or services. VAT is a consumption tax and is collected by all sellers in a supply chain, not just charged to the final consumer.
Our large advisory team can help you navigate the complexities of modern VAT compliance. Don’t hesitate to get in touch today.
Changes are coming to Portugal’s Billing SAF-T reporting requirements for non-resident taxpayers that trade in the country.
The process may be stringent but that doesn’t mean it has to be difficult for your company. Here are four things you need to be aware of about Portugal’s billing SAF-T obligations.
Billing SAF-T is already compulsory for resident Portuguese companies but from January 2023, non-resident VAT registered companies are also obligated to submit a monthly billing SAF-T. The first report is due on 8 February 2023 and has particular requirements, which we discuss below.
The monthly deadline for submitting the Billing SAF-T is the eight day of the month following the reporting period.
A unique requirement to Portugal is that the Billing SAF-T file must be generated by ‘certified billing systems’ as designated by the tax authorities. Failure to comply with this requirement is subject to a fine.
Non-resident taxpayers need to ensure they are using a certified billing software to remain compliant.
Sovos’ SAF-T cloud solution is recognised as a certified billing software by Portugal’s tax authority. This makes staying on top of Portugal’s SAF-T Billing report obligations simple, with customised options available for customers needing to take a tailored approach.
Portugal’s SAF-T requirements include specific formatting for generation and submission. Based on the original OCED 1.0 schema, this includes a specified header, master files, and source documents.
For the most part, information in the schema is conditionally required, meaning most fields only need to be submitted if the relevant data exists in a taxpayer’s source system.
Taxpayers must be able to generate the required fields in their system and understand which data is required for submission.
Portugal’s tax authority has continued to introduce new requirements and extend the scope of SAF-T in the country. Changes include stricter integrity and authenticity requirements and reducing the time window for invoice reporting obligations.
The tax authority’s changing requirements and increased visibility put additional strain on taxpayers to submit compliantly and on time.
Sovos’ Managed Service can help ease tax compliance burden for companies operating in Portugal and beyond. Our team of tax experts combined with our tax technologies help companies with filing and reporting obligations. Speak to our team to learn more about how Sovos can help solve tax for good.
Serbia is on the final straight to implementing its mandatory e-invoicing, which will come into effect from 1 January 2023. Legislative changes are still being proposed before that deadline to allow for a complete introduction of mandatory e-invoicing to the whole B2B sector.
On 12 December 2022, the Ministry of Finance published the following Laws on Amendments in the “Official Gazette of the RS” No. 138 among others:
One of the changes regarding the scope of the Law on Electronic Invoicing involves natural persons who are not liable for income tax for self-employment, in the sense of the law governing personal income tax, who will be excluded from the provisions of the Law on E-Invoicing.
Regarding the type of transactions that will not be in the scope of e-invoicing, there will be no obligation to issue an electronic invoice for the sale of goods and services free of charge. Lastly, the legal entities and entrepreneurs who are not VAT payers, nor voluntary users of SEF, will not be obliged to record VAT calculation in SEF if they are tax debtors.
In case of a temporary interruption in the operation of the electronic invoice system, the system will consider an e-invoice as delivered at the time operation resumes. The act of the Ministry of Finance that regulates such procedures will be adopted on 1 April 2023 – three months from the date of entry into force of this law.
Also, the following paragraph will be added to Article 6 stating: “An electronic invoice that has been rejected can be subsequently accepted”. This provision will apply from 1 June 2023 for electronic invoices recorded in the central register of invoices, in accordance with the law regulating the deadlines for settling monetary obligations in commercial transactions.
The law will enter into force on 1 January 2023.
The changes introduced to the law on VAT that impacts electronic invoicing processes stipulate that an invoice is an electronic invoice accepted by the buyer, as required by the Law on E-Invoicing.
The law ensures that the taxpayer accepting the electronic invoice within the deadline to submit the tax return may exercise the right to deduct the preliminary tax at the earliest date for the tax period where liability occurred. The taxpayer will also need to notify the tax authority about a change of data relevant to the calculation and payment of VAT contained in the registration form. The notification will be exclusively electronic and excludes notice in writing.
The law will enter into force on 1 January 2023, coinciding with the Serbian e-invoicing mandate go live date.
The Law on Fiscalisation regulates, among other things, the subject of fiscalisation and the procedure conducted through an electronic fiscal device. The supply of goods and services, conducted by a fiscalization obligor to a legal entity or taxpayer of income from self-employment, outside the retail store, is not considered a retail supply. Therefore, such supply will not be subjected to fiscalization requirements and will not need to be recorded through an electronic fiscal device.
Moreover, the amendments specify that the fiscal receipt does not need to contain the value of the transaction per tax rate as a mandatory element. By scanning the QR code for verification, which has all the parts of an electronic signature when printing a fiscal invoice or a hyperlink for verification when a fiscal e-invoice is issued, it will be possible to receive additional information about the fiscal receipt.
The amendments to the Law on Fiscalisation that impact the future e-invoicing mandate cover changes related to the fiscal invoices issued to legal entities and taxpayers on income from self-employment. Transferring these fiscal invoices to the System of Electronic Invoices (SEF) will happen upon fulfilment of technical requirements. The Minister of Finance will further regulate the method and procedure of data transfer in the future.
Based on Article 7, a separate regulation will control the manner and procedure of data transfer to the SEF platform, that will be adopted within 180 days from the day when this Law enters into force. This means adoption will be in June 2023 at the earliest.
The Law on Amendments and Supplements to the Fiscalisation Act will be enforced on the 8th day following its publication, which took place on 12 December 2022.
The above amendments relate to the plans introduced by the MoF to integrate the Fiscalisation system with the E-Invoicing system (SEF), which will most likely start at the earliest in January 2024. As the Minister of Finance Vuk Delibašić announced on 1 December 2022: “The plan is to integrate the E-Invoicing system with the Customs Administration, e-fiscalization, as well as the creation of a semi-automatic VAT declaration, and an electronic excise tax is also being prepared.”
Still have questions about e-invoicing in Serbia? Speak to our tax experts.