June 27, 2022
VAT in the EU is becoming increasingly harmonized and, in some areas – even centralized. Cross-border supplies are one of the activities that benefit a lot from the simplification mechanisms established by the European Commission. Yet, our team at 1StopVAT regularly receives questions on Intra-Community regulation of VAT. This is why we decided to give a brief intro to the topic.
Intra-Community sales are international transactions that happen within the borders of the EU and are treated differently than imports or exports. It is so because the EU has special simplification rules that allow trading easier between the member states. Intra-Community VAT covers VAT regulations that apply to Intra-Community sales.
How does Intra-Community VAT operate?
Each country in the EU has its own VAT laws that define the VAT rate and the procedures for filing the tax. However, the national laws must follow the EU VAT directive that establishes rules like the VAT rate floor and draws general frameworks for international selling processes. When speaking about the Intra-Community VAT, it is important to distinguish between selling and buying goods or services – supplies and acquisitions.
Intra-Community transactions are treated like standard taxable transactions in any given member state. Depending on the national regulations, the treatment of such sales can differ based on the type of goods or services, whether it is a supply or an acquisition, whether it is a B2C or B2B sale, and such. It is important to note that in B2B transactions, both parties must have a VAT number issued in a European country.
Intra-Community VAT in B2B sales
The most frequent question on the Intra-Community VAT transactions is where the supplies of B2B goods should be taxed?
As VAT is a consumption tax, the rule of thumb is to tax the goods in the destination country (where the goods arrive to). In the dispatch country, the Intra-Community sale will be reported as tax-exempt. For this to happen, the goods must travel between the two EU states, and the buyer has a VAT number.
Intra-Community VAT in B2B acquisitions
As per the previous paragraph, the buyer will receive a zero-VAT invoice and will have to apply the reverse charge procedure on the acquisition.
Intra-Community VAT in supplying and buying services B2B
Supply of services should be treated similarly to the Intra-Community B2B sales of goods – and the goods should be taxed in the client’s home country. The acquiring party will therefore apply a reverse charge mechanism. However, there are some exceptions for services like transportation and event admission. Therefore, it is best to check individually or consult with our team at 1StopVAT.
Intra-Community B2C transactions
The most common Intra-Community B2C transaction type is e-commerce transactions when the final customer lives in another EU country. Based on the most recent EU regulations, a remote seller in the EU must begin charging VAT as soon as its revenue reaches EUR 10,000. Once the threshold is reached, the destination’s VAT rate should be applied. The EU has established a One-Stop-Shop scheme that allows simplified VAT administrations for online sellers.
It is different for the providers of services. B2C service providers should account for VAT in the country where their economic activity is registered.
Do you want to learn more about Intra-Community selling in the EU? Get in touch with our experienced consultants.