VAT is a consumption tax that is usually paid throughout the whole production process and falls on the final consumer. It is charged on most sales of goods and services in the EU. However, the VAT system treats export and import goods differently.
Goods exported outside the EU have a VAT excluded price, meaning that VAT is not charged on exports to third countries. Exporters do not need to declare VAT as the VAT is due at the destination of import. To use this exemption, companies should always keep proof of transporting the goods outside the EU, such as an invoice, customs record or similar. Similarly, companies operating in the UK can ship goods outside the country applying VAT excluded prices. To prove cases of excluding VAT from the prices, the UK tax authority – HMRC – asks to keep records of export for six years.
Even though exporters don’t charge VAT, they can still deduct VAT paid in the process of producing the exported good.
The European VAT system applies similar rules to businesses that export services outside the EU.
Companies that import goods to the EU should pay VAT included price at the point of import.
There are some exceptions based on a suspension of goods. For example, an importer pays ex VAT price whenever the goods are transported to temporary storage, customs warehousing, or they are imported as a temporary arrangement or for external transit. VAT excluded prices are also applicable whenever goods are intended for admission into territorial waters to maintain or build platforms.
The EU has agreed that VAT should be charged in the country where the goods are consumed. Similarly, the services are taxed in the place where they are received. VAT is chargeable either on the invoice issue date or the 15th day of the month that follows the acquisition. To charge VAT in the destination country, companies need to register for VAT in the countries where their customers are based.
To simply VAT accounting for digital service providers, the EU has created a MOSS – Mini One Stop Shop – scheme. Using this platform, companies can register as VAT payers in one of the EU member countries and submit VAT returns and make payments across the whole union. Companies from areas like website hosting, software sales, databases, streaming, online gaming and distance teaching can access MOSS. The platform is also available for non-EU businesses as soon as they register for VAT in one of the EU member countries.