Exploring exports – VAT basics

VAT is a funny old tax. Whether it is charged and who pays it depends on different things, such as whether you are supplying goods or services, the VAT status of the customer, the location of the customer and the supplier, is it a service connected to a building. The place of supply dictates which country’s VAT rules apply

There are general rules, which should catch most things, and there are exceptions. But let’s get some terminology cleared up first.

If you sell to another EU country you are not “exporting” – you are making intra-community supplies. Likewise, when you buy from another EU country you are not “importing” – you are making intra-community acquisitions. The terms import and export are reserved for sales from and to countries outside the EU.

A “taxable person” is a business (sole-trade/partnership/company) registered VAT in any EU country. B2B refers to sales from one taxable person to another. B2C refers to sales from a taxable person to a non-taxable person.

Intra-community supplies

The “place of supply” determines which country’s VAT rules apply. Eg, if the place of supply is Ireland, Irish VAT applies; if the place of supply is the UK then UK VAT applies.

Sales of goods to another EU country – B2B

The place of supply is where the transport of the goods begins. So if an Irish company sells goods to a UK taxable person the place of supply is the Ireland. The Irish company charges 0% VAT on the supply and its VAT obligations are satisfied. The UK taxable person sorts out the UK VAT.

To charge 0% VAT on the sale the Irish business must:

  1. Obtain and check the validity of the recipient’s VAT number
  2. Quote the recipient’s VAT number on the sales invoice
  3. Ensure the goods are shipped out of Ireland.

Sales of goods to another EU country – B2C (distance selling)

The place of supply is Ireland. So if an Irish company sells goods to a UK resident private individual or non-VAT registered entity (charity, government body) it charges Irish VAT. The rate of VAT is that applicable to the goods being sold (generally 23%).

However, if the value of goods supplied to any one country exceeds certain thresholds the Irish business must register for VAT in that country. For example the relevant threshold in the UK is £70,000. So if an Irish business sells more than that to UK resident individuals in any 1 year, it must register and charge UK VAT on those sales. No Irish VAT would be charged.

The threshold amounts vary from country to country.

Supplies of services to another EU country – B2B

The place of supply is where the recipient’s business is established. This works the same way as sales of goods.

Supplies of services to another EU country – B2C

The place of supply is Ireland and, therefore, Irish VAT applies. The distance selling rules don’t apply to services.

These are the general rules. There are exceptions to these general rules for supplies of services that you should be aware of:

Services connected with property

Transport services

Cultural, artistic, sporting, entertainment

Work on movable goods

Hiring of movable goods

Electronically supplies services

 

VAT can be a complex and confusing tax. While most transactions may fall into the general rules those that don’t are those that could cause you problems. If you are in business a knowledge of the general rules and an awareness of the exceptions should be sufficient. If you are aware of the exceptions then you’ll know when you need to seek expert advice.

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