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When identifying whether there is a requirement for a business to register and report sales in an overseas country for indirect tax purposes, it is important to remember that different rules are likely to apply to the sale of goods, and to the sale of services (whether made remotely, or otherwise).
Furthermore, different treatment is likely to be applied to sales made to a business, and sales made to the public (referred to from hereon in as consumers). It is therefore important to confirm the customer’s status.
In most cases, the reporting of sales to other businesses (‘B2B’) is less complex. This is due to zero rating relief on exports of goods, and mechanisms such as the reverse charge for services, which shifts the indirect tax responsibility to the customer. We have therefore left B2B sales outside of the scope of this article.
It is worth noting that whilst it is part of the United Kingdom, Northern Ireland is still considered part of the European Union (‘EU’) for VAT purposes, so has some different rules to England, Scotland, and Wales.
Goods
When considering reporting requirements in relation to the sale of goods to consumers, let’s assume that we have not shifted the responsibility for payment of indirect taxes and duties to the customer.
We’ve all suffered the disappointment of receiving a notification that our parcel has arrived at the post office only to be told when we get there that we need to pay a further £X to cover the cost of VAT and duty before we can take the package home. As you will see, many countries (including the UK) have put requirements in place that shift the responsibility for reporting VAT to the seller of the goods in most cases.
Example
A UK business plans to export goods from the UK to France. The sales are all made to non-VAT registered consumers.
In the UK, subject to obtaining evidence that the goods have left the country, the sales are classed as zero-rated exports. The UK VAT return simply shows the value of the sale in box 6.
Post-Brexit, the responsibility to pay VAT in France has shifted from the consumer (who in most cases actually paid UK VAT) to the seller. Due to the nil threshold for non-resident businesses, this means that a VAT registration is required in France.
But what if the UK business sells goods to France, and Spain, and Germany, and even Ireland? Are multiple VAT registrations required? Technically, yes. However, a simplification, the Import-One-Stop-Shop (‘IOSS’), was introduced from 1 July 2021 for consignments of goods valued at less than €150.
This allows a business to register in one EU member state and declare VAT due in each country at the applicable rate to that tax authority through one return. For example, the business might register for the IOSS in France and declare VAT at 20% on goods sold to France, 21% Spanish VAT on goods sold to Spain, 19% German VAT on goods sold to Germany, and 23% Irish VAT on goods sold to Ireland. This is then paid to the French tax department who remit the relevant amount to each country’s tax authority.
The major disadvantage of this is the cost involved in appointing an agent to act as fiscal representative which is a requirement under the IOSS. That agent becomes jointly and severally liable for VAT debts of the seller so is likely to exert close control over the return workings and underlying transactions, and in turn charge a handsome fee. This cost is still likely to be lower and less burdensome than administering a VAT registration in each EU member state.
Where consignments of goods over €150 are sent to EU countries, the IOSS cannot be used. To avoid multiple registrations in this scenario, a business may choose to establish a presence and register in one member state (The Netherlands is quite popular given its proximity to the UK and logistics infrastructure) and make sales from that country to other member states. If the business has properly established itself in the EU (via a warehouse or 3PL arrangement), it may take advantage of EU distance selling thresholds which avoids the need for multiple registrations unless the volume of sales are significant.
It is worth noting that some businesses using this arrangement have taken Irish sales outside of the EU registration and chosen instead to register for VAT in Ireland so it can ship goods direct from the UK rather than via mainland Europe.
Similar measures which deem the place of supply to be the location of the customer are in place in other non-EU countries within Europe (Switzerland, Iceland, Norway etc.) and other countries (such as Australia) which are not in Europe. It is important to review the list of countries to which sales are made, to ensure obligations to register for indirect taxes are not missed.
In each of the scenarios above, it is likely the business will need to engage an overseas agent to administer the VAT registration and returns, due to technical and linguistic differences.
Services
The place of supply relating to services is further complicated by the exact nature of the service. Most business to consumer supplies (‘B2C’) of services result in a place of supply shift from the UK to the location of the consumer. Exceptions include land related services such as estate agency services relating to property in the UK, catering services, and the hiring of means of transport, all of which are taxed where performed.
Under specific focus in recent years have been digital services provided remotely to mobile phones, tablets etc. This has resulted in many businesses becoming liable to register for indirect taxes all over the world to account for sales provided electronically.
In the EU, the Mini-One-Stop-Shop (‘MOSS’) which provided a similar ‘one return’ mechanism for sales of electronic services was started in 2015 and upgraded to the One-Stop-Shop (‘OSS’) in 2021 to include all services where the place of supply was considered the EU. Fortunately, there is no requirement for a business registered under OSS to appoint a fiscal representative, so returns can be submitted by a UK based organisation without representation. We also commonly see businesses register in Ireland and submit returns themselves through the Irish online system using English as the first language.
The sales of services are outside of the scope of UK VAT, so no entry is made on the UK VAT return.
Ignoring other services, most countries around the world have implemented similar systems for at least digital services, so it is worth reviewing whether overseas registration obligations exist for your business.
Our specialist VAT Team are here to help you with your overseas VAT requirements. Contact them on 0330 058 6559 or email hello@scruttonbland.co.uk
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