Thursday, December 15, 2016

What is a European VAT number?

In July 2013, VAT rules for digital services sold to individuals and non VAT registered businesses were changed. From that date, these services, when supplied to EU consumers, are to be subject to VAT in the Member State where the customer belongs, even if the supplier has no EU presence. This means that non-EU businesses would have been required, under the normal rules, to register separately and account for VAT in each and every Member State in which they make those supplies. For example, a Canadian business with customers in the UK, France, Germany and Holland would have to register in, and submit declarations to each of those Member States.

In order to simplify the process, a special scheme was created that offers eligible non-EU businesses the option of registering electronically in a single Member State of their choice and account for VAT on their sales of electronically supplied services to all EU consumers on a single quarterly electronic VAT declaration which provides details of VAT due in each Member State. It's called the Mini One Stop Shop (MOSS). The return is submitted with payment to the tax administration in the Member State of registration which then distributes the VAT to the Member States where the services are consumed. Those businesses are issued a VAT number that starts with EU rather than the 2 letter code of the European country where they are registered.

This rule does not apply however when selling to businesses who are VAT registered in Europe. In that case the business needs to bill without VAT under the old reverse charge regime. Example: A USA business registers for the Special Scheme in the UK. Its customers are located in the UK, Italy and Spain. The USA business charges UK VAT to its UK customers, Italian VAT to its Italian customers and Spanish VAT to its Spanish customers. The business enters the VAT for each country on the appropriate line of the electronic declaration. It sends the declaration electronically with payment to HM Customs and Excise, who retain the UK VAT and pass on the Italian VAT to the Italian authorities and the Spanish VAT to the Spanish authorities.

If therefore you are a VAT registered business in the UK and receive a bill from a provider whose VAT number starts with EU (e.g. Amazon Web Services which is such a provider), and if you notice VAT charged at the UK rate on the invoice, don't just assume you can recover the VAT in the UK. You cannot. You need to talk to the provider and ask them to reissue the invoice without the VAT charge.