New EU proposals on non-EU established: businesses making supplies in the EU: a new “one-stop shop”

In March 2021, the European Commission set out proposals for a new procedure whereby persons not established in the EU can register in an EU country and account centrally for VAT on any supplies made within the EU:

https://ec.europa.eu/taxation_customs/sites/taxation/files/oss_guidelines_en.pdf

To remind readers of the background, EU rules provide that:

  • goods that are supplied in a country are subject to that country’s VAT “as they come over the border” unless they fall within the “distant selling rules”, which provides for certain low value consignments to be subject to VAT in the country of dispatch; and
  • services that are supplied to a non-business user may be subject to VAT in the country of supply (for example in relation to land) or in the country where the supplier is based (for example, legal and professional services).
  • VAT on services provided to business users are dealt with under the reverse charge procedure, and therefore do not need any additional procedures to collect the VAT.

Services supplied to a person outside the EU would not be subject to VAT.

Post Brexit, the UK is covered by the “non-EU rules”, which means that any services provided by a UK based business to a person based outside the UK is not subject to VAT.

What is, and has always been the case, is that services provided to an EU resident that is not a business from somebody based outside the EU are subject to VAT in the country in which the customer is based. Now that the UK is not in the EU, any services provided by a UK business to a non-business customer in the EU, or services provided to a non-business customer in the UK by a person based outside the UK, is subject to VAT in the country of supply.

For example, a solicitor in the UK providing legal services to a non-business individual in France should charge French VAT.

This could be a problem for people supplying services and goods to non-business customers based in a number of different EU countries. To deal with this problem, (and in practice to increase compliance), the EU intends, with effect from 1 July 2021, to introduce a procedure whereby suppliers can register for VAT in one country, as a non-resident supplier, and make one VAT return in that country to cover the VAT on supplies throughout the EU. This is similar to the “MOSS” scheme that has some years successfully applied to electronically delivered services.

The procedure can be used by various people, including, which is likely to be of most interest to persons with no EU presence, persons who:

  • supply services to non-taxable persons. This version is known as the “non-union scheme” or
  • who provide goods to a non-taxable person where the consignment value does not exceed €150. (This is known as the “import scheme”). It only applies to goods that are being supplied from outside the EU. Goods held at a warehouse in the EU not covered by the scheme.

If a person is using the import scheme, he must appoint an intermediary in the EU in order to use the scheme, although it is possible this may not be necessary where the EU has agreement with the country of residence for the recovery of unpaid tax.

Records must be kept for at least 10 years from the date the transaction.

If a  person registers, he gets a VAT number which is prefixed “EU”.

For UK company, it is likely that the easiest place to register will be the Irish Republic, because the paperwork will be in English and the Irish tax authorities are relatively efficient.

This note is intended for guidance only. Specific advice should be taken on individual circumstances.

 

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