Do you want to learn more about VAT? Read this article to learn about VAT Rates, what Triangulation means, when Chain Transactions take place and all about Supply and Install.
If you’re registered, you have to charge VAT when you make taxable supplies. What qualifies and the VAT rate you charge depends on the type of goods or services you provide.
No VAT is charged on goods or services that are:
- exempt from VAT
- outside the scope of the relevant VAT system
Most countries usually have a standard rate of VAT and a reduced rate of VAT. The goods or services which are subject to a reduced rate must be specified by the local tax authority.
Where 3 parties are involved in successive transactions, but only one movement of goods take place, a simplification may be available to avoid certain registration obligations.
As part of simplification measures introduced when the EU created the Single Market, a special rule was introduced for the treatment of so-called triangular transactions. Triangulation occurs when there are three companies involved in successive transactions, with a single movement of goods, and they are VAT registered in three different EU member states.
In such a scenario, the standard EU VAT legislation would require that at least two of the three parties be VAT registered in the same country for the transactions to be compliant. However, a simplification was introduced in all EU member states so that the second VAT registration can be avoided if various conditions are met and strict reporting requirements are adhered to.
Chain transactions occur where numerous parties are involved in several supplies. The VAT treatment can be complex and should be verified to ensure compliance.
It has become increasingly popular for businesses who trade cross-border, to make use of several different parties in the course of the supply chain.
Supply chains can be complicated and there is a need to have multiple parties involved in one commercial transaction. More transactions mean more supplies to consider from a VAT perspective.
These actions can lead to some significant compliance obligations from a VAT perspective. In circumstances where the triangulation simplification cannot be applied, the resultant supply is known as a chain transaction.
In a simple chain with only one intermediary, there will be a single transportation of goods between countries, but two supplies taking place. It is important to determine which supply involves the intra-community movement of goods and which is the domestic supply.
If you are planning on implementing a supply chain which involved two or more other parties, you must make sure the VAT treatment of each transaction is compliant with the EU law.
Supply and Install
Businesses supplying installed goods must consider the VAT treatment of their supplies, together with any simplifications or VAT registration obligations that may arise.
VAT compliance rules are usually governed differently depending on whether the taxable supply is a service, or the provision of goods. Therefore, the legislation is quite clear if there is an easy distinction.
However, when goods are provided as a supply, they may also require assembly or installation. (i.e. the supply is goods and an associated service). If this is being done in a foreign EU member state, then there may be an obligation to register as a non-resident taxpayer.
The supply and installation of goods is treated as a supply within the country where the assembly takes place. This generally triggers an obligation to register for VAT under the EU VAT Directive.
However, most EU member states now offer exemptions under the VAT reverse charge rules, or provide some sort of thresholds, so VAT registration by a foreign supplier is rarely required.