Challenges of International Trade
Do you sell goods purchased from different countries abroad, also installed, and buy services abroad?
VAT liability when buying goods as import
VAT registration in the destination country is usually necessary if you act as the importer yourself or if you have intra-community acquisitions in other EU member states. If the goods are sold installed, you must act as the importer. Also, a situation where an external subcontractor is used, for example, for installation work, may as such cause VAT liability in the destination country; or at least it is advisable.
If the customer acts as the importer, you may not be able to take care of the installation of the goods. Therefore, the sale of goods installed is only possible if you act as the importer.
The installation of goods into a building may be a service connected to an immobile property (sale of construction services) depending on whether the goods serve the building’s general use as a building or the activity conducted in the building. This may lead to VAT liability, even if the customer is VAT liable in the destination country.
Purchasing installation work from a subcontractor in the destination country does not always involve reverse charge VAT in all EU countries. if the work is performed in the destination country you will receive an invoice including VAT from subcontractor. The same applies to installation services purchased from a subcontractor outside the destination country; usually at least if youdon´t have a tax representative in the destination country. In some EU countries, however, reverse charge VAT applies to the purchase of just the installation work alone.
Delivery terms can also affect potential VAT liability.
It is also worth remembering that although there is a common VAT directive in the EU area, only some of the articles are such that they must be followed in all EU member states. According to some articles, a member state may act in a certain way, but it is not mandatory. Due to this, the national legislations of different EU member states may differ from each other, and it is necessary to verify the issue from the member state in case.
The area outside the EU is much broader than the EU area and there is no common set of regulations. Not all countries necessarily have VAT or a similar indirect tax at all, and if they do, its regulations may vary greatly from the EU area. Therefore, the procedures must be clarified separately for each country.
Permanent Establishment for Income Tax and VAT Purposes
The definition or the formation of a permanent establishment is not always the same in income tax and VAT. For example, maintaining a warehouse or the duration of work may lead to income tax liability, but not VAT liability. From the VAT perspective, a permanent establishment is generally constituted only if there is an employee in the destination country who has the right to independently make contracts and/or decisions.
What to be avoided?
Act first and ask questions later when problems arise. This usually leads to sanctions for neglecting registration obligations and reporting and late payment fees.
What to do to avoid problems?
Consult our experts well in time before starting the project, so there is enough time to determine the correct way of action. This way, the necessary information can be obtained; from both within and outside the EU area. We have an extensive network of partners in the EU area and also outside it, through which we can get information from local experts for different situations which makes it much easier to avoid difficulties.