Irish and UK VAT
Assistance with value-added tax (VAT)
If you’re a US business with customers in Ireland, the UK or the European Union and don’t have a branch or subsidiary in these locations, you may still have to pay VAT (value added tax). This consumption tax applies to all goods and services and is charged where the customer is located.
We appreciate that VAT is a complex issue, especially for international companies trading across the EU. The rules are complicated, and late registration, returns and fines can all result in steep penalties and possibly interest being charged.
At St Matthew, we can help you seize opportunities, avoid risks and meet all your VAT responsibilities, ultimately giving you peace of mind.
VAT in EU Member States
Every time a customer purchases a good or service in the EU, they pay VAT immediately, because it is included in the price. The seller collects the VAT from the customer and pays some or all of it to VAT authorities.
How much VAT you will need to add to your goods or services depends on where your customer resides. Standard rates vary across different member states, from 17% to 27%. It is important to charge the correct amount because if you don’t, you will still have to pay it. Governments expect the money regardless of whether you knew which rate to add.
VAT is charged on both physical and digital goods.
Supplying Digital Goods
According to the European Commission, something is a digital good if it meets any of the following criteria:
- It is not a tangible, physical good
- It involves minimal human intervention or is fully automated
- It is based on IT and could not exist without the technology
- It is provided by the internet or an electronic network
Digital goods include downloadable games, downloadable and streamable movies, websites, internet services providers and cloud-computing software.
The reasons EU governments charge VAT is down to simple economics and a desire to level the playing field. They want to receive taxes on goods and services consumed by their citizens.
If foreign businesses weren’t required to charge VAT, local firms would suffer because their products would cost more. This would force customers to look for cheaper options outside their own country.
With digital goods, there are no VAT thresholds, and so the tax is charged from the first sale. Note that if you supply services from the United States, no VAT is due. For example, if you’re a teacher giving language learning courses via Zoom or a lawyer providing consultations over the phone.
Simplified VAT System
Obviously, it would be extremely onerous if non-European companies had to register and file VAT with every country they sell digital goods to. To simplify matters, they can register for VAT, file VAT returns and make payments in one place. Typically non-EU enterprises select either Ireland or the UK. This is done through the VAT Mini One Stop Shop (MOSS) scheme.
Here is an example of how this works in practice. Let’s say for the supply of website hosting services to customers in several countries, a US-based company owes $1,000 VAT to Luxembourg, $1,000 VAT to Italy and $1,000 to Germany. Through MOSS, it has elected Ireland, so it would pay $3,000 to the Irish revenue service, which would distribute the money.
Currently, services covered by the MOSS scheme include but is not limited to:
Supply of software
Downloading apps or music
Supply of software
Downloading apps or music
Handling VAT Payments in the EU
Registration for VAT
Register for VAT in the EU member state of your choice then register for a VAT Mini One-Stop Shop (MOSS) with that local tax authority.
When you acquire new customers, you need to verify whether they are a business or person and where they come from. A company will have a VAT number; an ordinary consumer will not.
Charge VAT if you need to. The tax has to be added to every B2C sale, but if the buyer is an EU business with a valid VAT number, it is their responsibility to handle VAT on the transaction. You don’t need to add it.
Keep a detailed invoice for each transaction.
Submit your tax returns quarterly
Supplying Physical Goods
Currently, the VAT threshold for physical goods in the EU is €100,000, but states can reduce it to €35,000 if they prefer.
Sales over the VAT threshold are subject to VAT in the country of destination. Often VAT is charged at customs. However, change is coming.
From 2021, it is expected that the EU will extend VAT MOSS to include physical goods. Foreign companies selling goods into the European Union will have to charge the VAT rate and pay it in advance.
A Note About Brexit: The UK exited the European Union VAT regime on 31 December 2020.
How We Can Help
Here at St Mattew, our international VAT team can handle all aspects of EU VAT processes for American companies.
VAT filing and payments