Major VAT Changes Impacting Contractors working in the EU

[nodric]

From the 1st of January 2010, the EU Directive on VAT has been changed.

The key impact affecting IT Contractors is on the ‘place of supply of services’.

If you carry out contracts in a different country than where your business is located this will affect you!

Place of supply of services

Currently, the general rule regarding the place of supply of services for both business to business and business to private consumer services is that the place of supply is the place of jurisdiction of the supplier. i.e. The country your business is registered in. If you charged VAT, you did so through your own country, applying the applicable rate. e.g. UK VAT at 17.5%

In the new rules there will be one rule for business to business supplies of services, and another rule for business to consumer supplies. As we are only concerned with B2B, I will ignore the latter.

Services to business

The new general rule for B2B supplies will be that the service is taxable in the country where the recipient of the service is established. This could mean that when you render a service to a business in another Member State you will have to levy VAT in the other Member State, and you will have to register for VAT in that Member State.

The fact your clientco head quarters are in your local country, or the fact you send your invoice to Dubai, will not matter a jot! It is the establishment in which the services are delivered that will determine where VAT should be charged. i.e. Where you turn up to do your contract.

The following exceptions are made to the general rule:

The place of supply of services in relation to real estate is the place where the real estate is located;
The place of supply of short term hiring of transport (less than 30 days, or 90 days when it is a vessel) is the place where the transport is made available.
The place of supply of restaurant and catering services is the place where the restaurant is or where the catering services are provided.
The place of supply of passenger transportation is the place where the transportation takes place, based on the distance covered.
The place of supply of cultural, artistic, sporting, scientific, educational and similar services will be changed in 2011 rather than from 2010.

The directive is convoluted as usual, but you can bet your bottom Euro that the various VAT authorities will soon start to enforce these new rules. This means the days of being a VAT Nett Receiver are over.

It also appears that the paper methods of filing VAT will soon vanish, to be replaced by fully integrated eletronic systems across the EU. Hmmm really!

So yet another nail in the coffin of freelance Entrepreneurialism

You can read the details here (PDF on the EU VAT Site)

The main site is here.

Press release here.

UK HMRC link here

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[JustMe]

Thank you Nordic

An example :
- I provide service : testing, developing
- My company is in Belgium (Belgium VAT-id)

I work in Belgium, for a Belgium Company, but the agency is in the UK.
In the past I sent a invoice to the UK with VAT 0%.

Does that change now.
It does not make sense, putting 21% (Belgium VAT) on the invoice. The UK-company can claim it back (I assume).

rgds,
Justme

[nodric]

Thank you Nordic

An example :
- I provide service : testing, developing
- My company is in Belgium (Belgium VAT-id)

I work in Belgium, for a Belgium Company, but the agency is in the UK.
In the past I sent a invoice to the UK with VAT 0%.

Does that change now.
It does not make sense, putting 21% (Belgium VAT) on the invoice. The UK-company can claim it back (I assume).

rgds,
Justme

If, and I am not an expert on this, your place of supply is in Belgium. i.e. the establishment at which you do the work for clientco, then it seems the answer is YES, you have to charge the agency VAT at 21%. It's then the agencies headache to reclaim it.

Whether we can consider the agency an intermediary, and the supply to be deemed as having be delivered at their location is not well understood by me yet. However, this does mean that you would then have to charge UK VAT, and be registered for VAT in the UK!

I am more interested in establishing whether invoicing via a non EU country (i.e. using a management company as a service intermediary) can avoid this requirement to charge VAT.

Example

1. Management Company in Dubai invoices agency. No VAT charged as outside EU.
2. Contractor then invoices Dubai management company. No VAT charged as outside EU.
3. VAT between ClientCo and Agency not our concern.

However, if the end supply to the ClientCo is the deciding factor, then we all have to be part of this complex VAT mess!

For instance, if you take a contract in Belgium, charge a UK Agency through your UK LTD Co (you are allowed to do this), then your UK LTD Co would have to register in Belgium for VAT. Go figure how much fun that's going to be!
Tu Parlez Francais ou Neerlandais?

I continue to read up and take advice. As I learn, or understand more, I’ll add to the thread. If anyone else has investigated this, now is the time to share that knowledge

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[doodab]

I work in DE invoicing a UK company for services delivered in DE. Currently I invoice with no VAT and they cross charge themselves UK VAT.

I am not aware of changes to that arrangement but I will ask my accountant. Thanks for the heads up.

[nodric]

Some Clarification Obtained

It seems this is the best interpretation of the new rules, derived from several sources, including HMRC, Deloittes and KPMG. The good news is that it pushes more work on the customer, and simplifies things for the supplier [US]

EC Sales Lists
The key change means that EC Sales Lists must be kept for all sales of services, just as they are today for goods. These are already mandatory for me in Belgium anyway, but will now become so across the EU.

EC Sales Lists are a documentary record of all businesses you have supplied goods, and now services, too. In other words you have to keep a list of every single transaction you have made, and summarise them onto a Sales List. That way the inspector can see who you have supplied services to, and if VAT is due.

The EC Sales List is an official document issued by the VAT authority where you are registered for VAT.

Zero Rated Supply
The good news is, it seems that the supply of services across EU borders remains zero rated. i.e. UK LTD supplies services to a French Company and charges no VAT.

However, just to make it fun, you will now have to show the equivalent VAT that would normally be charged on the invoice at the rate applicable in the country in which the services are delivered.

In simple terms lets say you invoice 10K Euros to France. You would have to show somewhere on the paperwork what the equivalent VAT would be for the place of supply, i.e. France. The rate in France is 19.6% so you would need to highlight for tax purposes, that the applicable rate of VAT would be 1960 Euros. However, you would still charge zero VAT on your total.

Reverse Charge
The customer (ClientCo) has to show on his French VAT return that he was liable for the 1960 Euros, but due to cross border rules, he is ‘reverse charging’ this amount. i.e. He shows it both as input and output tax, thereby cancelling out the charge!

Reason for doing all this they say, is to reduce fraud. EC Sales Lists will show all transactions now, so services cannot mask dodgy deals. Hmmm!

So for the most part us poor contractors will need to add some text on our invoices, but will not be further impacted by the changes.

Agencies and Management COs
Agencies and Management Companies doing Invoicing are classed as intermediaries so will be exempted. If they were not, they would have to register for VAT in every country in which you worked though them.

It does get hideously complicated if you supply electronic services across the EU, or have a mix of VAT rates applicable on goods. It also complicates the whole process for refunds on cross border charges, and makes the lives of transport companies nightmarish. It also means that everywhere a company receives services they will have to be VAT registered in that country.

As none of this affects most of us, I’ll leave you to do your own research if you care.
I may be wrong, so you should check all details with your accountant or financial advisor. In fact you should check as in any event you will have to include the VAT equivalence text on your invoice, and complete a EC Sales List, even if you only have one customer. You could always give the VST office a call :-)

I have not exhausted my enquiries just yet, and when I receive further official clarification I will post it here.

The Irish seem to be able to write simpler English than HRMC, bless, so here is the link to their take on the new rules. Link Key section is 2.1 and the list of services in Appendix 1 – Fourth Schedule Services.

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[wogewwabbit]

Does anyone have any new findings on this issue? I am particularly interested in the UK-Ltd --> UK-Agency --> EU-Client setup.

[Boo]

Does anyone have any new findings on this issue? I am particularly interested in the UK-Ltd --> UK-Agency --> EU-Client setup.

You invoice agency plus VAT at normal UK rate as usual. Your agency will invoice the client and not charge VAT but will mark their invoices "for reverse charge to ClientCo's VAT number".

You do not earn £70k per quarter and so do not need to maintain an EC Sales List. YourAgency might.

Hth,

Boo

[scooterscot]

So yet another nail in the coffin of freelance Entrepreneurialism

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Why is this another nail in the coffin of freelance Entrepreneurialism?

So you register for VAT in the country of supply, charge VAT, complete your return as if you were in your home country, pay the VAT...

or have I missed something?