The EU VAT system

The EU VAT system

The EU VAT system

the specialists at vacue.us are happy to tell you all about it

 

EU VAT is the acronym for the process of collection of VAT in the European Union.  VAT is a form of general tax that is levied on both goods and services. It is applicable on both purchase and sale of goods and services but only when these goods or services are meant for consumption within the EU. VAT is calculated on value addition done to goods and services by traders at each stage of the production and distribution. Unlike sales tax VAT is charged on stages of the supply chain. It is collected by a system called partial payments. Taxable persons are allowed to deduct the amount they paid in making purchases in the production stage from the total VAT due. VAT is paid by the final customer in the form of a percentage which is added to the final selling price.

 

The following transactions are subject to EU VAT. The first transaction being the supply of goods by a person liable to pay tax when the supply is taking place within the EU. The second such transaction is when intra-community acquisition of goods takes place in any EU member state and the goods are being transported from one EU member state to another. The third transaction on which VAT has to be paid is when the supply of services is being undertaken and the buyer is within the EU. The last transaction on which VAT becomes payable is when import of goods is taking place from outside the EU.

 

Activities that are VAT exempt are usually those which fall under the ambit of public interest activities for example medical care or certain specific financial services. No VAT is charged when these goods are sold to the buyer who is the final consumer.

 

Now let’s look at cross-border supplies of goods and services. Subject to certain terms and conditions a VAT zero rate should be applied to cross-border supplies of goods to enterprises in both EU and non-EU countries. Zero-rated goods are those such as donated goods being sold by charity shops, equipment for disabled and the like. There can be cases when it cannot be proved that correct goods were taken under the purview of zero-rated goods and then the tax authorities can ask for a VAT assessment by the supplier complete with penalties and interest. When talking about cross-border supply of services the place of supply becomes important because that determines which jurisdiction will levy the VAT.

 

The EU VAT system has a minimum standard rate over and above which the member states can set their own national VAT rates. Member nations decide how to make use of the amount made from VAT but each member nation has to pay a certain sum towards the EU budget. Till now the union decides the goods on which reduced or zero rates can be charged but in the future member states would get more of a say in the matter. The whole environment looks as though member states would get more flexibility in the VAT matters.

 

https://www.vacue.us/eu-vat