Local buying and selling abroad, what are the VAT implications?

Local buying and selling abroad, what are the VAT implications?

We still sometimes see internationally trading entrepreneurs not only buying and selling to and from the Netherlands, but increasingly buying in a certain country and reselling locally. In doing so, a possible VAT liability is not always recognised!  

A Dutch trader is given the option to purchase and resell goods within one EU member state. The goods are then delivered by the locally established supplier directly to the locally established end customer. This is an ABC transaction, where the Dutch trader is party B. The association with the simplified ABC scheme often follows, but that scheme does not apply because there is no cross-border transport in this case. The case involves two commercial transactions, both of which are subject to local VAT regulations.

In all cases, the supplier will charge VAT from the relevant EU Member State. This will be eligible for a refund, but the manner in which this is done depends on the supplier's own sales invoice. For each EU member state, it must be examined whether the Dutch trader must charge local VAT itself or whether the local VAT is transferred to the customer. If the local VAT is transferred to the customer, the Dutch trader does not have to state the local VAT on the sales invoice and no local VAT registration is required. In that case, the VAT paid to the supplier can be reclaimed via the Dutch Tax Authorities (via the digital refund procedure).

If an EU member state has no local reverse charge, the Dutch trader does need a VAT number and a sales invoice must be issued under that VAT number showing VAT at the local rate. 

To illustrate, let us take a closer look at some EU member states, with some specific comments.

Belgium

Belgium has a reverse charge mechanism for the situation where the supplier is located outside Belgium and the customer is. The Dutch trader does not have to register in Belgium (and can reclaim the purchase VAT in the Netherlands). If the Dutch supplier does have a Belgian VAT number (in the capacity of non-resident trader), the VAT remains reverse-charged to the end customer (the purchase VAT can then be reclaimed via the Belgian return).

Germany

This is where things often go wrong in practice: Germany has no general reverse charge mechanism for goods transactions. Every Dutch intermediary must register in Germany and charge German VAT to the buyer. The purchase VAT can be reclaimed via the German tax return.

Poland

Poland has a reverse charge mechanism similar to Belgium. However, if the Dutch intermediary has a Polish VAT number (because of having to declare intra-Community acquisitions, for example), the reverse charge to the Polish customer expires.

Non-EU countries

Countries such as Norway, the UK and Switzerland also have VAT, which is very similar to European VAT. No reverse charge mechanism applies in these three countries.

Pitfalls

Each EU member state has its own rules

People are too quick to think that VAT has been transferred to a local customer. The aforementioned examples already show that there can be different scenarios.  

Sales invoice assumes intra-Community delivery

This is mostly due to the invoicing system used: a delivery address in the EU is entered, which makes the system 'think' that there is an intracommunity supply. This then incorrectly appears in the Dutch VAT return and Intra-Community Supplies Declaration.

As long as the goods under the purchase and sale transactions do not physically enter the Netherlands, these transactions do not belong in the Dutch VAT return.

Purchase VAT is reclaimed without a second thought

More specifically, foreign VAT is reclaimed through the digital refund procedure. In respect of the purchase VAT, it is immediately assumed that it is reclaimable through the same procedure. However, if a local VAT liability applies in respect of the outgoing invoice, then the purchase VAT must be reclaimed via a local return. A refund via the digital refund procedure will be refused.

Purchase VAT is 'passed on'

It happens that the intermediate entrepreneur passes on the purchase VAT, so to speak. This purchase VAT is not reclaimed but also not remitted. The intermediary then effectively invoices as an agent. However, if the intermediary entrepreneur acts in his own name, there are two separate transactions, whereby one is liable for VAT on the sale himself if no local reverse charge mechanism applies.

Should you be or find yourself in a similar situation please contact our specialists. We will be happy to help you!