VAT legislation is similar across the EU (although there are some differences). Here’s an overview of the rules regarding VAT on the supply of goods inside and outside the EU.
The VAT payable depends on the location of the goods when they are sold and their destination. There are several rules regarding the supply location, but generally speaking:
- If the goods are transported because of a transaction, the supply location is the place from which the transport starts.
- If the goods are not transported, the place of supply is where the goods are located at the time of the transaction.
There are three different types of supply of goods.
- Domestic supply is where the goods remain within a country. Here, the supply is VAT-able at the standard or the reduced VAT rate that applies in the country where the goods are located.
- An intra-community transaction is when goods are transported from one EU Member State to another EU Member State and supplied to an entrepreneur for VAT purposes. In this situation, two taxable events take place.
- First, there is an intra-community supply in the Member State of dispatch. This is taxable at zero percent.
- The second taxable event is known as an intra-community acquisition by the buyer in the Member State where the dispatch ends. This is taxable at the VAT rate of that Member State. The buyer has to report the VAT due on their VAT return and can deduct it as input VAT when they use the goods to make VAT-able supplies. This was meant to be a transitional system following the formation of the EU internal market in 1993 but, as yet, the EU has not agreed a clearing system of compensation for foreign input VAT.
- An export supply is when goods are transported to a location outside the EU and this is taxable at the zero percent rate.
With an intra-community supply or an export supply, the seller has to prove that they have dispatched the goods to another EU Member State or to a place outside the EU to qualify for the zero percent rate. There are no specific rules on how to prove the transportation of goods but the Dutch Supreme Court has defined the following safe haven:
- An entrepreneur will fulfil their obligation to prove intra-community supply or export, if they provide the following information: the invoice, a CMR consignment note, a packing list, proof of payment (such as a bank statement), a copy of the invoice with a signature for receipt of the goods, and a statement from the transport company confirming the location of the goods.
Contact the Netherlands Foreign Investment Agency today to discuss business opportunities in the Netherlands for your company.
Source: Greenberg Traurig 2006