Service invoices
In 2010, a new Services Directive was introduced within the EU. The new provisions of this Directive state that all services sold across borders, with a few exceptions, will be taxed where they are consumed. The regulations mean that the buyer instead of the seller must pay VAT through acquisition tax (Reverse Charge). The new directive is of course intended to make it easier for companies, which now do not have to receive foreign VAT on their invoices. It is probably also easier for most companies, but if a foreign company has such operations in another EU country, which means that the foreign company needs to have a place of establishment where a situation arises where service invoices become more difficult to assess. The taxation would of course take place where the service is consumed according to the text in the Services Directive. If a foreign company has a place of establishment in another country, it could be the place of establishment instead of the head office that consumes the service and the taxation should then take place in the country where the foreign company's place of establishment is located. It is an assessment that must be made every time a service invoice is issued. The assessment must be made by both seller and buyer because either the seller or the buyer becomes taxable. The seller becomes taxable if the buyer is established in his country and the service has been consumed there and the buyer becomes taxable if the service has been consumed at the buyer's foreign headquarters or at another foreign establishment of the buyer.
A corresponding assessment must be made if you yourself sell services to foreign companies that have establishments in several countries. Then there is also a demarcation problem to take into account between when a foreign company is considered to have an establishment and when it is only a matter of an establishment in another country. If the buyer has only one place of business, the place of business does not count any consumption of a service affecting taxation. If a foreign company is VAT registered, but not established in an EU country and invoices a local company for having provided a service according to the main rule or perhaps a real estate service, the foreign company must also invoice without VAT due to local tax rules and apply the reverse rule tax liability.
Some service categories are exempt from the new main rule
As can be seen, the situation is becoming complex, even though it would be so simple with the new rules. What complicates the whole thing even more is that certain service categories are exempt from the new main rule. Excluded service categories are real estate services, restaurant and catering services, passenger transport and a few more. The rules on country of taxation are different for each of the exempt types of services. As always with regard to services, as they are intangible in nature, there are also demarcation problems between different types of services, which leaves room for many different interpretations and assessments by the tax authorities. A good example of this is the so-called the trade fair services. Since 2011, trade fair services are services that are to be taxed according to the main rule, i.e. in the buyer's country. When it comes to what counts as "fair service", however, the tax authorities have different views. The Belgian tax authorities assess e.g. that the rental of floor space for the erection of a trade fair stand is a trade fair service, while the German tax authority considers that the same service is a real estate service, a service which constitutes an exception to the main rule. The directive also states that access to events such as trade fairs, conferences, exhibitions, etc. is also an exception to the main rule. When it comes to what counts as access, the different tax authorities have very different views.
Due to our knowledge of the regulations in combination with broad experience of assessments and interpretations in other countries, VAT Adviser has a good opportunity to guide you right in this narrow jungle, of course with the goal that VAT will never be a cost.
Product invoices
Local companies invoice VAT on sales of goods in their own country. If a foreign company is VAT registered in another country and reports VAT there, you can deduct VAT in the VAT report if the purchase refers to goods for the VAT-liable business and the invoice is correct.
The foreign company, on the other hand, for domestic sales, in the country where they are VAT registered, in many EU countries, does not invoice VAT, but applies the provision on reverse charge / Reverse Charge. The condition is that the buyer is a company that is established and reports VAT in the country of taxation. The rules are different if the foreign company has a permanent establishment, e.g. a branch.
In some countries, e.g. Germany and England, the VAT-registered foreign company must always invoice the country's VAT.