VAT rules of Services in the EU as from 1 January 2010
As from 1 January 2010, new rules were introduced across the EU, affecting all business that trade internationally in services, whether as a supplier or purchaser, and whether externally or on an intra-group basis.
2. VAT CHANGES AS FROM 1 JANUARY 2010
• VAT on almost all B2B (business-to-business) services will be chargeable in the Member State of the customer, and not in the country/Member State of the supplier. The customer will then account for the VAT due under the ̔ reverse charge ̕ procedure. Many more services will be subject to the reverse charge, including all management charges.
• Cross-border VAT charges will be minimized but when VAT is still charged, there will be faster, more efficient refund procedures – the ̔ Eighth Directive ̓ VAT refund procedure is applied and electronic filing is introduced.
• Exempt and partly exempt businesses, such as banks and insurance companies, currently receiving VAT-free services from abroad may face extra VAT costs on, for example, management charges, outsourced services etc.
• New ̔ time of supply ̓ rules governing when a reverse charge liability is accounted for and when a transaction is to be included on VIES forms.
• Businesses will be required to file VIES forms for services.
3. NEW RULES REGARDING THE PLACE OF SUPPLY OF SERVICES
A. GENERAL RULE
The general rule with respect to the supply of services to a taxable person shall be the place where the taxable person (i.e. the recipient) has established its business and not the place where the supplier is established.
The place of supply of services to a non-taxable person shall be the place where the supplier is established.
B. EXCEPTION RULES
Exception rules shall be applied to the following services:
• Services connected to immovable property – The place of supply shall be where the immovable property is located.
• Passenger transport – the place of supply shall be where the transport takes place.
• Cultural, artistic, sporting, scientific, educational and similar services – The place of supply shall be where those activities are physically performed.
• Restaurant and catering services – The place of supply shall be where the services are physically carried out.
• Restaurant and catering services for consumption on board ships, aircraft or trains during the section of a transport operation effected within the Community – The place of supply shall be at the point of departure of the passenger transportation.
• Short-term hiring of means of transport – The place of supply shall be the place where the means of transport is actually put at the disposal of the customer.
4. REFUND OF VAT
The existing procedure for the refund of VAT paid by a taxable person in another Member State for business expenses incurred in that Member State, were replaced by a new electronic procedure as of 1 January 2010.
The purpose of the new electronic procedure is the equal treatment of the business within the EU and the faster refund of the VAT to the claimants.
As of 1 January 2010, when a taxable person who is established in one Member State (Member State of Establishment) pays VAT in another Member State of the EU (Member State of Refund), will be allowed to submit an electronic application for the refund of VAT in the Member State of Establishment.
The deadline for filing an application for VAT refund is newly set at 30 September of the following calendar year. The claimants will no longer be required to present the original copies of documents. The VAT authorities will be required to process claims within a stipulated time period. If exceeded, they will have to pay interest to the claimants on overdue refunds.
5. NEW REPORTING REQUIREMENTS
As of 1 January 2010, businesses will be required to file VIES forms for services, similar to those already required for goods. Only taxable (not exempt) services subject to the reverse charge and supplied to a VAT-registered customer in another Member State will need to be reported. Businesses will not be required to report services supplied to the customers in the same Member State or to customers outside the EU. Hence, In order to enable the timing completion of the return information systems will need to identify:
• The type of service supplied (whether or not ̔ reverse charge service ̓ , taxable or exempt service, etc).
• The status of the customer (i.e VAT taxable person or not),
• The location of the customer (i.e in another Member State or outside the EU).
In Cyprus, the VIES forms for services will be filed on a monthly basis and they will be filed by the tenth day of the month following the month to which the VIES form relates.
In addition, as of 1 January 2010 the VIES form for intra-community supplies of goods will also be filed monthly. These forms are currently filed quarterly.
Document submitted by PEK Ltd www.pek-cy.com
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