International VATServices

Which VAT jurisdiction is your service covered by?

The starting point for identifying the VAT treatment of international services is the ‘Place of Supply of Services’ rules which must be used to establish whether services are subject to UK VAT or fall within the VAT jurisdiction of another country.

The rules require you to consider the following:

• Where is your customer?
• Is your customer a business customer or an individual (non-business customer)?
• What type of services are you providing?

Understanding the Use & Enjoyment Rule

Some services are covered by the ‘use and enjoyment’ rule. This ensures that VAT is charged based on where services are consumed rather than where the customer is located. The services covered by these rules are:

• the hire of goods
• electronically supplied services (B2B only)
• telecommunications services (B2B only)
• repairs to goods under an insurance claim (B2B only)
• radio and television broadcasting services

Where any of these services are ‘used and enjoyed’ by a customer in an EU member state, there may be a liability to register for VAT in that member state.

Reverse charge

Receiving a supply of services from outside the UK has VAT implications for the UK purchaser.

A UK VAT registered business purchasing services from an overseas supplier will not be charged VAT. However, UK VAT must be accounted for on the VAT return of the UK business under the reverse charge mechanism.  A common and often overlooked example of this is software licenced from companies based in Ireland or the US.

There are numerous complexities and potential pitfalls associated with international VAT, and mistakes can be costly, both in time and money. This is why we believe it is essential that businesses seek qualified VAT guidance from those with experience in this complex and ever-evolving area of tax.