For many businesses moving to Ireland, especially I.T. companies, a considerable amount of research and planning into our tax regime is usually carried out in advance. From experience, however, the question these companies rarely ask themselves is “what are the key VAT issues affecting our company if we locate to Ireland?
The current Irish VAT rules are as follows:
What does that mean to the Supplier or I.T. Business/Company?
The supplier of these services will be obliged to register and account for VAT in every E.U. member state in which they have private, non-taxable customers. There is, however, a “Special Scheme” where non E.U. businesses need only register in one E.U. state.
When we talk about “electronically supplied services” we mean:
There is a more detailed definition of “electronically supplied services” in Article 7 of Council Implementing Regulation of 15th March 2011 (282/2011/EU).
If a U.S. software company supplies software upgrades to private clients in twenty eight E.U. member states, does that company have to register in every one of those states?
The “Special Scheme” is optional and enables a non E.U. supplier making supplies of electronically supplied services to private, non-taxable individuals within the E.U. choose one E.U. state in which to register and pay VAT in respect of the supplies it makes within and throughout the E.U.
For example, a U.S. business/company supplies web hosting services to private consumers in Ireland, the UK and Germany. The U.S. business can opt to register for the “Special Scheme” in Ireland which means:
The U.S. I.T. business/company is eligible to use this scheme if it is not established in the E.U. and if it is not registered or required to be registered for VAT in any other E.U. member state.
From 1 January 2015, supplies of telecommunications, broadcasting and electronically supplied services made by EU suppliers to private, non-taxable individuals and non-business customers will be liable to VAT in the customer’s Member State.
The current place of supply/taxation is where the supplier is located, but from 1st January 2015 this will move to the place of consumption or the place where the consumer normally resides or is established.
Suppliers of such services will need to determine where their customers are established or where they usually reside. They will need to account for VAT at the rate applicable in that Member State. This is a requirement regardless of the E.U. state in which the Supplier is established or is VAT registered.
As a result of these changes, suppliers may need to register for VAT in every EU Member States in which they have customers. As there are no minimum thresholds for VAT registration, making supplies to a single customer in one Member State will necessitate VAT registration in that country.
With effect from 1st January 2015, the Mini One Stop Shop (MOSS) will be introduced which means that instead of having to register in each E.U. member state, the supplier will have the option of declaring and paying the VAT due for all the member states in the E.U. state where the business is established via a single electronic declaration which can be filed with the tax authority in the state where the supplier is established.
The MOSS scheme will be similar to the “Special Scheme” which is currently in place for non E.U. suppliers. It will allow for VAT on Business to Consumer supplies made in all or any of the twenty eight E.U. Member States to be reported in one electronic return.
What needs to be considered prior to the introduction of the MOSS Scheme on 1st January 2015 by businesses already established in Ireland or thinking about establishing in Ireland?
One of the biggest problems envisaged with the MOSS systems is identifying the location of the customer.
It is essential for suppliers to correctly identify the customer’s location/permanent address/usual residence so they can charge the correct VAT rate applicable in that member state.
For most telecommunication, broadcasting and electronically supplied services, it will be obvious where the customer resides. The decision about the place of supply of those services should be supported by two pieces of non-contradictory evidence including credit card details and a billing address for example.
It is anticipated that there will be situations where the consumer’s location is less obvious. As a result, the following rules have been compiled between the Member States to help businesses ascertain the place of supply in B2C TBE transactions.
According to the Irish Revenue website:
In situations where the consumer advises you that he/she resides in a different location than previously thought, the supplier can change the place of supply but only if the consumer can produce three pieces of non-contradictory evidence to support that change of place of supply.
The evidence to be used in deciding the place of supply may vary depending on the industry but the most usual types of proof include the customer’s billing address, the address on his/her bank accounts, the IP address, etc.