What is intra-community VAT? Buying and selling within the EU
If you plan to carry out commercial transactions with a member country of the European Union, you need to know what intra-community VAT is and how it works.
Created to unify fiscal criteria, avoid the cascade effect and ensure the efficiency and transparency of the tax system, the intra-community VAT allows the fair collection of taxes when importing or exporting products within the European Union.
The purchase and sale of goods or services is a major step in the growth of a company. It also represents the fulfillment of a series of procedures and fiscal requirements.
Whether you are self-employed or own a company (regardless of its size), it is necessary for you to know what this type of tax consists of, how it is applied according to the type of transaction you carry out at the time of invoicing, and even how to calculate and recover it.
Let's start!
What is intra-community VAT?
Value Added Tax (VAT) is the tax levied on certain products and services. When it is applied to commercial transactions carried out between different countries of the European Union, then we speak of intra-community VAT.
Since each country has its own tax regulations (tax rate, declaration, etc.), the European Union decided to create this VAT in order to facilitate buying and selling operations between member countries. For example, the general VAT in Spain is 21%, while in Germany it is 16%, and so on with each EU country.
Tax requirements
In order to benefit from this type of taxation, it is necessary to comply with a series of requirements, among which are:
- To be registered in the ROI;
- To have a NIF-VAT code.
Let's see what both requirements are about:
Registering in the ROI
The Register of Intra-Community Operators (ROI), also known as VIES (VAT Information Exchange System), is a census where all professionals and businessmen who wish to carry out commercial operations with one or more countries belonging to the European Union are registered.
Whether they are engaged in the purchase or sale of goods and services subject to VAT, or in the provision of services, the self-employed or entrepreneur must register in ROI. Otherwise, the corresponding tax must be invoiced to the issuing country.
NIF for intra-community VATmanagement in Spain
Once registered in the ROI, Hacienda will assign you a NIF-IVA, which indicates that you are registered and will be able to carry out VAT-exempt transactions.
The NIF-IVA is a number composed of the country prefix (ES for Spain) and a Tax Identification Number. This number allows you to check whether the company with which you do business is registered or not for invoicing purposes. To check it, you only have to go to the European Commission's website or to the Tax Agency's VIES Census.
On the other hand, the NIF-VAT is used to record intra-Community transactions through form 349. This information must coincide with the information reflected in form 303 of VAT at the time of the Value Added Tax liquidation.
How intra-community VAT works or is applied
The application of the intra-community VAT rules at the time of invoicing depends on the transaction being carried out (purchase or sale), the type of good being traded (product or service) and the customer with whom the transaction is being negotiated (company, professional or individual):
Sale of goods to company or professionals 2.
If both the seller and the buyer are registered in the ROI, VAT should not be applied on the invoice. Otherwise, the VAT corresponding to the issuing country will be applied.
Sale of goods to private individuals
The seller must register as a trader in his customer's country if his annual sales exceed the threshold (from 35,000 to 100,000, depending on the country) and pay the VAT due in the recipient country. Otherwise, he must charge VAT in his own country.
3. Purchase of goods
The purchaser must declare the VAT as input VAT and, at the same time, as output VAT at the time of the quarterly liquidation. This generates a "neutrality" effect, as if the product had been purchased in Spain. VAT will not be applied on the invoice.
4. Sale of services to companies and professionals
As with the sale of goods to companies or professionals, VAT will not be applied to the invoice, but the buyer will have to settle it according to the regulations of his country.
5. Sale of services to individuals
The VAT of the seller's country must be applied. There are certain exceptions for telecommunications and electronics.
6. Purchase of services
As with the purchase of goods, the buyer must account for VAT as if he were the supplier himself.
How to recover intra-community VAT
It is possible to recover the input VAT resulting from commercial transactions with member countries of the European Union.
To do so, it is necessary to
- To keep a record of all the operations carried out, as well as the proof of each one of them (invoices).
- To have paid more than 50 €.
- Demonstrate that the transactions have been made as an investment to grow your business or your company.
- Request the recovery before the Tax Agency by means of the model 360.
There are many regulations, exceptions and operations that must be taken into account when making and invoicing an international transaction: limits on amounts, with whom you are negotiating, exemptions, changes in legislation, etc. The important thing is to always be up to date and comply with national, European Community and national regulations.
Tell us your experience with intra-community VAT taxation in the comments 👇 .
Article translated from Spanish