The Impact of EU Accession on VAT

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Information about The Impact of EU Accession on VAT
News-Reports

Published on June 17, 2007

Author: Octavio

Source: authorstream.com

The Impact of EU Accession on VAT: overview of legislative amendments:  The Impact of EU Accession on VAT: overview of legislative amendments Joseph Sammut James Farrugia Main Changes to VAT Law:  Main Changes to VAT Law New VAT procedures for cross-border transactions Special treatment of certain items of goods and services Changes in VAT Rates on certain items Taxable and non-taxable Persons:  Taxable and non-taxable Persons A Taxable person is a person (including a body of persons) who carries on an economic activity (trade, business, profession, vocation etc) irrespective of whether his activity is taxable or not. Thus an Insurance company, a hospital and a doctor are taxable persons even though their activity is exempt from VAT. A non-taxable person is a person who is not a taxable person (e.g. an employee) A Non-taxable legal person is a non-taxable person with a legal body. (E.g. a Public Authority that is not involved in an economic activity; or a Holding Company deriving its income only from investments) Intra-Community Trading:  Intra-Community Trading As from Accession Date: The terms 'imports' and 'exports' are to be used only in cases where purchases and sales are made from or to a country outside the EU Purchases from a member state are to be called 'Intra-Community Acquisitions' Sales to a member state are to be called 'Intra-Community Supplies' Registrations:  Registrations Three types of Registrations: Art 10 – Taxable Person Normal Registration – can make intra-Community Acquisitions of goods without being charged VAT by the supplier and account for VAT in Malta Art 11 – Taxable Person Small Undertakings not exceeding established turnover thresholds – cannot make Intra-Community Acquisitions of goods without being charged VAT by supplier unless registered under art 12 Art 12 – Taxable Person Not registered under Art 10 or Non-taxable legal Person – can make Intra-Community Acquisitions of goods without being charged VAT by the supplier and pay VAT in Malta Registration – Article 10:  Registration – Article 10 Mandatory for those who exceed Small Undertakings Threshold Optional in any other case Are given a Registration Number with an MT prefix called the VAT Identification Number Are allowed to make Intra-Community Acquisitions without being charged VAT in the member state where supplier is established – will account for VAT by way of the reverse charge rule in Malta Registration – Article 11:  Registration – Article 11 For persons whose turnover is below the established thresholds for small undertakings Registration Number without an MT prefix If they intend to make Intra-Community Acquisitions of goods and pay VAT in Malta they have to register under Art 12 Registration – Article 12:  Registration – Article 12 Non-taxable legal persons Taxable persons not Registered under Art 10 May also be persons registered under Art 11 Are given a Registration Number with an MT prefix May make ICAs without paying VAT in another member state To pay VAT to the local VAT department on a prescribed form Registration under this article is: - Optional - if annual acquisitions threshold (10,000 Euros) is not exceeded - Mandatory - if annual acquisitions threshold (10,000 Euros) is exceeded Threshold does not apply to ICAs of New Means of Transport and Excise Goods Intra-Community Supplies and Acquisitions:  Intra-Community Supplies and Acquisitions For an Intra-Community Acquisition (ICA) to take place the goods have to be dispatched or transported from one member state to another member state Transfers from one branch in one member state to a branch of same trader in another member state are also considered as 'deemed' Intra-Community Acquisitions Intra-Community Supply by Person Registered under Art 10:  Intra-Community Supply by Person Registered under Art 10 Supplier: Checks validity of identification number of Person receiving the goods with Central Liaison Office (CLO) in Malta or over the internet on: http://europa.eu.int/comm/taxation_customs/vies/en/vieshome.htm If validation is confirmed Supplier charges no VAT He is responsible for VAT if client does not have a valid VAT registration number Submits a Recapitulative Statement of the supplies made as required by the Department which will be captured in VIES system for control purposes Reports Intra-Community Supplies in the following return Intra-Community Acquisition of Goods by Persons Registered under Art 10:  Intra-Community Acquisition of Goods by Persons Registered under Art 10 Purchaser: Discloses his VAT Identification number to the supplier in the other member state If supplier confirms validity no VAT is charged in the other member state No customs formalities and no VAT charged at the point of entry in Malta Accounts for VAT in his return for the period by way of the reverse charge mechanism - value of acquisition and corresponding VAT due at the Maltese applicable rate reported as if it was a self supply - VAT claimed back as an input tax deduction as long as it is fully in the course or furtherance of one’s economic activity – apportionment may also apply Intra-Community Acquisition of Goods by Persons Registered under Art 12:  Intra-Community Acquisition of Goods by Persons Registered under Art 12 Supplier does not charge VAT on Intra-Community Acquisitions after validating the Customer’s Registration Number Person making the Acquisition must effect payment of VAT to the Department in Malta by not later than the 15th of the month following which it becomes chargeable - Payment to be made on a prescribed form Such Person may also be required to pay VAT on transport or ancillary services if this is not included in the value of the goods Submits Periodical Declaration showing the total Acquisitions made in that period to serve as a reconciliation document Triangulation:  Triangulation Triangulation is the term used in cases that involve the supply of same goods between three VAT-registered traders in three different Member States. To reduce the administrative and compliance burden, a simplification measure applies in such cases. B C A MS2 MS3 MS1 inv inv goods Normally B would have to register in MS1. This is avoided through simplification. A issues invoice to B without charging VAT and quoting B’s VAT identification number – A should report supply on his Recapitulative Statement as an intra-community supply B issues invoice to C without charging VAT endorsing it with the words 'VAT Simplification Invoice' – B should report supply on his Recapitulative Statement quoting C’s identification number and the code (T) to denote triangulation operation C should account for the acquisition in his VAT return by reverse charge rule Supply of Services:  Supply of Services The General Rule is that the place of supply of services is where the supplier (service provider) is established. However there are 3 groups of specified services where this rule does not apply: - Services where the place of supply depends upon location of the property or activity - Services where the place of supply is where the customer is established - Services relating to Intra-Community transport of goods and ancillary services thereto 1. Services where place of supply depends upon location of property or activity:  1. Services where place of supply depends upon location of property or activity Services in connection with immovable property, including services of an architect, estate agent or expert, valuer or appraiser, construction works and on site supervision of construction works. Such supply takes place where the immovable property is situated. Transport services, other than intra-Community transport of goods, take place where the transport takes place, having regard to the distances covered. Transport ancillary services, e.g. loading, unloading and handling, take place where the services are physically carried out. Cultural, artistic, sporting, scientific, educational or entertainment activities, the activities of promoters and organisers of the said activities, and activities ancillary thereto. These take place where the activities are physically carried out. Services consisting in the valuation of tangible movable property, or of work on tangible movable property, take place where the services are physically carried out. However where these services refer to goods which have been processed in one member state and are transported to a customer registered for VAT purposes in another member state, the place of supply shall be the latter member state. 2. Services where place of supply is where the customer is established:  2. Services where place of supply is where the customer is established In general this rule applies if any supplier (EU or non-EU) provides the services only to: - a person outside the EU or - a taxable person in a member state other than that of the supplier However if telecommunication services and electronic services supplied by a person established outside the EU are used and enjoyed in Malta by any person, then the place of supply is Malta Otherwise the General Rule applies (i.e. supplier in a member state charges VAT to a non-taxable person or a non-taxable legal person, supplier outside the EU does not charge VAT to a non-taxable person or non-taxable legal person established in the EU). List of Services where place of supply is where the customer is established:  List of Services where place of supply is where the customer is established Transfer/assignment of a copyright, patent, trademark, trade-name or licence and similar rights; advertising services; services of consultants, engineers, consultancy bureaux, advocates, legal procurators, accountants, auditors, financial advisers and other similar services, as well as data processing and the supply of information; obligations to refrain from pursuing or exercising in whole or in part any economic activity, or a right referred to in this item; banking, financial, insurance and re-insurance transactions, excluding the letting of a place for the safe deposit of any goods or documents; supply of staff; letting of movable tangible property with the exception of all forms of transport; services of an intermediary acting in the name of another, when he procures for his principal any of the services referred to in this item. telecommunication services and electronically supplied services (a special scheme for electronic services applies) Example:Supplier not established in Malta and Place of Supply is Malta:  Example:Supplier not established in Malta and Place of Supply is Malta B2B(art10) - If customer is registered under art 10, Reverse Charge Rule applies B2B(exempt) - If customer is an 'exempt' taxable person (e.g. doctor, insurance company etc) payment to be made on a prescribed form to the VAT department B2C - If customer is a non-taxable person or non-taxable legal person… … and supplier is established in another member state, supplier charges VAT at the rate of his member state … and supplier is established outside the EU the service takes place outside EU and therefore falls outside the scope of EU VAT (except for telecommunication and electronically supplied services). 3. Transport and Ancillary Services of Intra-Community goods:  3. Transport and Ancillary Services of Intra-Community goods If supplier and customer are established in two different member states and the customer has a valid VAT identification number, customer always accounts for VAT by the Reverse Charge Rule in his member state If both supplier and customer are registered in the same member state then supplier charges VAT which customer may claim as input tax deduction In any other case, the place of supply is the place where transport begins or where the ancillary services take place and contractor has to charge VAT at the rate of that member state of (place of) supply. He has to register there if he is not yet registered in that member state Refunds of VAT that cannot be claimed as a deduction in Malta:  Refunds of VAT that cannot be claimed as a deduction in Malta If a taxable person registered under article 10 incurs VAT on services in another member state in the course of his economic activity, he may claim a refund of such VAT from that member state under certain conditions and limitations imposed by that state (8th Council Directive). This refund scheme is also extended to non-EU countries on a reciprocity arrangement (13th Council Directive) Intra-Community Acquisition of a New Means of Transport:  Intra-Community Acquisition of a New Means of Transport New means of transport may be a Motor Vehicle, a Boat or an Aircraft There are criteria that define a New Means of Transport - E.g. Car :exceeding 48cc capacity or 7.2 kilowatts power with less than 6 months from first entry into service or has not travelled more than 6000km VAT paid in state where New Means of Transport is registered Any Person who is not registered under Art 10 or 12 is to inform the Commissioner of an Acquisition of a New Means of transport from a person in another member state by not later than the date of acquisition Payment of VAT should be made in Malta accompanied by the prescribed form by the 15th of month following which it has become chargeable Supply of a New Means of Transport:  Supply of a New Means of Transport Any Person who is not registered under Art 10 Who supplies a New Means of Transport to a person in another member state Has to inform the Commissioner of the Sale by not later than date of supply VAT is not charged by seller in Malta but is charged again in the other member state to the purchaser Seller may claim refund of any VAT incurred on the purchase of said new means of transport in Malta on a prescribed form Refund should not exceed the amount of VAT paid or the equivalent Maltese VAT on the selling price, whichever is the lower Acquisition of Excise Goods:  Acquisition of Excise Goods Taxable Person or a Non-Taxable Legal Person not registered under Art 10 or 12 Who intends to make intra-community acquisition of Excise Goods Has to inform the Commissioner by not later than date of said acquisition Payment of VAT should be made in Malta (at Customs) by not later than the 15th of month following which it has become chargeable Importation of goods destined to another member state:  Importation of goods destined to another member state Non-taxable Legal Person imports goods from a third territory Goods are transported to a member state other than Malta If VAT is also charged in the other member state of destination Importer may claim refund of VAT incurred on same importation in Malta Claim for refund to be made on prescribed form Distance Sale:  Distance Sale Is an intra-community supply of goods that are transported by or on behalf of the supplier and are acquired in Malta by a person not registered under art 10 or art 12 of the VAT Act. When goods are transported from Malta purchaser should not be invoiced under a VAT identification number issued at the member state where the transport ends. Is not a new means of transport assembled goods in the place of destination goods falling under a margin scheme (eg. Second hand goods, works of art etc) If a supplier exceeds an annual threshold of 35,000 Euros of Sales to Malta, he has to register in Malta and pay the VAT in Malta. He also has the option to register in Malta if he does not exceed threshold. VAT on Electronic Services:  VAT on Electronic Services According to Para 11(4) of Third Schedule electronic services are services relating to website supply, web-hosting, distance maintenance of programmes and equipment, supply of software and updating thereof, supply of images, text and information, and making databases available, supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events, and the supply of distance teaching VAT on Electronic Services:  VAT on Electronic Services Persons established outside the community who provide electronic services to non-taxable customers who use and enjoy the services in any EU member state, would have to register in any member state of their choice. They would have to charge VAT at the established rate in the member state of consumption, that is, according to the rate of the state where each customer is established. Every Quarter they have to pay the collected VAT to the member state of registration showing the amount of VAT collected for each member state of consumption. The member state of registration would in turn distribute the amounts due to each of the other member states as reported by the registered person. Electronic Invoicing:  Electronic Invoicing Electronic Invoicing is now given a legal basis provided that: (a) such invoices are accepted by customer; (b) invoices sent by electronic means contain the same details as printed invoices; (c) authenticity of origin and integrity of contents are guaranteed by a secure electronic signatures system adopted through national legislation. Miscellaneous:  Miscellaneous Removal of Capping on input VAT credits incurred in the construction of immovable property Introduction of Rules regarding the Adjustment of Input tax credits on capital and investment goods – Legal Notice to be issued Adjustment period may be 20 years on immovable property and 5 years on other capital goods Extension of the 6 year time prescription for the issue of provisional assessments in case where an adjustment period of 20 years is indicated Extension of the 6 years time limit to retain records in case where an adjustment period of 20 years is indicated Changes in VAT Rate:  Changes in VAT Rate Items that were VAT exempt and will become chargeable at 5% (a) confectionery and other edible items; (b) Medical Accessories; (c) Printed matter Items that were VAT exempt and will become chargeable at 15% Medical Equipment Thank you:  Thank you

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