Main rule in international value added taxation is that countries can only tax transactions taking place in that country
International VAT situations start with figuring in which country the transaction is taxed. The starting point in international trade is that a country may tax only transactions taking place in that country. E.g. the Finnish VAT is only payable on the sales of goods and services, intra-Community acquisition of goods and import of goods, that take place in Finland.
VAT Act includes several rules concerning in which situations a sale in considered to take place in Finland. The place of taxation is usually determined differently depending on whether it’s a sale of goods or services. In addition, the rules often vary depending on whether the transaction is made between companies or a company and a consumer. EU countries have substantially consistent rules since the legislations are based on VAT directives.
If the taxation takes place in Finland, tax is levied the same way as in domestic trade according to VAT Act. E.g. tax exemptions and tax rates are determined in the same way as in a domestic situation. If taxation takes place in another country, VAT legislation of that country needs to be looked into.
Intra-Community acquisitions are subject to VAT and intra-Community supplies exempted from VAT
Trade of goods between enterprises in different EU countries is considered to be intra-Community trade. Intra-Community supplies are generally non-taxable. Intra-Community acquisitions are taxable and VAT is paid in the country of the buyer according to the VAT regulations of that country. Prerequisites for applying intra-Community trade rules are that the parties are VAT liable in different EU countries and that the goods are transported to another EU country.
Import of goods into the EU is subject to VAT and export of goods outside the EU is exempted from VAT
In the context of VAT supply of goods from an EU country to another country is considered to be export. When the goods are transported directly outside EU, export is non-taxable, if the transportation is done by the seller, third party transporter or the buyer that is foreign and not VAT registered in Finland.
When goods are supplied from a third country to an EU country, the transaction is considered to be an import in the VAT system. If the importer is VAT registered, it notifies and pays VAT to the Tax Administration. In other situations, the Customs collects the VAT.
VAT treatment of services is determined based on the place of the sale
When it comes to services it is central to evaluate where the sale is considered to take place. The country of sale is determined based on the character of the service, i.e. what kind of service is sold and is the buyer another enterprise or a consumer.
When determining the country of sale there are varying main rules depending on whether the buyer is an enterprise or a consumer. According to the main rule, business-to-consumer sale is taxed in the country where the seller is and business-to-business in the country where the buyer is. In this kind of business-to-business sale reverse charge procedure is usually applied which means that the buyer pays the VAT on behalf of the seller.
However, there are many exceptions to the main rules and hence the country of sale and the contents of the obligations need to be determined case by case based on the nature of the service and the buyer.
Our experts will help you
International VAT questions are often very challenging. Nevertheless, it is central to master them, so that the chains of transactions can be formed in an effective way and that the tax obligations can be taken properly care of. In international trade the seller should check if the sale causes obligations to VAT register in the country of destination.
Our experts have solid experience in international VAT questions. In addition, when it comes to VAT of other countries, we have our worldwide Nexia International network.