Special Rules for the Place of Supply VAT

Are you a business supplying services abroad? It may be initially confusing to determine which country’s or region’s VAT rules to apply, but it doesn’t have to be.

What does ‘place of supply’ mean?

The ‘place of supply’ essentially refers to the place or region where you make a supply – i.e. provide services to your customers – and the place where you may be charged VAT.

When it comes to services, understanding the place of supply can be initially complicated as there are a number of rules that apply. The rules that apply to you depend on:

  • Whether you are operating from more than one business location
  • The type of service you are offering
  • The place where either your business or your customer belongs to

VAT on services – Which country’s VAT rules apply?

Here’s a good rule of thumb:

If you are in the UK and the ‘place of supply’ for your services is in the UK too, then you will pay VAT as per UK VAT rules.

If you are in the UK but your service’s place of supply is in an EU region, then you don’t have to pay UK VAT.

With that said, for certain supplies, you may have to register and pay VAT in the country of supply (where your customer belongs). In this case, you must contact the tax authority in that country to understand how VAT applies to the services you are supplying there. You can find information on EU VAT contacts here.

If your service’s place of supply is outside the EU, you don’t have to pay EU VAT although you do need to include the sale in box 6 on the VAT Return.

Understanding the ‘general rule’

For nearly all supplies of services, the place of supply is determined by something called the ‘general rule’ – however, some supplies are subject to specific rules that affect the place of supply.

So, the general rule for determining your place of supply for services, not including those covered under special rules, is if you’re supplying services to a:

  • Business customer – Here, the place of supply is automatically the place where your customer resides or belongs to.
  • Non-business customer – In this case, the place of supply automatically becomes where the supplier lives or belongs to.

Place of supply belongs in the UK only if:

  • Your main/head office or sole business establishment lies in the UK, and you have no subsidiary or agencies (fixed establishments) in other regions/countries.
  • Your main/head office is in the UK, but you have fixed business establishments in other countries as well, with the UK office being the ‘headquarter’ for supplying services.
  • Your main/head office is outside the UK but you have a fixed business establishment in the UK where services are supplied from.
  • You neither have a main/head office or a fixed business establishment in the UK or outside the UK, but your business is a corporate body registered here (a limited company, for example).
  • You neither have a main/head office or a fixed business establishment in the UK or outside the UK, but your usual place of residence is here.

It should be noted that while you can have only one main business establishment, you can have several fixed establishments within and outside the UK.

What if I have more than one place of supply?

If you have multiple business establishments across the UK and outside the UK, you need to take into account the role of each establishment in terms of the services they supply. For instance, if your company is headquartered in the UK but has a German subsidiary supplying services to local businesses there, then the latter belongs in Germany, where German VAT place of supply rules will apply. This remains true even if your UK headquarters are originally making the supplies within the UK before shipping them off to Germany.

To learn at length how the place of supply VAT rules apply to you according to your service supply category, talk to our experienced Accountants in Slough, Adam Accountancy.

Published On: October 1st, 2022 / Total Views: 1003 / Daily Views: 1 /

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