Non-resident businesses, VAT and reverse charge

Wed 6th Jan 2016

Non-resident businesses who may be VAT registered in other EU Member States will need to ensure they are up-to-date with new compliance requirements associated with the increased application of reverse charge mechanisms.

The reason for the introduction of the reverse charge has been for EU tax authorities to keep control and combat fraud. Instead of a non-resident business making taxable supplies and being the taxable entity under a standard VAT regime, the responsibility for VAT declaration is passed to the recipient domestic tax-registered enterprise.

The recently announced Commission support to EU Member States with the Quick Reaction Mechanism (QRM) will facilitate even further reverse charge system introduction at short notice. The implications of these possible changes for non-resident businesses, currently VAT registered in other EU countries, will require to be assessed.

First, it may be possible to VAT de-register. With no responsibility for VAT declaration as the supplier, then no VAT registration would perhaps be necessary.

Second, however, the non-resident VAT registration may have to remain open because of the nature of the business trading. For instance, if there is a stock holding of goods in the country concerned, the business would still have to account for the receipt of supplies made to that inventory from other EU states. If the business subsequently makes domestic sales, subject to reverse charge rules, then there may be additional reporting requirements.

In order to keep tabs on the domestic zero-VAT sales, EU Member States have been establishing new control reporting. Some countries, like Belgium, have had domestic recapitulative declaration in place for many years, but others, like Hungary are in the process of their introduction. The domestic recapitulative statement will be similar to the EC Sales List, being a supplier submission, listing all zero-VAT sales by customer VAT number in the reporting period.