Understanding VAT on Services Abroad

Understanding VAT on Services Abroad

Understanding VAT on Services Abroad

In the UK, VAT on services abroad is determined primarily as per the ‘Place of Supply of Services’ rules. The ‘place of supply’ is the location where a supply is made and where VAT may be charged and paid.

The type of service and whether you provide the services through a B2B arrangement or as a B2C are also taken into account for VAT purposes. Here, we discuss some important considerations related to VAT on work carried out abroad. The purpose of this is to help you understand how you will be charged VAT if you’re supplying services abroad.

The General Rule

The place of supply is determined by what is known as the ‘general rule’ for the majority of supplies of services. However, certain supplies are subject to strict rules concerning their place of supply. Apart from those covered by specific regulations, the general rule for determining the place of supply of services is when you provide services to:

  • The place of supply is the place where the customer resides, i.e. business customer
  • The place of supply is where the supplier is based, i.e. non-business customer

If the Customer Is a Business in the EU

If it is a B2B customer, the same rule is followed as before, i.e., the customer’s location. This sale is often regarded as an OSS, but we add the reverse fee (RC) as the customer is located in Europe. You only display it in box 6 on the VAT return and will require filing a return on the EC Sales list and utilize indicator 3 for S services.

Working for a UK Company From Abroad

When B2C services for entertainment events are supplied, we look at where the event is being held out. If this event takes place in the United Kingdom, we regard this sale as the normal VAT rate and display the return on VAT in boxes 1 and 4.

If the Customer Is in the UK

When conducting business in the UK, it’s important to understand that this is considered a standard-rated activity. This means that both Business-to-Business (B2B) and Business-to-Consumer (B2C) transactions are subject to the Value Added Tax (VAT). 

The VAT is a form of consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. In the UK, the standard VAT rate is 20 percent. This tax is applied to the sale of goods or services and must be displayed in boxes 1 and 4 on the VAT return form. This ensures proper reporting and compliance with UK tax laws.

Special Rules for the Place of Supply

In some cases, determining the place of supply isn’t as straightforward as looking at the location of the provider or the customer. Instead, it depends on the type of service being provided. 

These special rules are designed to prevent tax evasion and ensure that the correct amount of tax is collected. Understanding these rules is crucial for businesses operating in multiple jurisdictions to ensure they comply with all relevant tax laws.

Hiring Out a Means of Transport

A means of transport refers to anything that is used to transport goods or people. The supply location for means of transport services will depend on the amount of time the transport is supplied for. 

If the transport supplied is provided for 30 days for vehicles and 90 days for ships and boats, then the specific location for which the transport is provided will be the supply location. If the duration is shorter than this, then the supply location will be the place where the transport is physically handed over to the customer.

Land and Property Services

For businesses providing land and property-related services, the place of supply is determined by the location of the land or property, not the location of the business or the customer.

This includes services such as property management, real estate brokerage, and construction. It’s important for businesses in this sector to accurately determine the place of supply to ensure they are charging the correct amount of VAT.

Events

When it comes to events, the place of supply is determined by the location where the event takes place. This applies regardless of where the supplier or customer is based. For example, if a UK-based company organises an event in France, the place of supply would be France. 

This means that the company would need to comply with French VAT regulations for that transaction. This rule ensures that the tax revenue is collected in the jurisdiction where the event is consumed.

How to Calculate VAT as Per ‘Place of Supply of Services’ Rules

If the place of supply is considered to be the UK after application of the general rule, you will pay UK VAT as usual. You may be required to pay EU VAT if the place of supply is outside the UK but within the EU. Indeed, you will need to enrol and invoice for VAT in the country of supply in this situation.

Consult the tax authorities of that country to ensure that you get it right to determine how to administer the services you offer. If the place of supply is outside the EU, it will be beyond the domain of VAT, and only box 6 of your VAT return should document the transaction.

Conclusion

VAT for services provided outside of the UK can often be difficult to determine. However, you can make the task easier for yourself by using the information provided in this short guide on VAT on work carried out abroad.

How Q Accountants Can Help with VAT Registration

Navigating the complexities of VAT registration can be challenging. But you don’t have to do it alone. At Q Accountants, our team of experts will guide you through every step of the process, ensuring you meet all requirements and avoid potential pitfalls.

Don’t let VAT registration slow down your business. Contact us today and let us handle the details so you can focus on what you do best.
Ready to get started? Book a discovery call with us today. Let’s build a better future for your business together.

FAQs

Do you charge VAT on services outside the UK?

No, VAT is not charged on services provided outside the UK. VAT is a tax that is only applicable to goods and services sold within the UK.

What services are VAT exempt in UK?

In the UK, there are certain services that are exempt from VAT (Value Added Tax). These include but are not limited to healthcare services provided by doctors and dentists, insurance and finance-related services, educational services, postage stamps, and property rental.

Do I have to charge VAT to overseas customers?

Whether you need to charge VAT (Value Added Tax) to overseas customers or not largely depends on the specific regulations of your country and the country your customers are located in. 

In some cases, VAT may not be applicable to transactions involving overseas customers if certain conditions are met, such as the goods being exported outside the country or if your business falls under certain exemptions.

Which countries are exempt from VAT?

The countries that are exempt from VAT vary depending on the specific jurisdiction’s tax laws. In general, however, several countries have either no VAT or a zero-rate VAT. Some examples of countries with no VAT include the United Arab Emirates, Bahrain, and Saudi Arabia.

What does outside the scope of UK VAT mean?

Outside the scope of UK VAT refers to goods, services, or transactions that are not subject to value-added tax (VAT) in the United Kingdom. This typically includes activities or supplies that fall under specific exemptions or are considered non-taxable.