VAT rules and rates: standard, special & reduced rates

Although no VAT is collected or remitted on sales, taxpayers must still register with tax authorities under the VAT system. Importantly, zero-rated taxpayers can claim a credit (in the form of a VAT refund) for the VAT they paid on the inputs used to produce that product. Sellers of a zero-rated product do not collect VAT on their sales of the product but can still claim a credit (including a VAT refund) for the VAT they paid on their inputs. With reverse charge, the foreign supplier doesn’t collect output tax from the buyer.

It simplifies VAT reporting, reduces the administrative burden on sellers, and helps prevent VAT fraud by ensuring VAT is accounted for in the buyer’s country. Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers. For individual advice on VAT and reverse charge in Germany, please contact us at info@vat-germany.com. Find cloud-based, AI-powered tools to manage global compliance and streamline your TP process. If the customer is not in the EU, you will generally be required to verify that their tax ID from their own country is valid instead. The buyer instead self-assesses the VAT that would have been due on the transaction in their own local VAT return.

They do not collect VAT on their sales and cannot claim a VAT credit for their input purchases, unlike zero-rated taxpayers. If a business sells both exempt and non-exempt products, it must separate its VAT liabilities accordingly by allocating its VAT payments between the two kinds of sales. When a taxpayer or product is zero-rated, the sale is treated as a taxable transaction, but the VAT rate is 0%.

While international flight tickets are zero-rated and do not include VAT, ancillary services or domestic flights may be exempt or standard-rated, meaning VAT could apply. This differs from VAT-exempt items, where no VAT is charged on the sale, and businesses generally cannot reclaim VAT on related costs. If you want a full explanation of the difference between zero-rated and exempt VAT, you can read our guide. Ensuring VAT compliance can be a complex task for businesses operating internationally. Vertex VAT Compliance streamlines and automates multi-country VAT/GST reporting, improves data quality and keeps the business in line with the latest regulatory changes to help ensure compliance.

While VAT is often seen as more complex, proponents say it can reduce tax evasion and create more revenue stability. Super-reduced rates of less than 5% are applied to the sales of a limited list of goods and services in certain EU countries. Sam is a seasoned expert in sales tax, leading Commenda’s effort to build the worlds most comprehensive database of global tax rules and business regulations. At Silverhaze Partners, he worked in early-stage venture capital, where he saw firsthand how tax complexity and regulatory friction hold back startups from scaling internationally. That experience now powers his work at Commenda-bringing clarity, precision, and real-world insight to one of the most frustrating parts of doing business globally.

While the EU provides guidelines, other countries shape their rates based on their needs and tax authorities. In the European Union, basic rules ensure consistency while allowing flexibility. Member countries must have a standard VAT rate (minimum 15%) and can implement up to two reduced rates (minimum 5%).

Aviation fuel for international flights is generally exempt from duty under UK law, which helps keep international flight costs lower. Domestic flights may be subject to fuel duty, but in practice, commercial flights are often exempt under standard aviation rules. Fuel duty is factored into overall ticket prices rather than charged directly to passengers, contributing to the total cost alongside APD. Value-Added Tax (VAT), also sometimes referred to as Goods and Services Tax (GST), is a type of consumption tax assessed on the value added to products and services at each point in the supply chain.

Until recently, Article 194 of the EU VAT Directive included a “may provision” that allowed member states to decide whether to implement the reverse charge for non-resident suppliers. Stay compliant across multiple jurisdictions with international tax compliance software that streamlines indirect tax, e-invoicing, and global reporting. Structure invoices like normal, with supplier and buyer’s info, date, invoice number, and list of supplies of goods or services sold and their prices. Sphere helps you track which countries allow you to apply the reverse mechanism and automatically updates your invoices to be compliant when a valid VAT or GST ID is provided. Furthermore, under the EU VAT Directive, the reverse charge mechanism is mandatory in certain high-fraud sectors like construction, telecommunications, electronics, natural gas/electricity, and investment gold.

What is value-added tax (VAT)?

VAT isn’t paid by businesses — instead, it’s charged to consumers in the price of goods, and collected by businesses, making it an indirect tax. Understanding how VAT, air passenger duty, and ancillary charges apply to flights can help you manage travel costs more effectively, whether for personal trips or business travel. For businesses in particular, knowing which expenses are standard-rated and reclaimable can make a real difference to budgeting and cash flow.

VAT Risks When Warehousing in Europe

If you’re unsure, consulting an accountant familiar with the construction sector can be a smart move. If you need to make payments abroad to pay international invoices, suppliers or freelancers, you could be better off with Wise. You should charge this rate unless the goods or services are classed as reduced or zero-rated. Which one applies depends on the goods and services, and how they’re used. The much delayed domestic VAT reverse charge for construction services came into effect on 1 March 2021. VAT was first introduced in France in the 1950s as a more efficient alternative to existing consumption taxes.

Understanding fuel duty helps explain why, even though flights are zero-rated for VAT, tickets are not necessarily cheap. It also shows why airlines have limited flexibility in https://aliexpressofficial.com/ reducing prices, as taxes and duties make up a significant portion of costs, particularly for domestic and short-haul flights. Air passenger duty, or APD, is a tax that applies to flights departing from UK airports. Unlike VAT, APD is charged directly on passengers rather than on the service of flying. It was introduced in 1994 and rates vary depending on the distance of the flight and the class of travel. The aim of APD is partly environmental, as it can discourage air travel or encourage airlines to operate more efficiently.

• There is not a lot of information regarding the upcoming changes yet, however, as an EasyBuild customer, please be advised that all the necessary changes to subcontractor and supplier ledgers is underway.
• For non-Europe businesses, the reverse charge mechanism offers several advantages but also comes with potential compliance risks that should be carefully managed.
• You won’t charge or pay it—your customer does this through their VAT return.
• VAT imposes a goods and services tax on the value incrementally added at each stage, starting from production and concluding at the final sale to the end consumer.
• This mechanism was primarily developed to address two significant challenges in cross-border taxation.

Potential US Adoption of VAT

India also has some zero-rated goods, the sale of which must still be reported on your VAT return, even though no VAT is charged. Where the domestic reverse charge provisions apply, the supplier does not charge VAT but instead issues a VAT invoice to the recipient of the supply stating that the supply is subject to the domestic reverse charge. The recipient then accounts for the VAT due on the supply on its own VAT return.

Consumers still ultimately bear the cost of VAT in the final transaction, just as they do with sales tax. However, this structured collection process distributes the tax reporting duties among the businesses involved at every stage, ensuring more consistent government revenue and reducing tax evasion. The reverse charge mechanism can reduce the need for VAT registration in many B2B scenarios, but it doesn’t eliminate registration requirements. Non-EU businesses must still register for VAT when selling to consumers, holding inventory in the EU, or when certain member states don’t permit reverse charge for specific transaction types. While the reverse charge commonly applies to B2B cross-border transactions within the EU, its application isn’t universal.

Instead, the domestic buyer reports both the input VAT (as a purchase) and output tax (as if they made the sale to themselves) on their VAT return. This ensures compliance with VAT rules while simplifying cross-border supplies of goods and services. Like many EU countries, the UK also implements a domestic reverse charge (DRC) on building and construction services transactions. That means buyers, not suppliers, are responsible for paying VAT on these transactions. Value-added tax (VAT) is a consumption tax applied to goods and services at each stage of the production and distribution process, from the manufacturer to the wholesaler to the retailer, and ultimately to the end consumer.

The subtraction method, on the other hand, offers more flexibility by allowing capital costs to be either expensed immediately or amortized over time. Foreigners shopping overseas may qualify for a VAT refund from participating stores when they return home. If you’re shopping overseas, you may qualify as long as the purchase was made no more than 60 to 90 days earlier. Retailers will ask for your passport and input the purchase into the system, print out a special receipt, stamp it and place it in a special envelope. The United States is in a small minority of countries, currently totaling 19, that use sales tax instead of VAT.

Modern solutions can integrate with existing financial systems to ensure consistent application of reverse charge rules across all sales channels. It’s important to note that the reverse charge doesn’t apply to B2C (business-to-consumer) transactions, where different rules typically require the supplier to register and account for VAT in the customer’s country. Customer is a “VAT taxable person” – The customer in principle must qualify as a taxable “person” for VAT purposes. In this case, a taxable “person” is any person or entity engaged in economic activities (i.e. a business). The primary indicator that your customer is a taxable person — and that the reverse charge mechanism applies — is that they provide a valid VAT ID. Note that certain jurisdictions provide for an online database to verify the validity of the VAT-ID provided by a customer.

Post-Brexit, the VAT reverse charge applies to goods and services imported from the EU and specific domestic transactions, particularly in the construction sector. Modern tax determination software can automatically evaluate transaction patterns based on customer location, VAT status, and supply type to apply correct VAT treatments. These solutions can validate customer VAT numbers, generate compliant invoices with appropriate reverse charge notations, and maintain audit-ready documentation of compliance decisions. Digital service providers from outside the EU generally qualify for the reverse charge when selling to VAT-registered businesses in the EU. However, digital services sold to EU consumers (B2C) fall under different rules, typically requiring registration through the One-Stop Shop (OSS) system. Implement tax determination software that automatically evaluates transaction patterns and applies the correct VAT treatment.

The price of an Uber, Bolt or Veezu ride could rise by more than 15% if the government imposes a “taxi tax” at the budget this month, ride-hailing apps have warned. As previously reported, research continues to show that poor payment practices are still the scourge of the construction sector. From Self Assessment to claimable expenses and bookkeeping, this guide cuts through the confusion and saves you time (and sanity). A clear guide to deductible Sole Trader expenses and how claiming them can put more money back in your pocket. Discover essential tips, strategies, and resources tailored for successfully running a small business in today’s competitive landscape.

When you arrive at the airport for departure, visit the customs desk with the completed VAT refund receipt in the envelope. When you submit the paperwork, you may be able to get a cash refund for the VAT, receive a check in the mail or a refund back to the credit card used for the purchase. Travelers and businesses need to weigh benefits against administrative tasks and shopping preferences.