Archive for VAT news

South Africa kicks off VAT on online sales

Last week the tax man in South Africa published draft legislation that taxes online sales to South-African residents. Although the rules look pretty straight-forward, there are lots of open ends. A couple of initial thoughts:

  • How do they want a U.S. online seller to register in South Africa? There is currently no mechanism to register, file returns and pay taxes for non-resident businesses.
  • This applies to sale to both South-African resident individuals as well as businesses. A reverse charge for the latter would be much simpler.
  • In the EU only “automated” online sales (f.e. downloads of software) are covered by the e-commerce VAT rules. Non-resident sellers of for example one-on-one teaching (say via Skype) are not required to account for VAT. The South African rules include this type of services, which can be challenging if an exemption applies for classroom teaching.

The rules are slated to take effect from April 1, 2014.

Have a look here for more info:

The document is here:

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No physical export? No zero-rate!

Over the past years, I have been working with a number of companies that use manufacturers in Asia. Typically, these manufacturers would be so-called “OEMs” which stands for Original Equipment Manufacturers. These companies would produce parts or even finished goods that would be branded with my clients’ brands.

The bulk of these OEM goods would be exported from the country of manufacturing. However, recently the trend seems to be to aggregate parts into the country of manufacturing, and then either assemble into finish product, use parts for repairs, or sell parts or finished goods outright to a distributor who picks up locally (“ex-works”).

The “ex-works” incoterm is the poison pill for cross-border trade. For the sale of goods, VAT looks at the ship-from and ship-to addresses. If they are in the same country, VAT is due – even if the bill-to party is in another country.
See for more info on incoterms.

In my example, this leads to a VAT liability of the OEM. He will have to charge VAT to the buyer, simply because the OEM drop-ships within the same country.

The buyer, in his turn, needs to understand his tax position in the OEM country. If the local laws allows for a non-resident to register for VAT, then the buyer can attempt to charge VAT to the next party in the supply chain. That way, he can offset the VAT incurred on the OEM purchase. However, in a number of countries outside the EU, a VAT registration may create an income tax liability as well, and thus create further tax headaches.

Buyers from OEMs often strong-arm OEMs into zero-rating their local deliveries, and with tough competition and limited margins OEMs often were forced to oblige. And ever so often the OEMs got away with charging the zero-rate on local deliveries.

As Taxand reports, this practice has now come to an end in Thailand. The Supreme Court has ruled that on these local deliveries local VAT is due, even if the buyer is outside the country. Taxand provided a clear and concise report, that is copied below in pdf.

The Thai experience is not unique. The same rules apply in virtually all VAT countries, and I would not be surprised if authorities in countries like Philippines, Vietnam and Taiwan would follow suit and put more VAT pressure on their local OEMs.

I wrote earlier about ex-works and VAT issues here

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Mexico border VAT rate increase

Mexico shelved its beneficial VAT rate for the border region – now all of Mexico has a standard rate of 16%.

“As a result, economists and local government officials in Texas are eyeing millions in additional dollars being spent by Mexican residents who are willing to cross the Rio Grande to save on items from toilet paper to electronics. But until United States Customs and Border Protection puts additional resources in place to improve cross-border traffic, leaders and business owners say, what should be a boon could be little more than a bump.”

Read all about it in the NY Times:

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EU VAT rates

The new list of VAT rates in the EU as per January 13, 2014 is now available.

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Malaysia calling…!

Many of you will shrug at the prospect of Malaysia introducing a GST, but for Malaysia-resident companies the accounting and tax implications are huge.

Because Malaysia is big on (palm)oil, fruits / vegetables and also e-services (think Cyberjaya – the Silicon Valley of Malaysia) there are plenty multinationals who will need to prepare for the GST implementation – Accounts Payable, Accounts Receivable, GST sales and purchase invoicing, self-billing, tax codes, testing scenarios, you name it.

The big tax software companies (Vertex, Avalara, Thomson Reuters) are all over it, but the onus is on the businesses to make it work.

What a great time to be a global VAT adviser!

With the Goods and Services Tax (GST) looming ahead next year, financial consultancy firms are wasting no time to reach out to engage experts to provide support in terms of technical and industry expertise.

The GST, which may have raised hackles in many quarters, promises more business for these firms who could build on their human capital to service swelling requests from clients to get “GST ready”.

Scramble on to engage GST experts | Free Malaysia Today.

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“Google VAT” in Italy?

Once again, there is something going on in Italy – they have come up with a VAT registration requirement for non-resident online advertisers, if I read the news correctly.

I don’t quite get it – even if these companies (read: Google) would register, the reverse charge would still apply on their advertising sales to Italian businesses (because the Googles are not resident in Italy). Only when there is an online sale to individuals, VAT would be due. But that rule already applies under the current Directive for non-EU online sellers, and will expand to EU e-sellers by 1/1/15.

So what is the fuss about? I will let you know if / when I find out.

Italy Imposes €1bn Google Tax, then Quickly Delays for 6 Months – Tech News Plus | Tech News Plus.

Also see below for rather loudly written articles on this subject in Forbes:
I Didn’t Think It Possible But Italy’s Google Tax Law Just Got Even Worse – Forbes.
A Short Note To Francesco Boccia – Forbes.
Italy Passes The Illegal Google Tax – Forbes.

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EU: 90 days for export

As a longstanding rule, supplies that are taxed with the zero rate for export have to physically leave the EU within 90 days.

And if they don’t, “the supply of those goods is definitively taxed, even if those goods actually left the European Union after expiry of” the 90 day period.

However, “merely exceeding that time-limit results in the definitive loss for the taxable person of the right to exemption in relation to that supply” according to the European Court of Justice. Providing export evidence after the 90 days is not tax evasion.

Pretty straight-forward I think, but always good to have export rules such as this one confirmed. See below for the ruling.

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