When advising clients on the VAT treatment of services, it’s easy to assume that the type of customer determines the outcome, because that is often the case. However, in reality, the key factor is usually a combination of the type of customer and the specific nature of the supply and, occasionally, the local VAT rules on the place of supply.
For services, the starting point is the general place of supply rules. For business-to-business (B2B) supplies, the place of supply is normally where the customer belongs for VAT purposes. For business-to-consumer (B2C) supplies, the place of supply is generally where the supplier belongs for VAT purposes. There are, however, a number of additional rules which may override the general rule, for example land related supplies which are taxed where the land is located regardless of where the supplier and customer belong.
Once the place of supply has been established, the VAT treatment follows. If for UK VAT purposes, the place of supply is the UK, then the supply is subject to UK VAT as per the UK rules. If the place of supply is determined to be outside the UK based on UK VAT rules, the supply is typically outside the scope of UK VAT. However, this does not necessarily mean there is no VAT consequence and whilst efforts have been made across the world to harmonise the rules and avoid no or double taxation it does still happen!
A reminder or a review with your client is a proactive way of ensuring potential VAT registration/ reporting obligations are highlighted and considered in the relevant countries. Especially because even within the same overarching rules, different countries have different appetites for registering overseas entities (although it is very common for them to have nil registration threshold for non-established businesses).
For clients making cross-border supplies of services, correctly identifying the place of supply is essential. Getting it wrong can lead to incorrect VAT treatment, unexpected overseas obligations, and potential compliance issues, so it’s an area worth revisiting whenever a client’s activities or customer base changes.
