European VAT: in a nutshell

Interlegal clients, mainly correlated to EU business, often face problems upon European VAT accrual. Our Client – a freight forwarder planning to operate in EU via new company – applied upon such issue.

The Client wished to register in Cyprus the company – service provider (forwarding, auxiliary transport services etc.) to customers from other EU member states, with subcontractors engaged – both within and outside EU.

Corporate & Taxes Dept lawyers provided a lifehack upon such issue. Please do not hesitate to contact us if you have some additional questions:)

Basic rules for charging VAT from European companies:

1. General rule for fixing B2B service delivery place: VAT shall arise under the customer’s registration place.
2. For transactions between EU member states Reverse Change shall apply, i.e. VAT registration for both parties.
3. For transactions outside EU the European VAT shall not arise.

What is the European Reverse Charge?

European Reverse Charge is aimed to simplify tax administration between EU member states. Although VAT may be charged, RC principle provides an option for its non-accrual.

For which purpose?

EU launched such mechanism, so that service customer in another EU member state should not be registered in such state as VAT payer.

If Reverse Charge applies, the contractor shall become the customer (as a single entity), while no VAT shall accrue on such transaction (neither invoiced nor payable to budget); therefore, it cannot be charged from the budget.

Having understood the scope of transactions subject to VAT, its payment procedure and terms of VAT recovery from EU, our Client planned its further cooperation with counteragents, service costs and requirements for VAT administration in EU.

Interlegal associate attorneys  Alyona Remenyak & Marta Sverdlykivska, jointly with Cypriot Associated Office, led the project partner Irina Voyevodina.