Global VAT Guide: December 2024

The December edition of the Global VAT Guide features comprehensive updates on VAT regulations and developments from The European Union, Liechtenstein, Lithuania, Luxembourg, Netherlands, Northern Ireland, Poland, Romania, Spain, and Guinea-Bissau.

The European Union

EU Special SME Scheme

In October 2024, Directorate C of the Directorate-General for Taxation and Customs Union released the official Guide and Explanatory Notes for the Special SME Scheme. These documents support the implementation of EU Council Directive (EU) 2020/285 and Commission Implementing Regulation (EU) 2021/2007, offering businesses practical guidance on applying the scheme.

Key Highlights of the Documents:

1. Eligibility Criteria:
   • Specifies the types of businesses and supplies eligible for the EU SME Scheme.
   • Outlines the conditions under which SMEs can apply for tax exemptions or simplified tax rules.
2. Compliance Requirements:
   • Details the formalities and obligations traders must meet to benefit from the scheme.
3. Practical Illustrations:
   • Provides examples demonstrating the application of both the Domestic SME Scheme and the Cross-Border SME Scheme, making the regulations easier to understand for businesses.

Launch of the SME-on-the-Web Platform:

The EU Commission has announced a new online platform, SME-on-the-Web, set to launch in January 2025. Key features include:

• Validation of ‘EX’ Numbers: Businesses can verify the validity of their EX numbers, which are issued to those eligible for exemptions under the Special SME Scheme.
• Enhanced Accessibility: The platform aims to improve transparency and streamline access to information about eligibility and benefits.

Simplifying Tax Compliance for SMEs:

These initiatives reflect the EU’s commitment to reducing the administrative burden on small and medium-sized enterprises. The Special SME Scheme facilitates VAT compliance and supports cross-border trade by offering simplified rules or exemptions, empowering SMEs to operate more efficiently within the Union.

Place of Supply Rules

The event industry faces significant changes in VAT treatment under Council Directive (EU) 2022/542, effective from 1 January 2025. These changes will impact live-streamed and virtual events by altering the place of supply rules, especially for suppliers engaging in the sharing economy and offering virtual access.

Key Changes in the Place of Supply

Virtual Events

• The place of supply for virtual event admissions will now be determined by the customer’s location (their establishment, permanent address, or usual residence).
• For EU non-taxable customers attending virtual events, VAT will be due in the customer’s country, not at the physical location of the event.
• This adjustment introduces complexities for event organizers and suppliers when applying correct VAT rules for B2C virtual admissions.

Types of Events and VAT Rules

The changes affect cultural, artistic, sporting, scientific, educational, and entertainment events, whether live or virtual. Event organizers must evaluate:

• The nature of the event (e.g., cultural or educational).
• The method of delivery (on-site or virtual).
• The applicable VAT rules based on these factors.

Virtual Events in the Sharing Economy

The rise of the sharing economy, characterized by live-streamed and broadcasted physical events, intensifies the need to differentiate between:

1. On-site attendance (where VAT is due at the event’s physical location).
2. Virtual attendance (where VAT is due in the customer’s location for non-taxable consumers).

Organizers must develop systems to manage these distinctions efficiently.

Invoicing and VAT Reporting

Suppliers need to enhance their invoicing and reporting processes to address:

1. Event Type: Distinguish between live (on-site) and virtual events.
2. Customer Type: Identify taxable businesses and non-taxable consumers.
3. Customer Location: Accurately determine the country where VAT is due.

Sophisticated systems may be required to automate VAT allocation based on event and customer data.

VAT Compliance for Live-Streamed Events

Suppliers must evaluate VAT obligations for:

• On-site Attendance: VAT is due where the event physically occurs.
• Virtual Attendance: VAT is due in the customer’s country of residence.

Key factors include:

• Whether the event is live-streamed or broadcasted.
• Whether the customer is a taxable business or a non-taxable consumer.

VAT Reporting Options

Suppliers offering B2C virtual event admissions can choose between two reporting options:

1. Regular VAT Registration: Register in each EU Member State where VAT is due.
2. EU One-Stop-Shop (OSS) Scheme: Simplify reporting by using a single registration to declare and pay VAT for cross-border B2C services.

Recommended Actions for Suppliers

1. Evaluate Event Types: Determine whether events are live or virtual and identify the applicable place of supply rules.
2. Classify Customers: Differentiate between taxable and non-taxable attendees.
3. VAT Registration: Decide whether to register in multiple countries or utilize the OSS scheme.
4. Update Invoicing Systems: Adapt processes to allocate VAT correctly based on event type, customer type, and location.

Preparing for 2025

The new VAT rules require the event industry to adopt robust procedures for compliance. This includes accurate VAT assessment, updated reporting systems, and customer classification. As virtual events grow in popularity, understanding and implementing these changes is critical for avoiding penalties and maintaining smooth operations in a cross-border VAT environment.

Liechtenstein

Starting in January 2025, Liechtenstein will introduce changes to its place of supply rules for travel agency services and events related to sports, culture, and entertainment, aligning with the approach in Switzerland.

Here are the key points of the new rules:

• Travel Agency Services:
  • The place of supply will be where the place of business, permanent establishment, or residence of the travel agency or tour operator is located.
  • This means that foreign-established travel agencies or tour operators will no longer be liable for VAT in Liechtenstein. They will not have to charge VAT on services provided domestically.
  • There will be no right to input VAT deduction for foreign travel agencies providing services within Liechtenstein.
• Cultural, Artistic, Sporting, Scientific, Educational, and Entertainment Events:
  • The place of supply for these activities will be where the events are actually carried out.
  • This means VAT will apply according to the location of the event rather than the location of the organizer or the supplier.

These changes aim to streamline the VAT treatment of services related to tourism and events in Liechtenstein and are designed to better reflect where the services or activities take place, reducing the administrative burden for foreign providers.

Lithuania

Statistics Lithuania has announced an increase in the exemption threshold for arrivals for 2025, which will come into effect on 1 January 2025.

The new arrivals exemption threshold will rise from €550,000 to €570,000.

Arrivals Exemption Threshold:

• The threshold for goods arriving in Lithuania from other EU member states will increase from €550,000 to €570,000.
• Businesses with arrivals below this amount will be exempt from Intrastat reporting.

Other Thresholds:

All other Intrastat thresholds (such as for dispatches and delivery terms) will remain unchanged from 2024.

Luxembourg

Luxembourg has introduced important changes to its electronic Common Data Format (eCDF) forms for 2025, which reflect the implementation of a special VAT scheme for small enterprises.

The aim of this scheme is to simplify VAT compliance, particularly for small businesses engaged in cross-border trade within the EU.

Some key Aspects of the changes are:

• Special VAT Scheme for Small Enterprises:
  • The scheme is designed for non-established enterprises (businesses that are not based in Luxembourg) with a turnover below both the EU-wide threshold of EUR 100,000 and Luxembourg’s national threshold.
  • Such businesses may be exempt from VAT registration in other EU Member States, making it easier for them to trade across the EU without having to deal with VAT registration in each country where they do business.

• Exemption Criteria:
  • Businesses that wish to benefit from the VAT exemption must meet certain formalities and monitoring requirements. This could involve submitting reports or providing other documentation to demonstrate compliance with the scheme’s conditions.
  • The goal is to ensure that businesses qualify for the exemption and remain compliant with the scheme’s provisions.

• Simplified VAT Compliance:
  • The changes to the eCDF forms are specifically aimed at streamlining the VAT reporting process for small enterprises. The updated forms will allow businesses to fulfil their VAT obligations in a more straightforward and less burdensome way, especially for those trading cross-border within the EU.
  • This is particularly helpful for businesses that might find the traditional VAT registration and reporting requirements complex and time-consuming.

• Objectives of the Scheme:
  • The primary objective is to simplify VAT compliance for small businesses involved in cross-border trade within the EU. By reducing the need for multiple VAT registrations across different EU countries, the scheme allows businesses to manage their VAT obligations more easily.

Luxembourg’s adoption of this special VAT scheme aims to support small enterprises by lowering administrative burdens while ensuring that businesses continue to meet necessary monitoring and formal reporting requirements.

Netherlands

The Netherlands Authorities have published the 2025 version of the VAT return and VIES (VAT Information Exchange System) forms. These updates reflect only minor adjustments compared to the 2024 edition.

The changes to the VAT return and VIES forms are largely cosmetic or involve small updates that ensure compliance with new requirements or align with regulatory changes, but there are no major structural changes in these forms.

These minor adjustments ensure that businesses in the Netherlands can continue to report their VAT information accurately and in line with EU regulations.

This update demonstrates the Netherlands’ commitment to maintaining a stable and consistent tax reporting environment for businesses while ensuring alignment with EU-wide standards and regulations.

Northern Ireland

The HMRC has confirmed that for 2025, the EU-Northern Ireland Intrastat reporting thresholds will remain unchanged.

This means that businesses engaged in trade between Northern Ireland and the EU will continue to follow the current exemptions and thresholds for Intrastat reporting.

• Arrivals Threshold:
  • £500,000 for goods arriving in Northern Ireland from other EU member states
    • If the value of arrivals is below this threshold, businesses are exempt from reporting those transactions in Intrastat

• Dispatches Threshold:
  • £250,000 for goods dispatched from Northern Ireland to other EU member states
    • Businesses whose dispatches fall below this amount will not need to submit Intrastat reports.

The £24,000,000 threshold for delivery terms will remain in place. This threshold applies to certain delivery conditions that affect how goods are valued for Intrastat reporting.

Poland

Poland has proposed a draft act titled “Draft Act amending the Act on the Goods and Services Tax, the Excise Duty Act, and certain other acts” (Project No. UD125).

This proposal includes a significant extension of the reverse charge mechanism for certain goods and services.

The reverse charge mechanism will be extended until 31 December 2026 for the following:

• Gas in the gas system
• Electricity in the power system
• Services related to the transfer of greenhouse gas emission allowances.

The reverse charge mechanism shifts the responsibility for paying VAT from the supplier to the buyer, which is commonly used in certain industries to prevent VAT fraud and improve tax collection.

The planned adoption date for this proposal by the Council of Ministers is expected by the end of 2024.

If adopted, this amendment would impact businesses involved in the energy sector, including those dealing with gas, electricity, and greenhouse gas emission allowances, extending the current rules for a few more years.

Romania

On 13 November 2024, the Ministry of Finance held a meeting to discuss the implementation of e-TVA pre-completed statements. During this meeting, the Ministry proposed extending the deadline for the application of sanctions related to these statements until 30 June 2025.

The proposed extension aims to give businesses additional time to comply with the new e-TVA requirements.

The deadline extension would prevent businesses from facing penalties for failing to meet the requirements during the extended period, providing a grace period for proper compliance.

This decision reflects the Ministry’s intention to ensure businesses have sufficient time to adapt to the new e-TVA system and avoid any sanctions while ensuring smooth transition and implementation.

Spain

On 29 November 2024, the Spanish Authorities published modifications to the VAT return procedures, following the regulations adopted on 5 November 2024 and supplemented on 11 November 2024, aimed at supporting businesses in the regions affected by the DANA (Isolated High-Level Depression), which began on 28 October 2024.

The storm caused severe flooding, especially in the Valencian Community, Castilla-La Mancha, Andalusia, Catalonia, and, to a lesser extent, the Balearic Islands and Aragon.

• Extension of Deadlines for Tax Filings:
  • The deadlines for filing and paying tax returns and self-assessments due between 28 October and 31 December 2024 will be extended until 30 January 2025
  • This extension aims to provide businesses with more time to meet their VAT obligations without facing penalties due to the disruptions caused by the storm

• Extension for Electronic Submission of Invoicing Records:
  • For VAT taxpayers who keep their record books through the Electronic Office as per Article 62.6 of the Tax Regulations, the deadline for electronic submission of invoicing records for November 2024 (as per Article 69 bis of the Value Added Tax Regulations) is extended until 16 December 2024
  • This provides additional time for businesses to comply with the invoicing requirements amidst the difficulties caused by the weather event

These measures are part of the Spanish government’s efforts to alleviate the tax burden on businesses affected by the DANA and help them recover from the widespread flooding.

Guinea-Bissau

On 8 November 2024, the Ministry of Finance of Guinea-Bissau officially announced the implementation of Value Added Tax (VAT), which is set to take effect on 1 January 2025.

The legal framework for VAT in the country is established under VAT Code – Law No. 4/2022, which was published in the Official Gazette No. 8 on 25 February 2022.

This move represents a significant step in modernizing Guinea-Bissau’s tax system, aligning it with international standards and aiming to improve revenue collection.

The VAT system will cover a range of goods and services, with specific provisions for rates, exemptions, and taxable persons, as outlined in the VAT Code.

The four groups mentioned are considered taxable persons for VAT under different circumstances. Here’s an overview of each:

1. Individuals or legal entities who, independently and habitually, carry out any economic activities of production, trade or provision of services:
   1. This category refers to businesses or individuals who regularly engage in economic activities, such as manufacturing, selling goods, or providing services. These persons are considered taxable under VAT laws because their activities generate transactions that are subject to VAT

• Individuals or legal entities who, independently, carry out a single taxable transaction, when they carry out a continuous economic activity outside the country or when, if they do not carry out such activity, this transaction generates income subject to tax in the country:
  • This category includes individuals or businesses that carry out even a single taxable transaction. This is important in cases where the activity is outside the country, but the transaction may still have tax implications within the country, such as generating taxable income. For example, cross-border trade or international services may trigger VAT obligations

• Individuals or legal entities who, under customs legislation, import goods:
  • Importers of goods, as defined by customs legislation, are also taxable persons under VAT. This is because when goods are imported into a country, VAT is usually levied on the goods entering the market, regardless of whether the importer regularly carries out other business activities

• Individuals or legal entities who unduly mention VAT on an invoice:
  • This category involves individuals or businesses that incorrectly or fraudulently mention VAT on invoices. This can happen when they are not actually required to charge VAT, but still issue invoices with VAT listed, either by mistake or to unlawfully collect VAT from clients. In such cases, they are considered taxable persons for VAT purposes due to the improper handling of VAT charges

Under the normal VAT regime, taxable persons (individuals or legal entities) who meet the following criteria are required to adhere to VAT obligations:

• Turnover Requirement: The taxable person must have had a turnover equal to or greater than FCFA 40,000,000 (approximately EUR 60,000) in the previous calendar year. This means that businesses or individuals whose revenue exceeds this threshold in a given year are required to follow the regular VAT rules, which typically include charging VAT on their taxable supplies, issuing invoices, and reporting VAT.

Under the simplified VAT regime, taxable persons are those who meet one of the following criteria:

• Turnover Requirement: Taxable persons with a turnover equal to or greater than FCFA 10,000,000 (approximately EUR 15,000) in the previous calendar year
• The simplified VAT regime typically applies to businesses with smaller turnovers compared to the normal VAT regime. Taxpayers under this regime may benefit from a more straightforward VAT reporting and payment process, with potentially fewer obligations or more lenient requirements than those under the normal VAT regime. However, the threshold ensures that only businesses with a certain level of activity are eligible for this simplified treatment.

VAT Rates

• Zero rate (0%): This rate applies to specific goods and services, often related to essential items or exports. When a good or service is taxed at this rate, no VAT is charged, but the taxable person may still be able to reclaim VAT on related costs
• 10%: This rate is typically applied to certain goods and services that are not subject to the zero rate or the higher standard rate
  • Goods subject to 10% VAT rate are:
    • Food products:
      • Rice, flour, and bread
    • Agricultural production goods:
      • Fertilizers, live animals, phytopharmaceutical products (e.g., pesticides), seeds, bulbs, and propagation materials. Tractors and agricultural machinery, which are essential for farming and agricultural production
    • Solar energy production materials and equipment
    • Computer materials and equipment
    • Provision of funeral services
    • Passenger transport
    • Newspapers, magazines, and cultural, educational, and recreational activities
    • Fire-fighting and detection equipment.
    • Provision of legal services
    • Provision of restaurant, hotel, and tourism services:
• 19%: This is the standard VAT rate applied to most goods and services that fall under VAT

Simplified VAT Regime (5% Rate)

• Taxable persons under the simplified VAT regime can apply a 5% VAT rate on their sales or services
• No right to deduction: Unlike those under the normal VAT regime, businesses in the simplified regime cannot deduct VAT paid on their inputs (purchases and expenses). This means they cannot offset the VAT they paid on goods and services they buy against the VAT they charge their customers. Instead, they simply pay VAT on their sales at the 5% rate, and that is the final VAT liability

Zero Rate (0%) applies to exports.

The right to VAT deduction allows businesses to recover VAT paid on expenses that are related to their taxable activities. However, there are certain expenses for which businesses are excluded from the right to deduction, meaning that VAT on these expenses cannot be reclaimed.

These exclusions are as follows:

• Expenses for travel, hospitality, accommodation, food, or leisure of the taxable person and their staff
• Expenses relating to the import, acquisition, rental, or maintenance of passenger vehicles.
  • This includes passenger vehicles, which are defined as any vehicle not exclusively used for the transport of goods. VAT cannot be deducted on vehicles that are primarily used for personal or mixed-use purposes.
  • Exception: The deduction rule does not apply to businesses whose activity involves the sale or leasing of vehicles, such as rent-a-car or car leasing companies, as these businesses are directly involved in providing passenger vehicles as part of their service offering
• Expenses relating to the import, acquisition, rental, or maintenance of pleasure boats, helicopters, airplanes, motorbikes, and motorcycles.
• Expenses relating to fuel normally used in the means of transport referred to in the previous paragraphs.
• Luxury expenses
• Expenses relating to illegal goods not subject to trade.

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