Global VAT Guide: September 2020
Italy – extension of split payments
A Council Implementing Decision was published and the EU has authorised the extension of Italy’s VAT split payment mechanism scheme. This was originally introduced in 2017 and the Italian government applied for the scheme to be extended.
With the split payment scheme, suppliers charge VAT to their clients and these clients do not pay the VAT to the supplier, but instead they to pay the VAT due into separate VAT bank accounts at the bank of their vendors. These bank accounts are generally only used to remit VAT on submitted filings by the taxpayer.
The Italian tax authorities can closely monitor VAT due because they can directly access these bank accounts and keep a close eye on repayments. With this Implementing Decision, the scheme has been extended until 30 June 2023.
Since July 1st 2017, the mechanism was applicable to companies listed on the FTSE MIB index, and to companies owned or part-owned by the state, those owned directly by local authorities, and their subsidiaries.
Poland – delay in decreasing VAT rates
Poland is planning to delay the reduction of the standard and reduced VAT rates from 1 January 2021. This has been put on hold in an attempt to stabilise the economy. The standard rate (23%) and the reduced rate (8%) were to drop by one percentage starting 1 January 2021.
The Council of Ministers have said, “lowering VAT rates would not be justified at present”. Lowering the rates in the future will be up for discussion once the ratio of Polish government debt to GDP falls below 43%. It is expected that the lowering of the VAT rates will take place within a year of the government meeting the 43% target.
Portugal – deadline for July VAT 2020 postponed
The deadline for the July 2020 VAT return has been extended to 20 September 2020 (with no penalties imposed). The original deadline date for the July 2020 VAT return was 10 September 2020.
The deadline for the remittance of the VAT due on the July 2020 VAT return has also been postponed to 25 September 2020 (with no penalties imposed).
Portugal – e-invoice update
B2G (business to government) e-invoicing will become mandatory in Portugal with three phases of implementation. An electronic invoice can be described as an invoice that has been issued, transmitted and received in an electronic format that allows for automatic processing. eSPAP is the platform that will be responsible for the implementation of e-invoicing in Portugal.
Institutions that can already use this platform include:
- Public institutions and government administrations;
- e-invoice providers for public tenders; and
- The issuer of electronic accounts
The phases of implementation are:
- 1 January for large companies;
- 1 July 2021 for SME; and
- 1 January 2022 for small businesses
Until 31 December 2020, extended electronic signatures can be used.
United Kingdom – Brexit distant selling
Distance selling refers to the sale of goods that are dispatched/transported from a business in one EU member State to a private customer, who is not VAT registered, in another Member State. Distant sellers selling goods into another Member State have an obligation to register for VAT once the threshold in that country has been breached. Each Member State have different thresholds.
As we know, the United Kingdom left the EU on 31 January 2020. Until 31 December 2020, the United Kingdom is in a transition period. This means the UK is no longer part of the EU but continues to be subject to EU rules and remains a member of the single market and customs union. The EU and the UK have until 1 January 2021 to negotiate a new trade agreement.
With only four months to go until the transition period ends, the effect of Brexit is still not 100% certain in many areas.
From 1 January 2021, it is likely that distance-selling rules will no longer apply under the current form. The UK will no longer fall under EU VAT legislation, they will become a third country and the same rules will apply to sales to/from other NON EU countries. Consumers in the UK purchasing goods from other EU businesses will likely incur an import VAT charge and quite possibly custom duties. The same will apply to EU customers purchasing from UK businesses.
In order to protect their competitiveness in the UK market, EU retailers should work to put a Brexit plan in place, which may include a change in their supply chain.
Similarly, UK companies selling in EU countries need to be aware their goods will be considered an export from the UK, and unless they are the “Importer of Record” in the recipient country, their customers will incur the import VAT charges.
In this example, UK companies will need to consider deregistration of their current EU VAT registrations provided they do not have any other domestic sales in the EU country. This sale would be reported as an export on their UK returns.
If the business decision is made for the UK company to be Importer of Record, the sale will continue to be reported through the EU VAT registrations.
However, further considerations will need to be made as some EU countries will require UK established companies to appoint a fiscal representative to file their EU VAT returns and this would involve additional compliance costs and may require a bank guarantee / deposit.
Currently, there are ongoing discussions in some of the Member States in relation to requirement for fiscal representative and we are tracking these.
UK Companies should consider their EU VAT registrations and reach out to Taxback international for further advice if they have any queries on their future compliance obligations.
Brazil – bill for tax reform
As mentioned in last month’s newsletter, the Brazilian government have drafted a bill (PL 3887/2020) in an attempt to simplify their current tax system.
Under this bill, there is a proposal to unify the federal contributions due on gross revenue and imports (PIS/COFINS) through the creation of a non-cumulative contribution (VAT) levied on the sales of goods and services and also on import transactions. The PIS/CONFINS tax regime is complex and applies multiple different rates.
A new indirect tax, called CBS “Contribution on Goods and Services”, would be applied at a flat rate of 12% if this bill were passed. This new bill would allow companies to register CBS credits on purchases of goods and services that could then be offset against the CBS due on the company’s sales of goods and services.
Some of the main points contained in bill PL 3887 are summarised below:
- CBS will be due on goods and services at a rate of 12%;
- There will be few exceptions of products and services that would not be subject to the CBS;
- CBS excess credits could be used or refunded at the end of each quarter offset taxes due;
- The bill would require digital platforms to collect CBS on sales in which they act as intermediaries:
- Non-resident digital platforms that intermediate the sales of goods to individuals in Brazil
- Non-resident seller or digital platform that sells/intermediates a sale of service to individuals in Brazil;
- Export transactions with goods and services will remain exempt from the CBS;
- Companies would be allowed to register credits for the CBS paid on purchases of goods and services. The registered credits could be used to offset the CBS due on the company’s sales of goods and services; and
- Excess credits could be carried-forward for subsequent periods but would be limited to 5 years and could also be used to offset other federal taxes due by the company or subject to a refund.
This proposal is still at an early stage and has not been approved, it needs to be reviewed and discussed at the Chamber of Deputies and Senate.
Ecuador – VAT on digital services
Ecuador will impose tax on digital services provided from abroad to residents in Ecuador. The VAT rate will be 12% and the regulations will take effect on 16 September 2020. The regulations specify that digital services, by their nature, are automated and require minimal human intervention, regardless of the device used for downloading, viewing or use.
The digital services include but are not limited to the following:
- Internet service provision;
- Services provided by blogs, newspapers, newsletters and journals;
- Access and downloading of images, information, text, videos, music and games; and
- The supply of digitized products including software and changes/upgrades to software
If the foreign supplier is not VAT registered in Ecuador the responsibility for the withholding and payment of VAT on these digital services will depend on whether the transaction is B2C or B2B.
For B2C transactions, the intermediary will withhold VAT. This will be the bank if payment was made using a debit or credit card).
For B2B transactions, the “importer of service” will be responsible for the VAT through self-assessment and the VAT should be paid to the Tax Authority on a monthly basis through the VAT return.
If the foreign supplier is VAT registered in Ecuador, they will act as a collector of VAT and pay this directly to the Tax Authority. VAT registration does not constitute a permanent establishment for the non-resident and they will need to fill out forms on the Tax Authority website to complete their registration.
The regulations have also specified the below services are subject to 0% VAT:
- Cloud computing;
- Websites domain supply; and
- Hosting servers
India – e-invoice threshold
India is making the switch from voluntary e-invoicing to mandatory e-invoicing on 1 October 2020. In November 2019, the government announced e-invoicing would be mandatory from 1 April 2020, but this was postponed to 1 October 2020. The scope of the mandatory e-invoicing requirement has been updated.
Now, the threshold for mandatory e-invoicing is set to 5 billion INR.
The threshold was originally planned to be 1 billion INR but it was recommended that the threshold be increased. This increase in the revenue threshold for mandatory e-invoicing comes as a huge relief to small companies.
The below are exempt from the e-invoicing requirement:
- Financial Institutions
- Passenger transportation services;
- Goods transport agencies; and
- Insurance companies
Talk to us to fully understand how these changes may impact your business.