Non-EU VAT updates: June 2020
As we know the United Kingdom is currently in the “post Brexit transition period”. This began on 31 January 2020 when the UK officially left the European Union.
During the transition period, the UK is no longer an EU Member State but the UK remains in the EU Customs Union and the Single Market.
Under the binding terms of the “Withdrawal Agreement”, the UK can apply for a two-year extension to allow time for both sides to negotiate a new partnership for the future.
This extension would have to be agreed by both the UK and the EU by 30 June 2020 and up until now little progress has been made as this deadline quickly approaches.
The UK Prime Minister, Boris Johnson is adamant he will not seek an extension to the transition period which ends on 31 December 2020, despite warnings that the COVID-19 outbreak will make it almost impossible to conclude a new free trade agreement with the EU by the end of 2020.
Here is what we know:
- The first round talks took place in early March 2020 with subsequent face-to-face talks suspended for 6 weeks;
- Second round talks took place via video link in April 2020 with EU leaders expressing frustration at lack of progress;
- Third round talks took place in mid-May. These talks led to further backlash with the UK’s Chief Negotiator David Frost agreeing that little progress had been made;
- A further round of talks is scheduled for week beginning 1 June 2020
Both sides are taking different positions on big issues such as, fisheries, what will happen on the island of Ireland and the role of the European Court of Justice.
Johnson’s official spokesman told journalists that is was “wishful thinking by the EU” to think the UK will begin to cave on the major issues that are under discussion.
Michel Barnier and David Frost are agreeing on something – a no deal is plausible.
Both sides would prefer to have a deal but it is looking like a no-deal situation might be on the cards if an agreement is not reached soon.
As digitisation of data makes it easier to file for VAT, it also makes it easier for governments to capture VAT on an expanding list of online goods and services. Indonesia’s Directorate General of Taxation announced in May 2020 that from 1 July 2020 the supply of digital goods and services from abroad to domestic customers will be subject to 10% VAT.
With the new legislation, digital products including streaming films, streaming music subscriptions, digital apps and games, as well as online services from abroad will be treated the same as domestic products, including similar digital products produced by domestic businesses.
Some of the most important information contained in the new regulation includes:
- Digital goods are any intangible goods in electronic form – including but not limited to multimedia, software and electronic data;
- Digital services are services provided through the internet or electronic network, automated or have little human intervention and with the use of information technology – including but not limited to software-based services;
- A representative that meets certain criteria will be responsible for collecting and remitting VAT on the sale of taxable goods and the provision of taxable digital services to the consumers in Indonesia; and
- Consumers in Indonesia can include;
- A person that resides in Indonesia;
- A person that makes payment by using the Internet protocol address in Indonesia/using the telephone code in Indonesia; and
- A person that transacts by using the Internet protocol address in Indonesia or using the telephone code in Indonesia
Reporting will be quarterly and must be completed no later than the month after the quarterly period ends.
Like Indonesia, Mexico has introduced new VAT rules on digital services provided via online platforms starting on 1 June 202.
Mexico’s VAT law calls for the collection of VAT on digital services at a rate of 16% for online services such as:
- Download/access to images, video, music, games and movies;
- Weather forecasts;
- Multimedia content;
- Dating websites; and
- Online clubs
Accessing and downloading books, electronic journals and newspapers does not qualify as digital services for these tax purposes.
It looks like this tax will apply to both B2B and B2C services.
Foreign residents with no permanent establishment in Mexico that provide digital services will be required to:
- Register with the Federal Taxpayer Registry;
- Appoint a legal representative;
- Obtain a Mexican tax ID;
- Place 16% VAT on taxable digital services, collect the VAT and remit to the tax administration services;
- Obtain an electrical signature;
- File VAT returns and remit the VAT collected on a monthly basis;
- Issue/send electronic invoices to their Mexican customers; and
- Submit quarterly report information