International VAT Rate Round-up: June 2020
Finland
Threshold increase
Finland is set to increase the annual turnover threshold from €10,000 to €15,000 for VAT registration of businesses established in Finland. In May 7 2020, the European Commission published a proposal for a Council Implementing Decision authorising Finland to introduce this special measure.
These new rules will apply from 1 January 2021 to 31 December 2024.
This threshold increase will remove the VAT obligation for businesses operating with an annual turnover no higher than EUR 15,000.
It is estimated that the increase in the threshold will benefit around 6,000 additional entrepreneurs.
Germany
From 1 July 2020 to 31 December 2020, the below VAT rates are to be reduced in Germany:
- Standard VAT rate from 19% to 16%
The reduced rate is to from 7% to 5%.
The reduction in the VAT rates comes as part of a €130 billion COVID-19 stimulus package. The aim of this package is to secure jobs and to get economy up and running again.
It is hoped that this temporary reduction in the VAT rate will stimulate consumer demand.
Angela Merkel stated the goal is to get out of the “extremely difficult situation” together.
Indonesia
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.
Italy
Prepopulated VAT returns delayed until 2021
On 19 May 2020, the Italian Council Ministers approved Decree-Law no. 34.
With this came the news that the pre-populated VAT returns would no longer be introduced from 1 July 2020, this date has now been pushed back to 1 January 2021.
The plan for the prepopulated VAT returns is to take the transactional information processed through the Sdl e-invoicing system and the Esterometro to pre-populate a VAT return for resident Italian entities – these pre-populated forms will be regarded as drafts.
Businesses will have the ability to review and amend the pre-populated return before approval. The taxpayer will then later submit the approved draft return.
VAT rate increase postponed
The Italian Council Ministers approved Decree-Law no. 34 and with this also came the announcement to withdraw the planned increase to Italy’s VAT rates due to COVID-19 worries.
The below rates were due to increase:
Standard rate increase from 22% to 25% on 1 January 2021. A further increase of the standard rate to 26.5% was planned for 1 January 2022; and
An increase in the reduced VAT rate from 10% to 12% from 1 January 2021
This decision was made as part of a range of measures announced in May 2020 and the increase in these VAT rates has been postponed for the foreseeable future.
Mexico
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;
- Statistics;
- 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
Poland
E-Invoicing 2021
In another attempt to reduce the VAT gap in Poland, the Ministry of Finance is set to introduce a centralised e-invoicing platform in 2022. The Minister mentioned the government is considering many different approaches to introducing e-invoices in Poland – including an exchange platform where suppliers and buyers can exchange invoices electronically.
At present, Poland allows the use of e-invoices as a post audit regime without involvement from the tax authority. The exact details of the new e-invoicing system are not known yet, but it is expected to involve the tax administration during the issuance process, i.e. Poland will move from post audit regime to a clearance regime. It is believed that the Polish government will not request additional data from taxpayers as a result to introducing an e-invoice system but they will expect to receive the information quicker.
E-invoicing would communicate data in real-time to the tax authority and will therefore improve the overall efficiency of the tax system. Businesses will benefit from the simplification and security of a standardised and centralised e-invoicing system. Other benefits include the availability of downloadable invoices for the buyers.
SAF-t delay
The Polish Ministry of Finance has announced that the new version of the SAF-T (JPK_K7) reporting regime that was due to be introduced on 1 July 2020 has been delayed until 1 October 2020.
To meet the expectations of taxpayers and to relieve them of the new obligations in connection with the current state of the Covid-19 outbreak, the deadline for the mandatory submission of new JPK_VAT for all taxpayers will now begin from October 2020.
It is hoped that the new JPK_VAT will be an analytical tool that will help the administration work even more efficiently and will also benefit companies as there will no longer be an obligation to submit VAT-7 and VAT-7K.
Saudi Arabia
The Ministry of Finance has announced its plan to increase the VAT rate from 1 July 2020. The VAT rate will be increased from 5% – 15% to counter the economic difficulties arising from COVID-19. This increased rate will apply to the supply of goods and services that are currently subject to the 5% VAT rate.
The tripling of the VAT rate is to address a number of issues that have risen due to COVID-19:
- A decrease in commercial and consumer spending
- The loss of oil and tax revenues
This will affect consumers both before and after the increased VAT rate is introduced – it is expected there will be a spike in consumer spending before the new VAT rate comes into effect.
There will be implications for businesses as they try to figure out how they can remain competitive and should they absorb part or all of the new VAT increase so the retail prices of goods and services are affected as little as possible.
United Kingdom
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.
