VAT or International Services

The export of goods is generally zero rated for vat purposes, provided that the merchant obtains and keeps proof that the goods were exported. But what is the position when supplying services to an overseas customer? In many cases, a service will not involve anything physical being sent overseas.

The vat rules will determine where a supply of services is deemed to take place. The general rule is that:

  • Where the supply is made to a business customer; the supply takes place where the customer belongs,
  • Where the supply is made to a private customer; the supply takes place where the supplier belongs.

Vat is only chargeable where the supply takes place. You will see from the rule that this depends on the type of customer. Hence if you have three business customers, one based in the UK, one in France and one in USA, the supply of services to the UK customer is liable to UK vat, the supply of services to the French customer is liable to vat in France and the supply of services to the USA customer has no vat anywhere. But if the three customers had been private consumers then UK vat would be payable by all of them.

Land and Property

The main exception from the general rule is that a supply relating to land is deemed to take place where the land is itself situated if the service falls within a specific range of descriptions (broadly, purchase of the property or an option to purchase/sell, rental of the property, provision of a hotel or boarding house, any works of construction /demolition / alteration or maintenance of a building, services relating to land supplied by an estate agent /architect / surveyor /engineer). The service must relate to a specific site.

Reverse Charge

When dealing with an overseas customer who is registered for vat in another EC territory, it's the customer who has to account for the vat however the UK supplier does have to obtain a note of the vat registered number of their customer and complete an EC sales list recording all such sales.

If you supply a business in another EC territory who are not themselves registered for vat, you should ascertain the vat registration rules of that Country and check whether or not you are required to register your own business in that territory.

When receiving supplies from a business in another EC territory, in this case it is you who have to account for the UK vat (payable where the customer belongs i.e. which means you). The vat is included in your taxable output and, provided that all of your own supplies to customers are liable to vat, the same is recoverable as input tax. If you have a partially exempt business you may find that you cannot recover the whole of the vat.

Recoverable Input Tax

Clients are sometimes concerned whether they can reclaim their own input tax if they supply services overseas. Don’t worry, there is a special rule that if your inputs are attributable to sales that would have been vatable if supplied in the UK, you can reclaim all of the input vat even though the supply is deemed to take place overseas. It is only when the tax is partly related to making exempt supplies that you may face a restriction on reclaiming the input tax paid. (Exempt is wholly different from not taking place in the UK).

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The above information is only a general guide. We cannot accept responsibility for the financial consequences of any transaction that you may undertake or refrain from undertaking based upon the information given on this website.