2020: Strict rules on 0% VAT rate requirements for EU supplies

6 December 2019 – In order to modernize and simplify and to make it more business-friendly for both EU member states and businesses, the European Commission proposed a significant reform of the VAT system. One of these so-called ‘quick fixes’ means that the VAT numbers will need to be checked continuously in order to qualify for the 0% VAT rate and to mitigate potential tax risks. As of 1 January 2020, incorrect or missing VAT numbers will in principle lead to VAT being due.

Current regulations

Nowadays, more and more businesses have a large number of their clients located in multiple jurisdictions. The legislation has developed alongside with these developments.

As for VAT regulations, the main rule is that VAT is due in the country of a (business) client. In general, a client has to ensure that VAT due is paid. In practice, this means that the supplying business receives a net fee, exclusive of VAT. The current VAT regulations require that invoices include client’s VAT number and that VAT is levied from a client. Consequently, the VAT numbers are shared with tax authorities to check whether a client pays the VAT due and still meets the requirements for the VAT exemption.

Change as of 1 January 2020

With so-called ‘quick fixes’ that are part of EU VAT package, the EU has tightened control on cross-border transactions in order to fight VAT fraud. As of 1 January 2020, regulations regarding VAT number will be stricter for EU cross-border suppliers of goods. Based on the new regulation, as of 1 January 2020, any missing VAT number for a cross-border supply of goods will lead to VAT due, even if a client only paid the amount net of VAT. Any changes to the VAT number will no longer be possible. A regulation has been announced that will allow the correction of incorrect or missing VAT numbers under certain conditions. It is still unknown what this will look like.

The risk for supplying goods to businesses that may not have a valid VAT number is significant. On average the supplier may lose as much as one sixth of its turnover on the client with an invalid VAT number and this corresponds to a VAT rate of 20%.In the EU standard VAT rates range from 17% to 27%, thus, the higher the local VAT rate applicable, the higher is the risk.  

Continuous check: VAT numbers may change over time

As clients’ business structures change over time, VAT numbers may change as well. Mergers, restructurings, changes in VAT permit for cross-border transactions and defaults may result in a VAT number being invalid. In practice, this means that a single check upon onboarding a client in the CRM system does not suffice to mitigate VAT risks. It is essential to perform a continuous check of the VAT position of EU clients, and make sure that for every EU cross-border transaction all requirements are met.

Mazars can help you with the check

The EU provides a comprehensive website to check VAT numbers in any EU member state (i.e.‘VIES’). However, as the number of EU clients increases, using VIES become burdensome for most businesses. Therefore, Mazars has developed a service that helps checking VAT numbers in a bulk. Regardless of the amount of numbers, businesses can obtain a check of the validity including a proof on a short notice.

Mazars service is simple and effective: you send us the VAT numbers in an Excel file of CSV-file and we provide with the validation overview and proof including time stamp of the VAT position for every VAT number. By doing this you can assure that you do not invoice a net fee, where you should invoice with VAT included.

Want to know more?

Want to know more about the changing VAT regulations or the VAT numbers check service? Feel free to contact your local Mazars VAT contact person or VAT specialist Sander van Kreijl by e-mail  or by telephone: +31 (0)88 277 23 12 or Ronald Plat by e-mail or by telephone: +31 (0)88 277 14 16. They will be happy to help you.

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Voorlichtingsbijeenkomst hervorming btw-stelsel

Als gevolg van het “Action Plan on VAT” van de Europese Commissie zal het btw-stelsel in de komende jaren ingrijpend gewijzigd worden. Op 1 januari 2020 zullen de eerste wijzigingen in werking treden. Het gaat hierbij om de zogenaamde “quick fixes”, die een aantal vereenvoudigingsmaatregelen voor o.a. call off-voorraden en ketentransacties bevatten, maar waarin ook strengere regels over de toepassing van het btw-nultarief bij grensoverschrijdende transacties zijn opgenomen. Doel van alle veranderingen is om te komen tot een eenvoudiger, fraudebestendig en robuust definitief btw-stelsel voor de handel in de Europese Unie.

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‘Quick fixes’ reform EU VAT system

29 May 2019 - On 4 October 2017, the European Commission proposed a drastic reform of the VAT system of the European Union to modernise the VAT system and make it simpler and more business-friendly for the benefit of both Member States and businesses. In the short term, the European Commission has also proposed a number of ‘quick fixes’ to improve the VAT system. These will be effective as of January 2020.

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Cross-border supplies: change in VAT rules 2020

19 September 2019 - As of January 2020, all EU member states will introduce a number of new VAT rules aimed at improving the European VAT system for cross-border supplies in the short term. These new rules are also important for internationally operating entrepreneurs in the transport & logistics sector. This applies in particular to entrepreneurs who act as tax representatives for foreign entrepreneurs and in doing so report on cross-border supplies.