Value Added Tax implications for Chinese companies in Europe
Companies from the People’s Republic of China could expose themselves to VAT risks when entering Europe for business, if they are not properly advised beforehand. A VAT liability could easily arise by virtue of a transaction deemed to have taken place in Europe. It may not even be necessary to have a European presence.
Even though the VAT system is supposed to be harmonised throughout a major trading block such as the European Union (EU), differences in practical implementation are commonplace. There are now 28 Member States in the EU. Standard VAT rates across the EU vary from 17{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} to 27{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} of turnover, yes TURNOVER, not profits! In addition each member state has its own reduced rates of VAT. It is often difficult to undo the damage after an event or transaction has occurred. Awareness of the VAT issues and timely advice are therefore extremely important.
Some instances where VAT issues might arise for a China business entering the EU are:
* Supply and installation of goods in the EU where technicians provide installation and operating expertise as part of a “bundled” package including both goods and services. Different tax rules apply to goods and services and VAT recovery can become an issue.
* Movement of goods into, out of and within the EU can cause complications:
* Imports – problems with recovery of import VAT, often associated with complications in delivery;
* Exports – are normally zero-rated, but a VAT liability could arise where a previously tax-free purchase does not leave the EU within a specified time period e.g. part of a sale and lease-back deal;
* Intra-Community acquisitions and dispatches(B2B): involving movement of goods between Community countries where various VAT-accounting procedures should be followed, including triangulation procedures.
* Distance sales of goods from one EU Member State to consumers in another, which could involve VAT registration in the customers’ countries as soon as certain sales levels are reached.
There are other situations affecting Chinese suppliers too numerous to explain within the scope of this short article, but these typically include:
* Warranties and repairs
* Consignment and call-off stocks
* Conferences in Europe
* Training functions
* Telecommunication services
* Internet and digitally supplied services
* Goods ordered via the Internet, but delivered from distribution centres outside or within the EU.
The scope for complications and tax problems is enormous. Therefore, proper advice should be sought early on in order to reduce the VAT risks and exploit the many opportunities available for tax mitigation. For further information or to discuss a specific situation please contact Mr Raj Ganguly by email: rganguly@rkgconsulting.com or on +44 77 66 828 851.
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