European Commission Publishes Guide to VAT Refunds

by: Smith and Howard

January 30, 2015

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The European Union’s (EU’s) Taxation and Customs Union Directorate General published a new guide on EU member states’ policies on value-added tax (VAT) refunds for visitors.

The guide is designed as a set of questions and answers helping travelers understand which persons qualify as visitors and how the VAT is refunded.

The guide clarifies that refunds are available only to persons who permanently or habitually live in a country outside the EU. However, in some countries, a refund may also be allowed if the person lived in an EU country for a defined period of time for a specific purpose but has a permanent home outside the EU and is not intending to return to the EU in the immediate future. EU citizens permanently living in non-EU countries are also eligible for the VAT refund.

The guide describes the process for claiming a refund in all member states and the different thresholds that have to be satisfied for a purchase to be eligible for a refund. It warns that consumers should not expect a full refund, as the companies that offer refund services charge administrative fees.

The future of digital VAT

Since Jan. 1, 2015, businesses established in the EU that supply “digital services” to end consumers in other EU jurisdictions have been required to charge and account for VAT in the consumer’s jurisdiction.

Before the change, suppliers charged VAT in their own jurisdictions and applied a single rate to all their supplies across the EU.

This represents a fundamental change in the place of supply rules, for VAT purposes, in relation to digital services. It is likely to significantly increase the administrative and compliance burden on digital businesses making supplies to other EU jurisdictions.

This law applies only to digital products, but the EU has made it clear that, if the 2015 rollout is a success, it will be applying similar legislation to all physical goods and services from 2016 onward.

Other countries around the world are following suit, with South Africa, Japan, Canada and Singapore already implementing or planning similar digital tax legislation.

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