EU VAT Changes

Austrian Reduced VAT rate increase

Austrian Reduced VAT rate increase

As part of their 2016 budget Austria have proposed a reduced VAT rate hike raising it from 10% to 13% for the majority of supplies, this is expected to come into force on 1st January 2016, the list of supplies included in this VAT hike are:

Cultural events, including entrance to public museums and galleries

• Livestock and seeds
• Hotels (applies later in 2016)

Whilst staying at 10% will be:

• Supplies of food
• Pharmaceutical products

Poland plan to cut VAT

Poland VAT cut

Today Poland’s ruling Civic Platform (PO) party announced plans to lower the VAT rate from 23% to 22% starting from the 1st of January 2016. The VAT rate was raised in 2011 to raise budget income during the financial crisis, when its GDP reached 10%, a rate of 3% or lower is required to stay in the Euro currency. However Poland fared well during the financial crisis being one of the only countries not to go into recession, and latest figures show that it could now reach the Euro currency figure comfortably, with the PO currently being pro-EU. This drop in VAT is expected to affect the budget as bringing it down by 1 percentage point will cost the budget an estimated 5 to 6 billion zlotys.

However nothing is yet set out as there will be a general election in October and the PO’s current strongest competition has not laid out any plans for a VAT cut but have proposed plans to stay out of the Euro zone.

Romania confirms 5% VAT rate cut

Romania confirms 5% VAT rate cut

The Romanian Government has now confirmed that the planned VAT rate cut is going ahead, a drop from 24% which is one of Europe’s highest to 19% which is one of the lowest. It has recently been uncertain as to whether the cuts would go ahead due to some political unrest when the opposition accused the Government of going in the wrong direction with the budget and calling for a re-election which would have put the VAT plans in jeopardy.

However earlier this month the Government confirmed the VAT cut was to be implemented by 1st January 2016, and at a greater rate than was expected. In February they announced a cut to 20%, this is based on a quicker than expected return to growth in the country.

Furthermore in addition to this they also confirmed that draft beer will drop from 24% to 9% following in line with the earlier cut to food products.

Yet with this measure potentially impacting the budget revenues by some EUR 2.6 billion both the EU and the IMF have expressed doubts over the sustainability of such deep tax cuts in Romania.

IMF call on Spain to raise their VAT rate

IMF call on Spain to raise VAT

The International Money Fund has called on Spain to raise its VAT rate, even though they said they are pleased with the progress that Spain has made so far it still needs to see more improvements especially on the high levels of unemployment, currently at 24%.

Spain’s economy is gaining momentum and is expected to grow by 3.1% this year however they still need more revenue to boost their economy and the IMF believe they can best do this by raising their VAT rate. In addition they also say other reforms were needed, such as an overhaul of employment contracts and the introduction of healthcare co-payments.

So far the Spanish Government says it had no plans to raise the VAT rate, but it is something that could be a possibility in the near future if they are to listen to the IMF.

EU digital VAT changes fail to meet expectations

EU digital VAT changes fail to meet expectations

It has been reported by the European Commission that fewer than 7,000 businesses, including 500 non EU companies, have registered under the new MOSS scheme around the European Union. Which is significantly lower than the estimated hundreds of thousands expected. In the UK alone there are an estimated 200,000 companies who were affected by the changes.

The low registration numbers could be an indicator that companies are not aware that they now need to collect foreign VAT for the first time, figures suggest that up to 62% of small businesses are unaware of how the changes affect them. Potentially these smaller businesses may have decided to stop selling to countries in the European Union due to the additional administrative burden that they may not be able to afford as it is the first time they are drawn into the EU VAT regime.

In the case of UK companies they may be put off from applying as even though, the “mini one-stop shop” would seem the easiest option for small businesses, if they are trading under the VAT threshold they won’t be registered for VAT in the UK and will need to do that. Technically, registering for VAT means that they potentially lose their UK £81,000 exemption – but HMRC have said that such businesses can register for their EU sales only and as long as their UK sales don’t go over this threshold they can remain outside the scope of UK VAT, so if businesses are unaware of this they may choose not to register.

It was originally estimated by HMRC that an additional £300m in revenue for the UK would be generated by the changes, but if companies are pulling out of selling to the EU then this figure may be significantly lower.

For more information on EU digital VAT changes, please see our previous posts.

EU 2015 VAT Changes for American Companies
EU 2015 VAT Changes – Determining customer location
VAT Changes in the digital download world

EU 2015 VAT changes for American Companies

The 2015 EU VAT changes effect on American digital companies

By now most of you will be aware of the forth coming EU VAT changes for digital downloads, where VAT is now charged based on the location of the download instead of the location of supply.

For more information see our previous blog posts.
– EU 2015 VAT changes – Determining customer location
– VAT changes in the digital (download) world

However it’s not only European companies that will be effected but American ones also. This is because since 2003 rules have been in place regarding the supply of digital services by US companies to customers in the EU. These rules meant that US companies had the option to put all their VAT charges through a single administration, Continue Reading