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VAT and services performed in Italy

OK, so I don't get involved in VAT much (thank goodness), and what is probably a very simple concept for others has completely got me flummoxed.

Scenario is a UK company sends its employee (one man band company) to work in Italy to supply her services to an Italian based company, The services provided are consultancy services to the retail industry. All services are perfomed in Italy.

Quite simply, are these services VAT-able or not? What are the invoicing procedures (i.e. what goes on the invoice?), and do the related re-charged expenses need to charge VAT? As far as expenses incurred which have UK VAT, then is the VAT reclaimable?

Getting myself tied up in knots with the "place of supply" rules (are they different within or outside the UK?) and the B2B and B2C rules.

Am so, so glad I don't get involved with VAT on a day to day basis. How much more complicated can they make it?!?!?!

Thanks.

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By GR
09th Feb 2012 22:12

"UK company sends its

"UK company sends its employee (one man band company)"

 

I don't think the one man band company can be an employee because it is a company. If there is an employee-employer relationship between the UK company and one man band company the one man band company may fall foul of IR35.

 

That aside, from my understanding, which is practically non-existent, as the supply is B2B, i.e. business to business, the place of supply is where the customer is based, i.e. Italy. Therefore tax should be accounted for in Italy, i.e. outside the scope of UK VAT and therefore not VATable.

 

From what I understand of EC VAT, which is not a lot, you should get the VAT registration number from the Italian-based company, complete an ECSL, and state that "This invoice is subject to reverse charging" on the sales invoice.

 

As far as I'm aware, if you supply services, you may recover (subject to the normal rules) input tax related to supplies made outside the UK which would be taxable if they were made in the UK.

 

I'm pretty sure much of what I've said is wrong but at least when I get shot down I'll learn from the experience.

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10th Feb 2012 11:08

My opinion

I'm not sure what the above poster's point is about one man bands.  There is nothing in the question which suggests that the business might (or might not) be caught by IR35 and it doesn't seem to be the issue here.

For the VAT treatment, first you need to consider the place of supply, which assuming the Italian based company is a business, will be a B2B supply (best to obtain the Italian company's EU VAT number to support that fact).  Consultancy business will normally fall under the basic place of supply rule, i.e. where the customer is located.  So the place of supply is Italy, and the service is therefore outside the scope of UK VAT.

Having established that the place of supply is Italy, you need to consider whether you can reverse charge or whether you need to register for Italian VAT.  The answer will depend on whether the services performed in Italy have created a permanent establishment in that country - i.e. is the UK company liable to Italian corporate tax.  That might be the case if the contract for services was concluded in Italy, or the UK company holds an office or other fixed establishment in Italy.  If the UK company has created a permanent establishment in Italy, then your services are an Italy to Italy supply and you will need to register for Italian VAT.  If there is no permanent establishment, then the supply is being made from UK to Italy and you can apply the reverse charge, i.e. no VAT will be shown on the invoice.  The invoice should state that the reverse charge applies.

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By GR
10th Feb 2012 11:22

"There is nothing in the

"There is nothing in the question which suggests that the business might (or might not) be caught by IR35"

 

Fair enough; I mentioned IR35 because the one man ltd company was described as an "employee" which, to me at least, suggested that the one man ltd company "MAY" be caught by IR35; then again, I don't know much about IR35..............

 

Your response re: EC VAT was very informative; especially your points about place of belonging/establishment; thanks.

 

 

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10th Feb 2012 11:29

Aren't we forgetting something?

I hate to throw a spanner in the works here, but if this is a one-man band company and the owner / director / sole-shareholder goes to Italy to perform duties there doesn't this mean that the entire company has relocated to Italy under the Italian Controlled Foreign Companies regime?

I'd be more worried about being deemed tax resident (both personal and corporate) in Italy than the specifics of the VAT invoicing.

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10th Feb 2012 11:51

Not convinced it's an issue

frustratedwithhmrc wrote:

I hate to throw a spanner in the works here, but if this is a one-man band company and the owner / director / sole-shareholder goes to Italy to perform duties there doesn't this mean that the entire company has relocated to Italy under the Italian Controlled Foreign Companies regime?

I'd be more worried about being deemed tax resident (both personal and corporate) in Italy than the specifics of the VAT invoicing.

Not really a problem; unless the sole director/shareholder holds his board meetings in Italy, and otherwise manages the company in that country, then it seems like the company remains controlled from the UK.  If the work in Italy is a short term contract, then this is likely to be okay.

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