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VAT on services outside EU

EU company status is exempt from VAT what's the exposure by getting services from outside EU?

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Company "A" is a EU company which getting services from a company outside EU.

Company "A" exempt from VAT meaning, it dosen't "charge" VAT on income and can't claim refunds for expenses.

In accordance with many sites i read it saying that: 

"If you receive services for business purposes from a supplier based outside the EU, you should usually pay VAT at the applicable rate in your country, as if you had supplied the service yourself (using the reverse charge procedure). You can usually deduct this amount later on when you make your VAT declaration."

In our example above Company A can't claim refunds for expenses, so it means that the Company should pay VAT and that's it? 

I understand that EU wants to encourage deals within the EU but in our universal world cross border transaction are normative.

Is there any solution for that? or a way to decrease VAT exposure?


Replies (4)

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By Les Howard
14th May 2019 16:19

Reverse Charge services are precisely that! They become part of your taxable supplies, and contribute to your taxable turnover for VAT registration purposes.
They are subject to your Partial Exemption purposes, in the same way that identical services bought in the UK would be.
Whether you can decrease your VAT exposure depends on the entirety of your activities, so that is not easy to do on a forum.

Thanks (1)
Replying to leshoward:
By Daniel K
16th May 2019 08:11

Dear Les,

First, thank you very much

Second, so the EU company should pay VAT by issue self invoice?
But can't claim it because her status is exempt from VAT

Thanks (0)
Replying to Daniel K:
By Les Howard
18th May 2019 11:49

No. The EU company will not pay VAT. The Reverse Charge means that the recipient pays the VAT as output tax. As you correctly say, your exempt client will be unable to reclaim this VAT. Hence the cost of irrecoverable VAT.

Thanks (1)
By Wilson Philips
18th May 2019 12:23

Although I dislike answering questions with questions::

Is the company totally exempt? If it is, presumably it isn’t registered - unless the value of reverse charge services has already taken it over the registration threshold?

What is the nature of the services received - might they themselves be exempt?

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