Intra-Community transactions: what they are and how to report them?
Intra-Community transactions are different from regular domestic sales and purchases transactions, and consequently, specific VAT rules and invoicing requirements apply. This is why it is important to know when you are performing an intra-Community transaction and how you must declare it.
Table of Content
- What are intra-Community transactions?
- Types of intra-Community transactions
- How do you declare intra-Community transactions?
- How to register for making intra-Community transactions?
- How to apply VAT on intra-Community transactions?
- Who pays the VAT on intra-Community transactions?
- Intra-Community VAT on intra-Community acquisitions
What are intra-Community transactions?
Intra-Community transactions refer to commercial transactions made between different European Union countries. It may be because the parties involved are established in different EU countries – in the case of services, or because the goods are physically moved from one European Union country to another.
Types of intra-Community transactions
These are the types of intra-Community transactions:
- Intra-Community supplies of goods, where there is a physical movement of the goods sold to another European Union country. For example, Company A in France sells its products to Company B in Germany. The physical transfer of the goods from France to Germany determines that the transaction is considered an intra-Community supply from France when the customer provides a valid VIES number. When the intra-Community supply of goods is B2C, we generally consider it an intra-Community distance sale.
- Intra-Community acquisitions of goods, this is the other side of the above transaction, where the goods purchased are transported from a different European Union country.
- Intra-Community supplies of services, where a business provides services to other EU countries. For example, Company A, established in Spain, provides legal advice services to Company B, established in Italy. We often refer to these services as B2B EU services or services following under the general place of supply rules. There are several exceptions to these place of supply rules, hence the need to get advice on the correct VAT treatment of these supplies.
- Intra-Community acquisitions of services, this is the other side of the above transaction, where a business receives services from a supplier in another EU county.
How do you declare intra-Community transactions?
Intra-Community supplies and acquisitions, either of goods or services, must be reported on the company’s VAT return. Depending on the country, the VAT return will probably have specific separate boxes to report these types of transactions.
Also, the intra-Community supplies of goods and services must be reported in the European Sales Listing – or ESL. This is an informative reporting obligation that must be submitted.
In some countries, you should also include your purchases from the EU. In these countries, the ESL return is also due when making intra-Community acquisitions of goods and services – for example, in Spain, Poland, or Hungary. In such cases, we refer to European Sales and Purchases List (ESPL).
Finally, the Intrastat return may also be due when making intra-Community supplies and acquisitions of goods exceeding the relevant thresholds. These thresholds vary from one country to another and also are normally different for the flow of dispatches and arrivals. The Intrastat is a statistical return sent to customs and statistical authorities which contains more detailed information than the ESL.
You can check the deadlines for your reporting obligations in our article on VAT due dates in Europe.
How to register for making intra-Community transactions?
To perform intra-Community transactions the VAT numbers of the parties involved must be registered in the VIES database.
The VIES system is an electronic system for validating VAT numbers of entities registered in the European Union for cross-border operations of goods and services. Most countries automatically register your VAT number in VIES – this is the case in Germany and France, while in some other countries you will need to separately apply for a VIES registration – for example, in Spain and Italy.
If you are performing these transactions in the country of establishment, you will probably have already a VAT registration in place, but you will need to check if the number is registered in VIES. In case you start performing these transactions also abroad, you may need to check if you need a VAT registration in another EU country.
To apply for a VAT number you must submit an application to the local tax authorities. You must consider that each country establishes the specific procedures, forms, documents, and explanations required. When doing these registrations abroad, additional requirements such as translations to the local language and notarization and apostille of the supporting documents might be requested.
Making intra-Community supplies and acquisitions of goods in a European Union requires a VAT registration in the country where these transactions are performed, as they are taxable transactions from a VAT perspective.
When it comes to supplies of services, these transactions do not usually require a VAT number in the country of your client, as either the reverse charge applies on B2B supplies, or the transaction is taxable where the supplier is established, in a B2C scenario. However, when an exception to the general rule applies, the VAT registration abroad may be necessary. This is the case, for example, when charging the entrance tickets for an event held in another EU country, or when the service provided is related to immovable property – the service is no longer intra-Community but a domestic transaction.
How to apply VAT on intra-Community transactions?
Intra-Community transactions B2B are generally exempt from VAT if all conditions are met. Invoices issued will be zero-rated they should include a reference to the reverse charge mechanism or article 138 of the EU VAT Directive.
To correctly zero-rate the transaction as per intra-Community VAT exemption, the VAT number of the buyer must be registered in VIES.
For distance sales – B2C sales of goods, e-commerce rules apply for these transactions. You can check the current rules for distance selling in our dedicated manual for e-commerce.
Finally, VAT is always charged on intra-Community supplies of services B2C. As per the general rule, it will apply the VAT rate from the country where the Supplier is established.
Who pays the VAT on intra-Community transactions?
Usually, intra-Community transactions B2B are subject to intra-Community reverse charge. Consequently, the VAT is paid by the customer, who must self-assess the VAT from that transaction.
You can read more about the reverse charge mechanism and when it applies in our dedicated article on reverse charge.
In practice, the client receives an invoice without VAT. However, the client receiving this invoice will manually calculate the VAT amount and report it as due and as deductible (both) in his VAT return. Finally, the impact is nil, but this reporting obligation must be fulfilled by the customer.
For B2C transactions, it is always the Supplier who pays the VAT collected from the final customers.
Intra-Community VAT on intra-Community supplies
The intra-Community supplies of goods and services B2B are generally exempt from VAT. Invoices issued will be zero-rated they should include a reference to the reverse charge mechanism.
The transaction must be declared on the VAT and ESL returns, as well as the Intrastat return if this is due.
Intra-Community VAT on intra-Community acquisitions
When performing intra-Community acquisitions of goods and services B2B, the reverse charge mechanism applies. This means that you will need to self-assess the VAT for that transaction in your VAT return.
In some countries, these transactions must be included in the ESPL return. Also, the transaction will be included on the Intrastat return if this return is due for you on the arrival flow.
Get in touch!
Marosa is an EU VAT compliance firm. We will be glad to help you with you VAT compliance obligations in the EU.