Worldwide: November VAT Roundup: Updates From Russia, Germany, Bahrain And New Zealand

Last Updated: 12 December 2018
Article by Rob Hutchinson

Bahrain's VAT registration deadline is fast-approaching while Russia is introducing VAT on B2B digital supplies. And operators of online marketplaces in Germany face new obligations from January.

TMF Group's global tax team is pleased to bring you a round-up of some key VAT news and wider tax bulletins. Have questions or need more information about any of the below developments? Simply make an enquiry with us.

Bahrain - VAT registration deadline

As we informed you in our October round-up, the Kingdom of Bahrain will be the third Gulf Cooperation Council (GCC) member state to introduce VAT when it comes into force from 1 January 2019.

Further details have now been released. These include:

  • The VAT rate for Bahrain is set at the standard GCC rate of 5%, however a zero rate and exemption can apply in certain cases. VAT may also be suspended if imported goods are under a customs suspension.
  • Companies supplying taxable goods or services in Bahrain must register, as set out in the GCC unified agreement, when annual revenue is more than USD 100,000. Those with annual revenue between USD 50,000 and 100,000 can optionally register whilst voluntary registration is possible if expenses exceed the threshold. The voluntary registration option is designed for start-up businesses with no turnover to enable them to register for VAT.
  • Contracts signed to provide taxable supplies to the government sector should be treated as zero-rated supplies, even if they will be fully or partially submitted after the start of VAT in Bahrain. This zero-rating should continue until the contract renewal date, or 31 December 2022.

You can read a full summary here, and register to access our on-demand webinar on VAT in the GCC.

Russia - VAT on B2B digital supplies

Russia has amended its VAT rules to abolish the reverse charge that applies for the supply of digital services to Russian business customers (B2B) - for example, music, videos, cloud software and storage, online advertising - by foreign suppliers.

Under the existing rules, foreign companies supplying B2B digital services don't need to register with the Russian tax authorities. In these cases, VAT is payable by Russian business customers via the reverse charge mechanism.

However, from 1 January 2019, non-residents of Russia that supply B2B digital services will be subject to tax registration and local VAT filing requirements, as they are already required to do for B2C digital services supplied to individual Russian consumers.

EU - alignment of VAT rules for publications

The European Economic and Financial Affairs Council has announced the adoption of a Council Directive allowing for the alignment of VAT rules for electronic and physical publications.

Under current rules, electronic publications ('e-publications' or 'e-books') are considered electronically-supplied services that must be subject to standard VAT rates, while physical publications may be subject to reduced rates.

With the new Directive, EU Member States will be allowed to apply the reduced, super-reduced, or zero VAT rates to electronic publications that they apply to physical publications.

You can read the full press release here.

Germany - VAT liability for online marketplaces

The German Federal Cabinet has approved the Annual Tax Act 2018, effective from 1 January 2019. It includes the introduction of a VAT liability for operators of online marketplaces and the obligation to keep records regarding certain vendors without a German VAT number.

This will require the owner of an electronic marketplace to record additional information including the full name and address of the suppliers on the marketplace, place of dispatch and arrival of the supply of goods and, importantly, the beginning and end date of a newly introduced certificate proving the VAT registration status of the supplier in Germany (issued by the responsible German tax office, valid for at most 3 years).

The online platforms will be held liable for any unpaid VAT unless they adhere to the information collection requirements or exclude non-compliant third-party sellers from the platform

European Commission - November VAT Infringements Package

The European Commission has released its latest infringements package. Reasoned opinions and letters of formal notice have been sent and we can address some of those relating to VAT.

  • Infringement proceedings on tax breaks being applied in the yacht and aircraft sectors of Italy and the Isle of Man, which the EU believes generate major distortions of competition. As such, the Commission has sent a letter of formal notice to Italy for not levying the correct amount of VAT on the leasing of yachts. It has also sent a reasoned opinion over Italy's system of exemptions for fuel used to power chartered yachts in EU waters. Meanwhile, a letter of formal notice was sent to the UK concerning the Isle of Man's VAT practices regarding supplies and leasing of aircraft. For more information, please refer to the full press release.
  • The Commission has sent a letter of formal notice to Romania for applying a split payment mechanism for VAT. Since 1 January 2018, Romania has applied this alternative VAT collection mechanism where VAT is paid to a separate blocked account, causing a major administrative burden for companies doing business there. This arrangement is mandatory for certain businesses, which are required to open a separate, blocked VAT bank account. Their customers must split the payment of the invoice by paying the VAT separately to the VAT account of the supplier. The measures run against both EU VAT rules (Council Directive 2006/112/EC) and the freedom to provide services.
  • The Commission sent a letter of formal notice to Italy as its legislation on the price of fuel in the Lombardy region does not respect EU law. Italian tax rules allow for a reduction of the VAT rate applied to fuel the closer the refuelling station is to the border with Switzerland. This results in two different VAT rates on the same product depending on where the product is purchased. Such legislation generates distortions of competition and runs against the provisions of common EU rules (VAT Directive, Council Directive 2006/112/EC).

New Zealand - GST legislation for offshore suppliers

New Zealand Inland Revenue has announced that legislation for the introduction of new rules for Goods and Sales Tax (GST) on low-value imported goods has been introduced in Parliament. The new rules include requirements for offshore suppliers to register, collect, and return New Zealand GST on goods valued at or below NZ$1,000 when supplied to consumers in New Zealand.

The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill proposes that when an offshore supplier, such as a website or an online marketplace, has annual sales to New Zealanders above the NZ$60,000 GST registration threshold, they will have to register for GST. The change would apply to imported goods valued up to NZ$1,000 and is proposed to come into effect from 1 October 2019.

Key takeaways

With tax compliance among one of the biggest challenges for international businesses, failure to adhere to changing local rules poses a notable threat.

Businesses in Bahrain with annual revenue above US$100,000 now have less than a month to prepare for the introduction of VAT, and will need to assess the preparations they need to make.

If you are a business that supplies B2B digital services to Russian companies, you will be subject to tax registration and local VAT filing requirements from 1 January 2019.

Meanwhile, should you be an online marketplace in Germany you will need to prepare for your new obligations which also begin in the new year.

Our VAT services team and in-country tax experts can provide you with support in understanding the changing rules, and what they mean for your enterprise.

Contact us today to find out how we can help.

Learn how our accounting and tax services help drive efficiency for our global clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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