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VAT on services sold across borders(Taxwatch (Tax news in english)) 

The rules regarding VAT on services sold across borders have been changed 1 January 2010.  This means that as a rule the reverse charge mechanism applies on services sold to customers in other EU countries. Consequently the invoice to the customer should be issued without VAT, and the customer is under an obligation to calculate and report VAT in his own country.

Thus the country where the service is performed is no longer important, as VAT as a rule has to be paid in the country where the customer is established.

The new rules are relevant for companies, which purchase or sale services within EU.

Exceptions
The new main rule does not apply on the following services:

• Services in relation to real estate, including hotel accommodation. The place of supply for these services is in the country where the real estate is located.
• Services in relation to cultural, scientific and educational activities. The place of supply for these services is in the country where the activities take place, i.e. VAT has to be paid in the country concerned. After 1 January 2011 the reverse charge mechanism will apply on the above mentioned services (However entrance fee to these activities will still be VAT taxable in the country where the activities take place).
• Restaurant and catering services
• Short term hire of cars

Sale of services to other EU-countries
When Danish companies sell services to customers in other EU countries they must issue an invoice without VAT. The customer´s VAT number must be stated on the invoice. Furthermore the company must write on the invoice, that the services are supplied without VAT in accordance with the rules of reverse charge. This is done by stating the following text on the invoice: “reverse charge” or “The sale is subject to reverse charge. The recipient is liable for the VAT according to article 56 of the Council Directive 2006/112/EC”.

The value of the sale without VAT must be reported in box B on the VAT return. Furthermore the value should be reported in the EC-sales list.

Purchase of services from other EU-countries
When a Danish company buys services from other EU countries, they must inform the supplier of the company´s Danish VAT number. When the company receives an invoice from the supplier without VAT the Danish company is obligated to calculate and report the VAT amount to the Danish authorities via the VAT return. Furthermore the value of the purchase without VAT must be reported in box A on the VAT return.

Questions regarding the above can be addressed to Dorthe Higham at dhi@bdo.dk