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Paying VAT (Value Added Tax) on e-services for Non-Resident Providers

Paying VAT (Value Added Tax) on e-services for Non-Resident Providers

Released On 12th Jun 2024

We explore VAT on e-services, how it works in relation to our IOR services, how it’s paid, and the countries in which it’s applied.

Value Added Tax (VAT) on e-services and / or services for non-resident providers refers to the taxation system that imposes VAT on digital services or services provided by businesses that are not based in the country where the service is consumed. 

This tax is aimed at ensuring that all and any service providers contribute their fair share of taxes in the jurisdictions where their services are utilised, even if they don't have a physical presence there.

Providing IOR services into countries via a third-party provider such as Mouse & Bear Solutions is an example of this as the “e-service” is procured and paid by our team in the UK, but is performed in the importing country. However, this applies to any company outside of the country providing a service.

Here's how it works.

Scope of Taxation 

VAT on e-services typically applies to a wide range of digital services, including but not limited to:

  • software downloads
  • streaming or downloading of music, movies, games, e-books
  • online advertising 
  • cloud-based services
  • other electronically supplied services and remote service ordered outside of the country to be performed in-country.

Non-Resident Providers

Non-resident providers are those businesses that do not have a permanent establishment (e.g., office, branch, or subsidiary) in the country where they offer their services. Despite not having a physical presence, they are required to comply with VAT regulations in that jurisdiction if they exceed certain revenue thresholds, or if the country mandates VAT registration for digital services.

Registration and Compliance 

Non-resident providers may be required to register for VAT in the country where they offer digital services if they meet the specified criteria. This registration process typically involves obtaining a VAT identification number and fulfilling reporting requirements, such as submitting VAT returns and remitting VAT collected from customers to the tax authorities.

Tax Collection and Remittance 

Non-resident providers are responsible for collecting VAT from customers located in the country where the service is consumed. The VAT collected must then be remitted to the local tax authority within the prescribed timeframe, usually on a periodic basis (e.g., monthly or quarterly). Within Mouse & Bear quotes there is a line, “IOR- Local Tax” which lists the VAT amount to be paid.

Place of Supply Rules

VAT on e-services is governed by "place of supply" rules, which determine the country where the service is deemed to be consumed for tax purposes. These rules may vary depending on the nature of the service and the status of the customer (e.g., business or consumer).

Compliance Challenges

Compliance with VAT regulations in multiple jurisdictions can pose challenges for non-resident providers, including administrative burdens, complexity in determining the applicable tax rates, and ensuring compliance with local invoicing and record-keeping requirements.

Countries where e-services VAT applies:

  • India
  • Israel
  • Thailand
  • Taiwan
  • Philippines
  • Azerbaijan
  • New Zealand
  • China
  • Angola
  • Saudi Arabia
  • Morocco 
  • Bahrain
  • Lebanon

And others are following on quickly.

Overall, VAT on e-services for non-resident providers aims to create a level playing field in the economy by ensuring that all businesses, regardless of their location, contribute to the tax revenues of the countries where they operate.

For all enquiries, please contact us on 01935 848526 or email IORsolutions@mouseandbear.com

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