February 22, 2022
VAT and GST are systems that require businesses to charge tax on sales, unless an exemption or other relief applies, whilst allowing for the recovery of the VAT/GST paid on purchases related to those taxable sales. It is a transaction tax chargeable throughout the supply chain, although it can be recovered by eligible businesses. Therefore, during a production and supply chain leading to a sale to a consumer, these systems effectively tax businesses on the margin between purchase and sale. The consumer also pays VAT/GST on the final supply in the chain.
VAT and GST are complex, in part because it is necessary to identify where the taxes are deemed to be supplied and so where the tax is due. The rules vary depending on whether goods or services are supplied and, if a service, which type it is. Land and property-related supplies for example can lead to registration obligations where the land/property is situated.
The existence of exemptions also causes complexity because they are narrowly defined and give rise to issues in identifying which VAT amounts are recoverable, or partly recoverable, or if they should instead be restricted.
In addition, systems from state to state within a country can vary, such as in Brazil, or from country to country, such as between the 27 EU member states even though the system is based on a common VAT framework.
VAT and GST can be payable to tax authorities even if a business is not established in the country where supplies are received or enjoyed. For example, a business supplying electronic streamed or downloaded website content to private individuals in many countries operating such a tax system would require the business to register and pay VAT/GST in the country where the customer resides.
This means that whenever a business trades overseas it should check the VAT/GST systems and seek advice from a local specialist or network such as Kreston that can coordinate advice, to ensure the issues are understood and managed.
We have VAT specialists in our Kreston Global network of firms that are present in 120 countries around the world. We would be delighted to discuss your business issues and requirements.
Chair, Global Indirect Taxes and VAT & Duty partner at Kreston Reeves
Regional Director, Europe, Kreston Romania SRL
Global Technical Director, Kreston VDN
Regional Director, Latin America, Kreston FLS
Regional Director, Asia Pacific, SGCO & Co. LLP