Intracommunity VAT is a value added tax applied to business-to-business (B2B) commercial transactions within the European Union (EU). Here's how it works:
- Transactions between EU countries : When a business in one EU country sells goods or services to another business in another EU country, intra-EU VAT applies.
- VAT Exemption : These transactions are VAT exempt in the country of origin and in the country of destination. In other words, the selling company does not charge VAT to the customer and the buying company does not pay VAT in the country of origin.
- Intrastat declaration : Despite the VAT exemption, businesses must report these transactions in a declaration called Intrastat, which provides detailed information on business operations between EU countries.
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Reverse charge of VAT : Instead of paying VAT in the country of origin, the purchasing company must reverse charge the VAT in its country of origin via its VAT return.
- Tax rates : Although transactions are VAT-free, certain rules and tax rates are applied to ensure consistency and avoid tax evasion.
In summary, intra-EU VAT is a system that enables seamless trade between businesses in different EU countries by eliminating the need to pay VAT in each country and simplifying the process of reporting and paying tax.
