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Zero-rating VAT for international trade
Conditions for zero-rating VAT within the EU
If you fail to meet the conditions for zero-rating goods, then you must account for VAT at the appropriate UK rate.
The conditions are:
· the goods are physically delivered to a destination in another European Union (EU) member state
· you obtain and keep valid commercial evidence that the goods have been removed from the UK within three months of the time of supply - or six months if the goods are involved in processing or incorporation before their removal
When it comes to the supply of services to other member states, conditions differ on how to account for and when to zero-rate VAT. The correct VAT treatment will depend on several factors, including whether or not you are selling to a VAT-registered business (known as 'business to business' or B2B selling) or to a consumer ('business to customer' - B2C selling), the type of service or services you are supplying, the place or places of belonging of supplier and customer.
The general rule is that:
· B2B supply of services is subject to VAT in the country in which the customer belongs
· B2C supply of most services is liable to VAT in the supplier's country
· certain services require particular VAT treatment - eg for services relating to land and property, you must account for VAT in the country in which the land is located
Evidence of removal
You must obtain a combination of the following documents as clear evidence that supply has taken place and the goods have been removed from the UK:
· customer order
· inter-company correspondence
· sales invoice
· advice note
· packing list
· carrier's transport documents
· details of insurance or freight charges
· bank statements as evidence of payment
· receipted copy of the consignment note
· any other documents you would normally obtain in the course of your business with customers in other EU countries
Photocopied transport documents are not normally acceptable as evidence of removal.
Documents you use as proof of removal must clearly identify:
· the supplier
· the consignor, if different from the supplier
· the customer
· an accurate description of the goods
· an accurate value
· the mode of transport and route
· the EU destination
Time limits
Goods must be removed from the UK within three months of the time of supply (the 'tax point'). The time of supply for goods removed to another EU country is the earlier of either the 15th of the month following the one in which you sent the goods to your customer - or your customer took them away - or the date you issue a VAT invoice for the supply.
You must also obtain and provide the required evidence of removal within that same time period.
An extension to six months is allowed for goods sent for processing or incorporation.
Reporting removals of zero-rated goods and services
Any goods removed within the EU must be reported.
· For all removals of goods and most services to other VAT-registered businesses within the EU, you must furnish an ESL. Different deadlines apply depending on whether you submit ESLs only for goods or services, or goods and services. For information on providing an EC sales list, see our guide on Intrastat return and the EC sales list.