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[ EU Value Added Tax(VAT) ]
ㅇ The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the European Union.
ㅇ Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT. Conversely imports are taxed to keep the system fair for EU producers so that they can compete on equal terms on the European market with suppliers situated outside the Union.
■ Concept of EU Value Added Tax(VAT)
Value Added Tax(VAT) is
ㅇ A general tax that applies, in principle, to all commercial activities involving the production and distribution of goods and the provision of services. However, if the annual turnover of this person is less than a certain limit (the threshold), which differs according to the Member State, the person does not have to charge VAT on their sales.
ㅇ A consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses.
ㅇ Charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.
ㅇ Collected fractionally, via a system of partial payments whereby taxable persons (i.e., VAT-registered businesses) deduct from the VAT they have collected the amount of tax they have paid to other taxable persons on purchases for their business activities. This mechanism ensures that the tax is neutral regardless of how many transactions are involved.
ㅇ paid to the revenue authorities by the seller of the goods, who is the "taxable person", but it is actually paid by the buyer to the seller as part of the price. It is thus an indirect tax.
ㅇ VAT is may differ by each EU member state and, in fact, every VAT is different.(About 15%~25%)
ㅇ VAT applied within the EU member states is applied to the alienation of properties, provision of services, acquisition within the EU territory, imported goods and others. In case of imported goods, the tax rate at the country of destination is applied. For example, if any EU member state move the goods imported at a specific port within the state to another member state(country of destination) by using the bonded transportations, in principle, the tax rate of the country of destination whereby the bonded procedures terminated shall be applied.
ㅇ Any transaction on the provision of products and/or services by an entrepreneur who does not have a business place within an EU member state where is the place of taxation is applied the reverse charge system. Originally, it is the principle that VAT is paid, by a supplier of products and/or service, to the competent tax office of each member state with the VAT collected from the opposite party. However, this reverse charge system is the one that transfers the tax obligations from the supplier to the opposite party.
■ Reasons of VAT Imposition by EU Member States
ㅇ At the time when the European Community was created, the original six EU countries were using different forms of indirect taxation, most of which were cascade taxes. These were multi-stage taxes which were each levied on the actual value of output at each stage of the productive process, making it impossible to determine the real amount of tax actually included in the final price of a particular product. As a consequence, there was always a risk that EU countries would deliberately or accidentally subsidise their exports by overestimating the taxes refundable on exportation.
ㅇ It was evident that if there was ever going to be an efficient, single market in Europe, a neutral and transparent turnover tax system was required which ensured tax neutrality and allowed the exact amount of tax to be rebated at the point of export. As explained in VAT on imports and exports, VAT allows for the certainty that exports there are completely and transparently tax-free.
■ Tax Payments and Product Exports on Imported Goods
ㅇ Tax obligors(shippers) must make the complete payment of taxes such as tariff, value added tax(VAT) and excise duty before the articles are released out of the relevant bonded areas, or provide the corresponding securities.
ㅇ In case that importers transport articles into their homelands after finished the import clearance in other countries, relevant tariffs must be paid instantly in the country whereby the import clearance is made, and VAT shall be suspended until it is declared in their homelands. The articles can be released with no delay once this procedure is completed.
ㅇ Articles finished the import clearance are free to be distributed within the EU member states with no restrictions.
■ Transactions between Member States(Territory)
ㅇ The transactions between the EU member states are not considered as importations, thereby, no tariff is levied to every articles.
ㅇ The transactions between the territories of EU member states also have the VAT at each transaction stage.