Worldwide VAT, GST and Sales Tax Guide 2023

Worldwide VAT, GST and

Sales Tax Guide

2023

Preface

While greatly accelerating the pace of all their tax legislation, the world’s governments continue to

rely heavily on indirect taxes as an invaluable source of revenue. As a result, there is increased risk

that taxpayers will be caught unprepared, making a current, detailed guide like the Worldwide VAT,

GST and Sales Tax Guide all the more valuable.

The book’s organization is straightforward. Chapter by chapter, from Albania to Zimbabwe, we

summarize indirect tax systems in 149 jurisdictions. All of the content is current on 1 January 2023,

with more recent additions noted.

Each chapter begins with contact information for the key people in that jurisdiction’s EY member

firm offices. We then answer the basic questions practitioners ask about indirect tax systems:

• At a glance, what are the basic features of the major indirect tax in this jurisdiction?

• What is the scope, and who is taxable?

• What are the rates, and how has the country defined the time of supply?

• When can taxpayers recover VAT that they have paid on inputs?

• What are the rules on filing, payment and penalties?

For many years, the

Worldwide VAT, GST and Sales Tax Guide has been published annually, along

with two companion guides on broad-based taxes: the

Worldwide Corporate Tax Guide and the

Worldwide Personal Tax and Immigration Guide. In recent years, those three have been joined by

additional tax guides on more specific topics, including the

Worldwide Estate and Inheritance

Tax Guide

, the Worldwide Capital and Fixed Assets Guide, the Transfer Pricing Global Reference

Guide

and the Worldwide R&D Incentives Reference Guide.

Each represents thousands of hours of tax research, and the entire suite is available free online,

along with timely EY Tax Alerts and other great publications on ey.com.

You can sign up to receive EY Tax Alerts daily into your inbox at globaltaxnews.ey.com.

March 2023

This material has been prepared for general informational purposes only and is not intended to

be relied upon as accounting, tax, legal or other professional advice. Please refer to your advisors

for specific advice.

About EY Tax Services

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way. At the EY organization, we believe that managing your tax obligations responsibly and pro-

actively can make a critical difference. Nearly 60,000 talented tax professionals, in more than

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ing commitment to quality service – wherever you are and whatever tax services you need.

Contents

Preface..........................................................................................................................................iii

EY Global Indirect Tax contacts ................................................................................................... 1

Albania .......................................................................................................................................... 2

Algeria ......................................................................................................................................... 14

Angola ......................................................................................................................................... 25

Anguilla ....................................................................................................................................... 39

Antigua and Barbuda ................................................................................................................. 49

Argentina ..................................................................................................................................... 59

Armenia ...................................................................................................................................... 71

Aruba .......................................................................................................................................... 83

Australia ...................................................................................................................................... 91

Austria ....................................................................................................................................... 108

Azerbaijan ................................................................................................................................. 130

Bahamas .................................................................................................................................... 140

Bahrain, Kingdom of ................................................................................................................ 151

Bangladesh ................................................................................................................................ 175

Barbados ................................................................................................................................... 190

Belgium ..................................................................................................................................... 200

Bhutan ....................................................................................................................................... 223

Bolivia ....................................................................................................................................... 225

Bonaire, Sint Eustatius and Saba (BES Islands) ...................................................................... 236

Bosnia and Herzegovina ........................................................................................................... 244

Botswana ................................................................................................................................... 257

Brazil ......................................................................................................................................... 267

Bulgaria ..................................................................................................................................... 281

Cambodia .................................................................................................................................. 305

Cameroon .................................................................................................................................. 317

Canada ....................................................................................................................................... 330

Chad .......................................................................................................................................... 353

Chile .......................................................................................................................................... 364

China Mainland ......................................................................................................................... 374

Colombia ................................................................................................................................... 397

Congo, Republic of the ............................................................................................................. 412

Costa Rica ................................................................................................................................. 421

Côte D’Ivoire (Ivory Coast) ...................................................................................................... 431

Croatia ....................................................................................................................................... 440

Curaçao ..................................................................................................................................... 460

Cyprus ....................................................................................................................................... 469

Czech Republic ......................................................................................................................... 487

Democratic Republic of the Congo .......................................................................................... 511

Denmark .................................................................................................................................... 520

Dominican Republic ................................................................................................................. 539

Ecuador ..................................................................................................................................... 549

Egypt ....................................................................................................................................... 559

El Salvador ................................................................................................................................ 570

Equatorial Guinea ..................................................................................................................... 582

Estonia ....................................................................................................................................... 592

Eswatini ..................................................................................................................................... 612

European Union ........................................................................................................................ 621

Fiji ........................................................................................................................................... 635

Finland ...................................................................................................................................... 644

France ........................................................................................................................................ 661

Georgia ...................................................................................................................................... 684

Germany .................................................................................................................................... 697

Ghana ........................................................................................................................................ 717

Greece ....................................................................................................................................... 732

Guatemala ................................................................................................................................. 752

Guinea ....................................................................................................................................... 766

Guyana ...................................................................................................................................... 776

Honduras ................................................................................................................................... 786

Hungary .................................................................................................................................... 797

Iceland ....................................................................................................................................... 821

India .......................................................................................................................................... 835

Indonesia ................................................................................................................................... 851

Ireland, Republic of ................................................................................................................... 866

Isle of Man ................................................................................................................................ 884

Israel .......................................................................................................................................... 904

Italy ........................................................................................................................................... 915

Jamaica ...................................................................................................................................... 946

Japan ......................................................................................................................................... 955

Jersey, Channel Islands ............................................................................................................. 966

Jordan ........................................................................................................................................ 977

Kazakhstan ................................................................................................................................ 986

Kenya ........................................................................................................................................ 999

Korea, Republic of .................................................................................................................. 1010

Kosovo..................................................................................................................................... 1022

Kuwait ..................................................................................................................................... 1036

Lao, People’s Democratic Republic of.................................................................................... 1038

Latvia ...................................................................................................................................... 1047

Lebanon ................................................................................................................................... 1075

Lesotho .................................................................................................................................... 1085

Liechtenstein, Principality of .................................................................................................. 1098

Lithuania ................................................................................................................................. 1099

Luxembourg ............................................................................................................................ 1126

Madagascar ............................................................................................................................. 1143

Malawi .................................................................................................................................... 1157

Malaysia .................................................................................................................................. 1166

Maldives .................................................................................................................................. 1182

Malta ....................................................................................................................................... 1193

Mauritius ................................................................................................................................. 1211

Mexico .................................................................................................................................... 1221

Moldova .................................................................................................................................. 1234

Mongolia ................................................................................................................................. 1246

Montenegro, Republic of ........................................................................................................ 1257

Morocco .................................................................................................................................. 1267

Mozambique ........................................................................................................................... 1279

Myanmar ................................................................................................................................. 1291

Namibia ................................................................................................................................... 1292

Nepal ....................................................................................................................................... 1303

Netherlands ............................................................................................................................. 1314

New Zealand ........................................................................................................................... 1332

Nicaragua ................................................................................................................................ 1349

Nigeria ..................................................................................................................................... 1359

North Macedonia .................................................................................................................... 1370

Norway .................................................................................................................................... 1383

Oman ....................................................................................................................................... 1398

Pakistan ................................................................................................................................... 1415

Panama .................................................................................................................................... 1431

Papua New Guinea .................................................................................................................. 1440

Paraguay .................................................................................................................................. 1450

Peru ......................................................................................................................................... 1460

Philippines............................................................................................................................... 1471

Poland ...................................................................................................................................... 1490

Portugal ................................................................................................................................... 1514

Puerto Rico ............................................................................................................................. 1540

Qatar ........................................................................................................................................ 1547

Romania .................................................................................................................................. 1549

Rwanda.................................................................................................................................... 1573

Saint Lucia .............................................................................................................................. 1582

São Tomé and Príncipe ........................................................................................................... 1591

Saudi Arabia ............................................................................................................................ 1600

Senegal .................................................................................................................................... 1623

Serbia, Republic of ................................................................................................................. 1636

Singapore ................................................................................................................................ 1650

Sint Maarten ............................................................................................................................ 1665

Slovak Republic ...................................................................................................................... 1672

Slovenia ................................................................................................................................... 1700

South Africa ............................................................................................................................ 1718

South Sudan ............................................................................................................................ 1733

Spain ....................................................................................................................................... 1739

Sri Lanka ................................................................................................................................. 1762

Suriname ................................................................................................................................. 1777

Sweden .................................................................................................................................... 1786

Switzerland ............................................................................................................................. 1802

Taiwan ..................................................................................................................................... 1815

Tanzania .................................................................................................................................. 1829

Thailand .................................................................................................................................. 1841

Trinidad and Tobago ............................................................................................................... 1852

Tunisia ..................................................................................................................................... 1862

Türkiye ................................................................................................................................... 1876

Uganda .................................................................................................................................... 1887

Ukraine .................................................................................................................................... 1903

United Arab Emirates ............................................................................................................. 1921

United Kingdom ..................................................................................................................... 1946

United States ........................................................................................................................... 1977

Uruguay ................................................................................................................................... 1986

Uzbekistan ............................................................................................................................... 1998

Venezuela ................................................................................................................................ 2009

Vietnam ................................................................................................................................... 2022

Zambia .................................................................................................................................... 2037

Zimbabwe ................................................................................................................................ 2049

Table of VAT, GST and sales tax rates .................................................................................... 2062

Table of currencies .................................................................................................................. 2067

EY Global Indirect Tax contacts

London GMT

+44 (20) 7951-2000

6 More London Place

London SE1 2DA

United Kingdom

EY Global Indirect Tax

Kevin MacAuley +44 (20) 7951-5728

EY Global Leader Mobile: +1 7887-822-090

Email: [email protected].com

Maria Hevia Alvarez +1 (212) 773-6754

EY Global Deputy Leader Mobile +1 (646) 831-2187

Email: maria.heviaalvarez@ey.com

Global Trade

Jeroen Scholten +31 (88) 407-1009

EY Global Leader Mobile: +31 (6) 21-25-23-83

Email: [email protected].com

Editors

Georgina Lunn +44 (0) 113 298 2476

Email: [email protected].com

Scott Daniels +1 (214) 979-1672

Email: scott.daniels@ey.com

Albania

ey.com/GlobalTaxGuides

Tirana GMT +1

Ibrahim Rugova Str. Sky Tower

6th Floor

1001 Tirana

Albania

Indirect tax contacts

Milen Raikov +359 (2) 8177-100

(resident in Sofia, Bulgaria) milen.raikov@bg.ey.com

Anisa Jasini +355 (4) 241-9575, Ext.131

[email protected]y.com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Tatimi mbi Vleren e Shtuar (TVSH)

Date introduced 27 April 1995

Trading bloc membership Central European Free Trade Agreement

Administered by General Directorate of Taxes of Albania

VAT rates

Standard 20%

Other 6%, zero-rated (0%) and exempt

VAT number format A23456789B

VAT return periods Monthly

Thresholds

Registration for resident

taxable persons Annual turnover of ALL10 million

Registration for exporters,

importers, non-established

businesses Subject to registration regardless of turnover

Recovery of VAT by

non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods and services performed by a taxable person in Albania

• Importation of goods into Albania, regardless of the status of the importer

• Services supplied to taxable persons in Albania by service providers, of which the place of bus-

iness is outside Albania

• Certain supplies of services rendered to nontaxable persons in Albania by providers whose place

of business is outside Albania, such as digital services and services related to an immovable

property located in Albania

AlbA niA 3

The use of goods or services purchased or produced in the course of a business activity for pri-

vate purposes constitutes a taxable supply to the extent the VAT on those supplies was deducted.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for VAT in that jurisdiction

where it has customers that are not taxable persons. In Albania the VAT law provides for the

application of the use and enjoyment rules as a deviation from the main rules for determining the

place of supply of services. These rules apply to services such as advertising, telecommunication

and broadcasting regardless of whether they are provided to taxable or non-taxable persons, i.e.,

business to business (B2B) and business to consumer (B2C).

Transfer of a going concern.

Normally the sale of the assets of a VAT-registered or VAT-registrable

business will be subject to VAT at the appropriate rate. However, a transfer of a business as a

going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is

the sale of a business or part of a business capable of separate operation, including assets. Where

the sale meets the conditions, the supply is treated as outside the scope of VAT. In Albania, a

TOGC is treated as outside the scope of VAT where the following conditions are met:

• A group of assets forming part of a business activity, or an entire business activity is transferred

• The transfer is performed between two taxable persons (B2B)

• The transferee ensures the continuity of the business activity or part of it transferred

Transactions between related parties.

In Albania, for a transaction between related parties the

value for VAT purposes is calculated at market value. The market value is defined as the consid

eration that an independent buyer would be willing to pay for the supply of goods or services

under open market conditions. In case no comparable value are available, the market value can

be determined as follows:

• For supplies of goods, an amount not less than the purchase price or the acquisition costs at the

moment of the supply

• For supply of services, an amount not less than the full costs incurred for performing the ser

vices

C. Who is liable

Any person (entity or individual) that makes supplies in the course of the person’s independent

economic activity is liable to VAT.

Taxable activities also include “the exploitation of tangible or intangible property for the purpos-

es of obtaining income from that on a continuing basis.”

Exemption from registration.

The VAT law in Albania does not contain any provision for exemp-

tion from registration.

Voluntary registration and small businesses.

A taxable person established in Albania is obliged to

exceeds ALL10 million. Once this threshold of ALL10 million is exceeded, any supply shall be

subject to VAT and the taxable person is required to apply for VAT registration within 15 days.

Taxable persons with an annual turnover less than ALL10 million but greater than ALL5 million

may voluntarily register for VAT, and that taxable person must remain registered for a minimum

of two years.

Persons involved in import or export activities must register for VAT regardless of the amount of

turnover.

4 Al bA n iA

Group registration.

Group VAT registration is not allowed in Albania.

Fixed establishment.

A foreign business is deemed to have a fixed establishment for VAT pur-

poses in Albania where it has any establishment characterized by a sufficient degree of perma-

nence and a suitable structure in terms of human and technical resources that would enable it to

provide the services that it supplies, and/or to receive and use services supplied to it for its own

needs.

Non-established businesses.

A “non-established business” is a business that does not have a fixed

establishment in Albania.

No VAT registration threshold applies to taxable supplies made in Albania by a non-established

business. A non-established business must register for VAT in Albania if it engages in any of the

following supplies:

• Supply of goods located in Albania at the time of supply

• Certain supplies of services to nontaxable persons in Albania, such as digital services and

services related to an immovable property located in Albania

• Import and export activities in Albania

Tax representatives.

A non-established business must appoint a resident VAT representative to reg-

ister for VAT purposes in Albania unless the reverse-charge mechanism applies. The VAT repre

sentative may act on behalf of the taxable person for all purposes related to VAT and is jointly

liable for compliance with all VAT obligations of the non-established business.

Reverse charge.

The reverse-charge mechanism applies to supplies of services made by a non-

established business to taxable persons in Albania. A non-established business is not required to

Domestic reverse charge.

There are no domestic reverse charges in Albania.

Digital economy.

Albania follows the destination principle regarding cross-border digital services

supplied to nontaxable persons in Albania. The place of supply of cross-border digital services

to nontaxable persons is the place where the nontaxable person is established or where it has its

permanent address or usually resides.

Therefore, nonresident providers of electronically supplied services for B2C supplies are required

to register and account for VAT in Albania. This is done by appointing a VAT representative in

Albania to account for and pay VAT liability. No VAT registration threshold applies.

Nonresident providers of electronically supplied services for B2B supplies are not required to

reverse-charge mechanism (see the Reverse-charge subsection above).

Imported goods are exempt from import duties and VAT, if the goods are purchased through the

internet and imported into Albania through postal mail with a value lower than EUR22 (and its

equivalent in ALL).

Online marketplaces and platforms. The above rules for the digital economy also apply to online

marketplaces and platforms, i.e., the place of supply for services supplied by electronic means to

nontaxable persons is the place where that person is established or where they have their perma

nent address or usually resides.

Registration procedures.

The application for registration can be performed online, in person at the

counters of the Agency for the Delivery of Integrated Services Albania (ADISA) or in person at

the National Business Center (NBC). A taxable person may personally or through an authorized

person submit the registration form and requested documents with the NBC. The registration

Al bA n iA 5

procedure generally lasts two to three working days. The required documents for registration are

as follows:

• Copies of the identity card of the administrator or the authorized person

• Authorization for the person submitting the application for registration if different from the

administrator of the company

• Copies of identity cards of the shareholders of the company

• Founding act and statute if drafted in two different documents

• Commercial extract of the foreign company registering a branch/subsidiary in Albania

• Good standing certificate of the foreign company registering a branch/subsidiary in Albania

The application for VAT registration of the taxable person must be performed within 30 days after

the foundation date and before the effective start of the business activity.

Deregistration.

Every taxable person registered for VAT may request to be deregistered if turn-

over fell below the VAT registration threshold during the previous 12 months. Such deregistration

becomes effective 12 months after the request. Taxable persons ceasing their economic activity

must request deregistration within 15 days from the termination of their activity.

Changes to VAT registration details.

In case the taxable person notices that its turnover falls below

the VAT registration threshold or vice versa, they must inform the tax authorities and request the

change within 15 days.

The taxable person must also inform the tax authorities within 15 days for the following changes

to its VAT registration details: name change, operating activity address or contact changes, legal

status change, opening/closing of branches or sectors and change in the economic activity type.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

VAT, including the zero rate.

The VAT rates are:

• Standard rate: 20%

• Reduced rate: 6%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods and services unless a specific measure

provides for a reduced rate, the zero rate or an exemption.

Certain supplies are referred to as “exempt-with-credit” (i.e., zero-rated), which means that no

VAT is chargeable, but the supplier may recover the input tax (effectively zero-rated).

Examples of goods and services taxable at 0%

• Exports of goods

• International transport

• Services relating to maritime activities

• Supplies under diplomatic arrangements

• Supply of gold to the Central Bank of Albania

• Intermediary services related to zero-rated supplies or services rendered abroad

Examples of goods and services taxable at 6%

• Supplies of accommodation services by the accommodation facilities

• Supplies made within five-star accommodation structures of an internationally known trade

mark

• Supplies of accommodation and restaurant services, excluding beverages, by the certified struc-

tures operating in agritourism

6 Al bA n iA

• Supplies of advertising services by audiovisual media

• Supply of licensed public transport equipped with electric motors, with nine plus one places or

• Supply of books of any type

• Supply of construction work services for public investments in sports clubs/sports federations

or for investments in sports infrastructure undertaken by private entities

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT

and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Hospital services and medical care

• Insurance and reinsurance services

• Supply and rent of land and buildings

• Financial services

• Postal services

• Education services

• Hydrocarbon exploration operations

• Printing and sale of publications

• Betting, lotteries and gambling

• Importation of machinery and equipment used for inward processing of goods or in the imple

mentation of contracts of ALL50 million or more

• Importation of production machinery for small business

• Import of raw materials used for the manufacture of medicines, with the exception of dual-use

substances, carried out by holders of production authorization

• Agricultural machinery

• Agricultural inputs, such as fertilizers, pesticides, seeds and seedlings

• Veterinary services, except veterinary services for domestic animals

• New vehicles with electric motor, zero km, that have not been previously registered for circula

tion in any other country

• Supply related to the construction/reconstruction process in the case of natural disasters upon

receipt of the authorization by the General Tax Director

• Supply of services and goods directly to the constructor engaged with the building process in

the case of natural disasters, when authorized by the General Tax Director

Option to tax for exempt supplies.

The Minister of Finance may grant through a decree the right to

opt for taxation for the following VAT exempt supplies:

• Financial transactions

• The supply of building and of the land on which the building stands

• The supply of land

• Leasing of immovable property

E. Time of supply

VAT becomes due at the “time of supply” unless otherwise provided in law. The time of supply

is considered to occur when an invoice is required to be issued or when goods or services are

delivered. The invoice should be issued at the moment that the supply of goods or services takes

place. If the payment is made before the delivery of goods or services, the moment of supply is

the moment when the payment is made.

The time of supply for a continuous supply of goods and services, including construction ser

vices, is considered to be the month when the invoice is issued. Invoices should be issued on a

monthly basis.

Al bA n iA 7

Deposits and prepayments.

Where a payment is to be made on account before the goods or ser-

vices are supplied, VAT shall become chargeable on receipt of the payment and on the amount

received.

In case of any amount paid or retained in the form of a guarantee deposit in relation to the per

formance of a supply of goods or service, VAT shall become chargeable at the moment the

deposit is received. In case the amount of deposit is returned to the customer, then the necessary

adjustment should be made for VAT purposes.

Exemption from the above is granted to the guarantees deposited in a bank deposit account or to

a third party, without the right of use. In such case, VAT shall become chargeable at the moment

that the deposit guarantee is executed.

Continuous supplies of services.

Supplies of services performed on a continuous basis, within a

period of time (as prescribed in the supply agreement between the customer and supplier, for

example invoices to be issued on a monthly basis), including construction operations, shall be

deemed to have been made in the same month in which the invoice is issued.

Where payment is made in advance of the invoice being issued, there are no special time of sup

ply rules in Albania for this scenario. As such, the general time of supply rule applies (as outlined

above), which is when the payment is made.

Goods sent on approval for sale or return.

There are no special time of supply rules in Albania for

supplies of goods sent on approval for sale or return. As such, the general time of supply rules

apply (as outlined above).

Reverse-charge services.

Invoices for reverse-charge services are required to be issued by the

10th day of the month following the month in which VAT becomes due.

Leased assets.

In the case of leased assets, the VAT becomes due at the time when the periodic

monthly payments are invoiced to the lessee. In the case of a financial lease, whereby the option

to buy the leased assets is exercised, VAT becomes due on the sale of assets, at the moment the

final invoice is issued to the customer.

Imported goods.

The time of supply for imported goods is the date of importation or the date on

which the goods exit a duty suspension regime.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax, which is the VAT that the taxable person paid on the

purchase of goods and services that were used to provide taxable goods and services in Albania.

A taxable person may also recover VAT related to the overseas supply of services (outside the

scope of Albanian VAT) that would have been taxable if made in Albania. A taxable person gen

erally recovers input tax by deducting it from output tax, which is the VAT charged on supplies

made.

Input tax includes VAT charged on goods and services supplied in Albania, VAT paid on imports

of goods and VAT applied to reverse-charge services.

The time limit for a taxable person to reclaim input tax in Albania is five years. The taxable

person’s right to claim a VAT refund or offset the VAT credit with output tax expires five years

from the filing date of the respective VAT return or its amendment.

Nondeductible input tax.

Not all input tax is deductible. Generally, input tax may not be recovered

on purchases of goods or services that are not used for business purposes.

8 Al bA n iA

Examples of items for which input tax is not deductible

• Expenditure on fuel unless the payer is a company that purchases the fuel for trading purposes

• Expenditure on trips and per diems and hotel accommodation

• Expenditure on cars, unless the business activity consists of the trading or renting of cars such

as car rentals, taxi services and ambulances

Examples of items for which input tax is deductible

(if related to a taxable business use)

• Expenditure relating to publicity and promotional articles

• Expenditure relating to representative expenses up to the amount of expenses that are recog

nized as deductible for corporate income tax purposes

• Expenditure on fuel used solely for carrying on taxable economic activity up to the limit

defined by a decree issued by the Minister of Finance

Partial exemption.

If a supply of a good or service is used partly for purposes of taxable supplies

and partly for exempt supplies, the taxable person may not deduct input tax in full. This situation

is known as “partial exemption.” The calculation of the amount of input tax that may be recovered

is made on a pro rata basis by using the following formula:

Amount of relevant input tax

VAT creditable turnover

Total annual turnover

During the tax year, the pro rata VAT due may be calculated based on the preceding year’s results.

The calculation must be adjusted by 31 January of the following year to reflect the actual results

of the tax year. If the change in deductible input tax is less than ALL20,000 from the change of

the initial and actual pro rata VAT, there is no need for a VAT adjustment. The taxable person

should inform the tax authorities for the initial pro rata VAT that will use during the year, by no

later than 31 January.

The calculation does not include supplies of capital goods used by the taxable person for business

purposes, nor does it include incidental real estate and financial transactions.

Approval from the tax authorities is not required to use the partial exemption standard method in

Albania. Special methods are not allowed in Albania.

Capital goods.

Capital goods are items of capital expenditure that are used in a business over

several years. Input tax is generally deducted in the VAT year in which the goods are acquired. If

the business comprises both taxable and exempt supplies and the capital goods do not only serve

taxable supplies, the amount of input tax that can be recovered depends on the taxable person’s

partial exemption recovery position in the VAT year of acquisition. The amount of input tax

recovered is adjusted over time if during the adjustment period the taxable person’s pro rata cal

culation changes or the capital good is transferred to an exempt activity with no right to deduc-

tion.

The capital goods adjustment period is as follows:

• Immovable capital assets: 10 years

• Movable capital assets: 5 years

In case of pro rata changes during the adjustment period, the adjustment is made for 1/5 for mov

able capital goods and 1/10 for immovable capital goods, while for transfer of capital goods to

an exempt activity the adjustment is made for the remaining years of the adjustment period.

Refunds.

A taxable person may claim a VAT refund if both of the following conditions are satis-

fied:

• The taxable person carried forward the relevant amount as a VAT credit balance in the following

three consecutive months.

• The amount claimed exceeds ALL400,000.

Al bA n iA 9

The taxable person must file a “Request for Refund” form, as prescribed in the VAT law, with

the relevant tax office. The tax office must verify the fulfillment of the refund conditions and

approve the refund within 60 days.

Pre-registration costs.

Input tax incurred on pre-registration costs in Albania is not recoverable.

Bad debts.

Taxable persons who have not received partial or total payment for a taxable supply

may claim the VAT charged as input tax if all the following conditions are satisfied:

• The debt has remained outstanding for more than six months

• The amount has been written off

• A court has recognized the debt as uncollectible because the debtor is insolvent

Noneconomic activities.

To the extent that they do not distort competition, payments received by

not-for-profit organizations, such as grants, donations and membership dues, are considered to

be noneconomic activities for which no VAT is due. The same applies to the performance of pub-

lic services by the public authorities.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Albania is not

recoverable.

H. Invoicing

VAT invoices.

A taxable person must provide a VAT invoice for all taxable supplies made, includ-

ing exports. The invoice must comply with the requirements set out in the VAT law and issued in

accordance with the provision of the Law No. 87/2019, “On the invoice and the turnover monitor

ing system” and its bylaws.

Credit notes.

A VAT credit note may be used to reduce the VAT charged on a supply of goods or

services; a debit note may be used to increase the amount of VAT. Tax credit and debit notes must

be cross-referenced to the original VAT invoice.

Electronic invoicing.

Electronic invoicing is mandatory for all taxable persons in Albania. The

authenticity of the origin and the integrity of the electronic invoice’s content must be guaranteed

by registration of the taxable person at the tax authorities’ central online platform.

Simplified VAT invoices.

The taxable persons subject to the regime of small businesses (i.e.,

annual turnover less than ALL10 million) may issue simplified invoices without VAT, but only

of goods or services paid in cash. Simplified invoices should also follow the rules on electronic

invoicing.

Note that according to the new law on fiscalization, there are no simplified VAT invoices but only

simplified invoices, which are issued from taxable persons who are not registered for VAT pur

poses and the transaction is conducted in cash. If the taxable person is voluntarily registered for

VAT purposes, even if it does not reach the VAT registration threshold, the standard e-invoice

shall be used.

Self-billing.

Self-billing is allowed in Albania. Self-billing is only allowed under the following

conditions:

• Both the supplier and the customer should be taxable persons registered for VAT.

• The supply should be taxable, not exempt.

• A written agreement should be in place between the supplier and the buyer, in which is pro

vided for a procedure for the acceptance by the supplier of the invoices issued by the buyer.

• Any invoice issued by the buyer in the name and on behalf of the supplier must be approved by

the latter.

• The buyer should notify the tax authority in advance.

10 Al bA n iA

• The buyer should undertake the obligation to declare and pay VAT in the name and on behalf

of the supplier.

• The invoice issued by the buyer should identify the data (name, VAT ID, address, etc.) of the

supplier and should indicate “Self-Billing.”

Proof of exports.

No VAT is chargeable on exported goods if exporters have documented their

supplies with an official customs declaration.

Foreign currency invoices.

An Albanian VAT invoice must be issued in the domestic currency,

which is the Albanian lek (ALL). If an invoice is received in a foreign currency, the amounts must

be converted into lek. The exchange rate used for imports is determined by Customs, while the

exchange rate for domestic VAT supplies is the rate published by the Central Bank of Albania for

the date of the invoice.

Supplies to nontaxable persons.

For supplies made by a taxable person to a nontaxable person

(private consumer) the supplier must issue a fiscal invoice regardless of the invoice amount.

Records.

A taxable person is required to keep records, including records of all supplies made by

them, all supplies made to them, and all imports and exports of goods carried out by them as part

of their economic activity, in compliance with the law “On accounting and financial statements.”

In Albania, examples of what records must be held for VAT purposes include records of all invoic-

es and any supporting documents issued by/to the taxable person, in respect of supplies made or

received.

In Albania, VAT books and records can be kept outside the country. There is no provision in the

Albanian VAT law on where records should be held. However, in practice, records may be held

in or outside of Albania. If the records are held outside of Albania, they must be easily accessible

upon request by the tax authorities.

Record retention period. The period during which the taxable person must ensure that the invoic-

es and supporting documents are retained, is five calendar years, starting from the next year

following the invoice/document issuance. They shall be retained in the original form in which

they were sent or made available, whether in paper or electronic form. In addition, in case of

invoices stored by electronic means, the data that guarantee the authenticity of the origin of the

invoices and the integrity of their contents, must also be stored by electronic means.

Electronic archiving. Electronic archiving is allowed in Albania. The taxable person has the right

to designate the place of storage of the invoices or of the information retained, provided that they

make them available to the competent authorities immediately upon request. If records are kept

on a computer or as electronic data, the taxable person should provide tax authorities access to

the place where records are held and access to computers or other devices to inspect the records

that are held as electronic data.

I. Returns and payments

Periodic returns.

The tax period is a calendar month. Purchase and sales ledgers must be submit-

ted monthly by the 10th day of the following month. Following the recent fiscalization reform

the VAT return is automatically generated by the tax authorities based on the information pro

vided in the sale and purchase ledgers. However, taxable persons have the right to review and

amend the VAT return accordingly. The deadline for VAT payment is the 14th day of the month

following the tax period. For imports, VAT is payable upon importation.

For a taxable person that is newly registered, the first tax period begins on the date of the registra

tion, as stated in the certificate of registration, and ends on the last day of that month.

Al bA n iA 11

VAT payable by a taxable person for a tax period equals the VAT on the total taxable value of

supplies made during the tax period minus any input tax allowed as a deduction.

Periodic payments.

VAT payable by a taxable person for a tax period equals the VAT on the total

taxable value of supplies made during the tax period minus any input tax allowed as a deduction.

The VAT must be paid by bank transfer from an Albanian bank.

Electronic filing.

Electronic filing is mandatory in Albania for all taxable persons. Taxable per-

sons must electronically submit the purchase and sales ledgers and VAT returns. The electronic

submission must be made online through the tax authorities’ system at https://efiling.tatime.gov.

al/cats_public/Account/LogOn.

Payments on account.

Payments on account are not required in Albania.

Special schemes.

Travel agencies. This scheme applies to transactions where the travel agency

deals with customers in its own name and uses the supplies of other taxable persons in the provi

sion of travel services. In this case, the taxable amount for services supplied to customers is the

travel agency’s margin, i.e., the difference between the total amount charged to the customer and

the actual purchase price the travel agency paid for the services. The input tax incurred by travel

agents may not be deducted.

The special scheme does not apply to travel agencies that only act as intermediary, in which case

the supplies and services of other taxable persons can be treated as disbursements.

Secondhand goods, works of art, collector’s items and antiques. Taxable persons must electronical-

ly submit the purchase and sales ledgers and VAT returns.

Compensation scheme for farmers. The taxable person (purchaser) of the agricultural services

and goods is required to issue an invoice for purchases from farmers benefiting from this scheme

for the taxable amount exclusive of VAT and then add VAT at the rate of 6%. The buyer pays the

farmer the total price including the VAT calculated. The additional 6% is considered to be a com-

pensation for the farmer for the input tax that has been incurred. The taxable person (purchaser)

must account for the VAT on the invoice but is entitled to recover the VAT subject to normal

recovery rules.

Investment gold. A special VAT scheme applies to investment gold. The taxable value of pro-

cessed gold, imported gold and processed gold supplied domestically, does not include the value

of gold used as raw material. At the same time, the taxable value of an import or supply within

the country includes material components such as: silver, precious stones, plastics, labor, pro

cessing wastage, etc.

• Taxable value of imported processed gold:

– The taxable value of imported processed gold, shall be determined in accordance with cus

toms and tax legislation. The supporting document is the foreign supplier’s invoice issued to

the domestic buyer, indicating the value of gold converted into pure gold, out of the total

value of imported gold. In absence of such a breakdown, the importer cannot exclude from

the taxable value of the import the value of gold used as raw material.

• Taxable value of processed gold supplied domestically:

– The value of a supply within the country is the full payment for that supply. The taxable value

of processed gold supplied domestically is calculated by deducting from the full supply

charge the value of gold used as raw material. The supporting document is the invoice of the

supplier indicating separately the value of the gold used as the raw material. In absence of

such a breakdown, the supplier cannot exclude from the taxable basis the value of gold used

as raw material. Irrespective of the supply nature, wholesale or retail, and irrespective of the

supply value, the taxable person shall issue a tax invoice as provided in VAT law.

12 Al bA n iA

Annual returns.

Annual returns are not required in Albania.

Supplementary filings.

No supplementary filings are required in Albania. In the case of underpaid

VAT for a certain tax period and if no tax audit has been undertaken by the tax authorities, the

taxable person can voluntarily amend the VAT return to adjust the situation. No penalties for late

payment of VAT will be applicable.

Correcting errors in previous returns.

A taxable person can submit a new amended tax return in

cases when it notices that the original submitted tax return is not correct. The amended tax return

must be submitted within 36 months from the moment of original tax return submission with the

condition that this return has not been the subject of assessment from the tax authorities. An

exceptional case is that the taxable person has the right to amend the tax return, even though it

has been audited, if the amendment will result with higher tax liability. The tax return can be

submitted online through the e-account of the taxable person.

Digital tax administration.

The fiscalization reform aims to provide the tax authorities with a bet-

ter control system and more efficient tax inspection. The fiscalization system is a set of measures

used to reduce tax evasion in cash and noncash transactions. In the process of fiscalization, all

transactions (invoices) are reported in real time to the tax authorities. For the purpose of identify

ing and tracking each transaction, each invoice is given a unique invoice number. The fiscaliza-

tion process is regulated by Law No. 87/2019 “On fiscalization and turnover monitoring system”

(“law on fiscalization”) and Instruction No.16, dated 3 April 2020.

The law on fiscalization entered into force as of 1 January 2021 for cashless transactions between

taxable persons and public institutions; 1 July 2021 for cashless transactions between taxable

persons; and 1 September 2021 for cash transactions by taxable persons regardless of tax liabil

ity or annual turnover realized.

The law on fiscalization covers all taxable persons who issue invoices as per the law on VAT,

public institutions, banks, financial institutions other than banks and other entities that offer ser-

vices of electronic invoices payment. Every taxable person is subject to the law on fiscalization,

except agricultural producers who are registered in the compensation scheme according to the

law on VAT; taxable persons providing public transport and taxable persons who make supply

goods/services that qualify for VAT exemption under the law on VAT.

The taxable persons who are already registered as such with the tax authorities become auto

matically subject of the law on fiscalization. The new taxable persons who register in the Nation-

al Business Center are to be registered automatically as taxable persons subject to the law on

fiscalization.

The taxable persons subject to the law on fiscalization must submit through the central platform

of invoices managed by National Agency for Information Society (NAIS) the details related to

the place and type of business, the operator who will be responsible for the invoice issuance

through the fiscal system and the producer/maintainer of the software used. The latter should be

independently registered with NAIS and certified as a software producer/maintainer.

As per the new law on fiscalization, there will be no need of manual filing of the purchase and

sales ledgers, as they will be automatically generated from the system of the tax authorities. The

taxable person, however, must review the purchase and sales ledger by the 10th day of the fol

lowing month and adjust it with information as appropriate.

According to the new law on fiscalization, the invoice must contain details such as “Fiscal

Invoice” title, date and time of the invoice issuance, invoice number, the unique identification

number, name and address for both, the seller and buyer. The invoice details must also include

the code of the place where the supply of goods/services took place and the code of the operator

who generates the invoice from the system, the quantity and description of the goods/services

Al bA n iA 13

supplied, the total value including any discounts and the total amount due, the payment manner,

the unique invoice number and the security number of the invoice issuer and the QR code.

J. Penalties

Penalties for late registration.

Noncompliance with the requirement to register or to update reg-

istration data triggers a penalty that can range from ALL10,000 to ALL15,000.

Penalties for late payment and filings.

Each late tax filing is subject to a penalty that can range

from ALL5,000 to ALL10,000. Late payment of a tax obligation triggers a penalty amounting to

0.06% of the tax due for each day of delay, up to a maximum of 365 days (i.e., capped at 21.9%).

In addition, default interest applies.

Penalties for errors.

Erroneous completion of a tax filing or a tax refund claim is subject to a

penalty of 0.06% of the tax due for each day of delay, up to a maximum of 365 days. In addition,

default interest applies.

The late notification of or failure to notify the tax authorities of changes to a taxable person’s

VAT registration details is considered an administrative offense and can be subject to a penalty

of ALL15,000. For further details, see the subsection Changes to VAT registration details above.

Penalties for fraud.

Concealment of tax obligations constitutes a fiscal evasion and is subject to

a penalty of 100% of the tax amount evaded.

Improper administration of sales and purchases books and documentation is subject to a penalty

that can range from ALL10,000 to ALL50,000.

The failure to issue a VAT fiscal invoice for the whole amount of the transaction is subject to a

penalty of 100% of the undeclared and unpaid tax liability.

Criminal offenses carried out by taxable persons are penalized under the criminal code. These

offenses relate to certain situations including, but not limited to, the following:

• Taxable persons willfully engaging in fiscal evasion

• Taxable person not paying taxes to the state budget

• Taxable persons destroying and concealing important tax documents and information

Personal liability for company officers.

Company officers cannot be held personally liable for

errors and omissions in VAT declarations and reporting in Albania.

Statute of limitations.

The statute of limitations in Albania is five years. According to the Albani-

an tax legislation, the statute of limitation is five years from the filing of a tax return or its

amendment. The statute of limitation is suspended if a new tax assessment is issued either as a

result of a tax appeal or a tax audit or investigation. Moreover, the statute of limitation is sus

pended or voided if the taxable person is or becomes subject to penal proceedings in relation to

its tax affairs.

Algeria

ey.com/GlobalTaxGuides

Alger GMT +1

Complexe Oriental Business Park

Quartier des affaires Bab Ezzouar

Algiers

Algeria

Indirect tax contacts

Bruno Messerschmitt +213 770 258980

+33 6 84 02 72 51

bruno.messerschmitt@ey-avocats.com

Halim Zaidi +213 770 82 52 35

[email protected]y.com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Taxe sur la Valeur Ajoutée (TVA)

Date introduced April 1992

Trading bloc membership Greater Arab Free Trade Area (GAFTA)

Administered by General Directorate of Taxes at the Ministry of Finance (DGI)

(https://www.mfdgi.gov.dz/)

VAT rates

Standard 19%

Reduced 9%

Other Exempt

VAT number format XXXXXXXXXXXXXXX (15 Digits) XXXXXX (+ 5 Digits

for branches)

VAT return periods Monthly

Thresholds

Registration None

Deregistration None

Recovery of VAT by

non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• Sales transactions, construction works and services of industrial, commercial or artisanal nature,

when they are carried out in Algeria on an usual or occasional basis

• Import operations

In respect of the Algerian VAT territoriality, a business is deemed performed in Algeria:

• Sales transactions: when they are carried out with conditions of delivery in Algeria

• Other operations: where the service rendered, the right assigned, the object rented, or the car

ried-out studies are used or exploited in Algeria

Al g e r i A 15

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the jurisdic

tion to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from being

taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a non-

established supplier of the service may be required to register for VAT in that jurisdiction where

it has customers that are not taxable persons. As outlined above, a service is taxed in Algeria if

it is “used and enjoyed” in Algeria. If a service delivered by a non-established supplier is used

and enjoyed in Algeria, there is no requirement for this supplier to register locally for VAT pur

poses unless this service triggers a permanent establishment (PE) in Algeria, in such case the

foreign supplier should be tax registered in Algeria (for all taxes including VAT). However, in

case no PE is triggered in Algeria for the foreign supplier, the local customer will be in charge

of withholding tax (WHT) reporting and payment (including notably VAT) in case no double tax

treaty exists between both jurisdictions or paying the VAT via the reverse-charge mechanism in

case a double tax treaty exists and provides a neutralization or reduced tax rate for the WHT.

Transfer of a going concern.

Normally the sale of the assets of a VAT-registered or VAT-registrable

business will be subject to VAT at the appropriate rate. However, a transfer of a business as a

going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is

the sale of a business or part of a business capable of separate operation including assets. Where

the sale meets the conditions, the supply is treated as outside the scope of VAT. In Algeria, a

TOGC is not a concept that explicitly exists locally. As such, there are no specific guidance on

the criteria and requirements for a transfer of business to satisfy the requirements of a TOGC.

Nevertheless, in general a transfer of business should not be subject to VAT, as it could not be

considered as a turnover (not included in the list of taxable transactions as provided above).

Transactions between related parties.

In Algeria, referring to tax administration note dated 06/08/

2013 on transfer pricing and profit shifting, intercompany transactions must be carried out in

accordance with the “arm’s-length principle.” Also, it provides that the transfer price compliance

with the arm’s-length principle shall be determined considering

• The nature of the product, its quality, its novelty, the delivery time, the presence of intangible

elements attached to the product and the degree of finishing

• The conditions of the transaction, the volume of sales, the geographical location, the date of the

transaction, the accessories to the sale and the presence of intangible elements attached to the

transaction

The Algerian legislature does not provide valuation methods. The accounting and financial meth

ods should be accepted and used by the valuation experts. However, transfer pricing methods

provided by the Algerian legislation are similar to the OECD methods.

C. Who is liable

A taxable person is any person carrying out transactions within the scope of VAT, whether such

transactions give rise to the payment of VAT or are exempt. Persons liable for VAT in Algeria are:

• Producers, such as:

– Individuals or legal persons who, mainly or incidentally, extract or manufacture goods, fash

ion them or transform them as manufacturers or entrepreneurs of manufacturing activities to

give them their final form or their commercial presentation under which they will be deliv

ered for use or consumption by the consumer, whether the processing operations involve the

use of other materials or not

– Individuals or legal persons who replace the manufacturer to carry out, either in its factories

or outside its factories, all operations relating to the manufacture or the definitive commer

cial form of products such as packaging or in receptacles, the shipments or deposits of such

goods whether they are sold under the brand name or on behalf of those who carry out such

operations

– Persons or companies that have the operations referred to above, carried out by third parties

16 Al g e r i A

• Wholesalers, performing the following:

– Deliveries relating to articles which, because of their nature or use, are not usually used by

individuals

– Deliveries of quantities of goods of the same prices, performed in bulk or in detail

– Deliveries of products for resale regardless of the quantity delivered

• Subsidiaries, performing the following:

– A subsidiary company would be any company that ensures the operating part of one or more

branches of another company, which is under the control or direction of the latter

– Independent professionals opting for the common tax regime option (added by article 93 of

the Finance Act for 2022).

Self-supplies are subject to VAT. The taxable base is determined as follows:

• For self-supplies of movable assets: by the wholesale prices of similar goods or, otherwise by

the price increased by the normal profit of the manufactured goods

• For self-supplies of immovable assets: by the cost price

Exemption from registration.

There are no VAT registration requirements applicable to non-estab-

lished businesses that source cross-border supplies of goods or services. Indeed, there is no reg-

istration dedicated to VAT only, but rather a tax registration (covering all applicable taxes, notably

VAT) required for non-established businesses if a taxable presence is triggered in Algeria.

For imported goods, there is no requirement for the nonresident supplier to collect the Algerian

VAT. In practice, the VAT is paid by the Algerian importer when the goods are cleared at customs.

For imported intangibles (i.e., supplies that do not require payment of the VAT at customs), if the

Algerian client is a business, it is required to reverse-charge VAT.

Voluntary registration and small businesses.

Taxable persons under the common law taxation

regime may voluntarily apply for VAT. It must be natural or legal persons whose activity is out

side the scope of VAT, insofar as they deliver:

• Through exports

• To oil companies

• To other VAT liable taxable persons

• To companies benefiting from the VAT-free purchase option

Group registration.

In Algeria the concept of “VAT group” does not exist, but rather a “tax group.”

A tax group includes at least two Algerian entities under the form of a joint stock company

“SPA” where one, called “parent company” holds the other(s) at 90% minimum of share capital.

A tax group can apply for the consolidation accounts’ option (i.e., consolidation of balance sheet

accounts) excluding companies operating in O&G activities. If this option is approved, it should

apply irrevocably for four years.

It is possible to consolidate VAT at the level of a group’s head company, which must be an Alger-

ian company. Note that it is not possible for a non-established business to be a member of tax

group.

The group will be considered as a single entity for all tax purposes. Nonetheless, no specific VAT

registration of the group is required (tax registration is required covering all taxes).

A tax group option is valid for four irrevocable years.

Members of a tax group in Algeria are not jointly and severally liable for VAT debts and penal

ties. Instead, each entity of the group is responsible for its own VAT debts and penalties.

Transactions between members of a tax group should not be subject to VAT.

Al g e r i A 17

Fixed establishment .

Algerian common tax regime does not provide a specific definition of the

concept of permanent establishment (PE). However, its article 162 provides that foreign compa

nies carrying out an activity in Algeria which requires a presence of their experts for a duration

exceeding 183 days per a period of 12 months should be considered as having a taxable presence

in the country; consequently, they should register their contracts and keep their books locally.

In Algeria, a foreign entity which has a taxable presence/PE in this country should be subject to

the common tax regime including the VAT.

Non-established businesses.

VAT registration is not allowed in Algeria for non-established busi-

nesses (i.e., those that do not have a presence in Algeria). However, if such businesses carry out

transactions deemed to be within the scope of Algerian VAT, they may be subject to Algerian VAT

by way of the reverse-charge mechanism.

Tax representatives.

A tax representative can be appointed for permanent establishment purpos-

es. However, no specific tax representative can be appointed for VAT registration purposes only.

Reverse charge.

The reverse-charge mechanism is applicable to the supply of services by taxable

persons established outside Algeria in case country that has a double tax treaty with Algeria, with

no legal presence locally (and if no taxable presence/permanent establishment in triggered by the

onshore activities). The local customer must withhold and pay the due VAT on behalf of the for-

eign provider and declare it on monthly tax returns.

Domestic reverse charge.

There is no domestic reverse charge in Algeria.

Digital economy.

Internet access royalties are exempted from VAT until 31 December 2023.

There is no registration threshold for VAT purposes only in Algeria. A nonresident that provides

electronically supplied services is subject to WHT at the rate of 30% covering all taxes including

VAT, the filing and payment of which should be borne by the local customer on behalf of the for-

eign provider. This applies for both business-to-business (B2B) and business-to-consumer (B2C)

supplies.

There are no other specific e-commerce rules for imported goods in Algeria.

Online marketplaces and platforms. No further special rules exist for online marketplaces and

platforms in Algeria.

Registration procedures.

Every individual who would practice an industrial, commercial or non-

commercial profession and every legal entity or permanent establishment must, within 30 days

of the commencement of its activities, file at the territorially competent tax authority a declara

tion of existence. The declaration of existence request must be accompanied by:

• A copy of the Articles of Association and trade register for the legal entities

• The corporate name

• The statistical identification number of the company

• A copy of the lease agreement related to the office

• Bank account number

• If it is a permanent establishment, a copy of the contract related to its local project

• A copy of the agreement or the administrative authorization if the activity or the place where

the activity is performed is subject to a prior authorization

After filing the declaration of existence, the taxable person is provided with a registration cer

tificate, which applies as a registration for all tax purposes (there is no specific registration for

VAT). Afterward, the taxable person obtains a tax identification card, which includes the tax

identification number.

18 Al g e r i A

The application for registration must be submitted by the taxable person itself or its legal repre-

sentative or by any other person with a power of attorney to register a taxable person. Accordingly,

there is no specific online registration for VAT purposes.

Deregistration.

There is no special procedure or form required to deregister. It should be part of

the overall tax deregistration. However, companies that cease to be subject to VAT are required

to attach to their declaration a detailed statement of the stocks of goods that they hold in their

factories, stores or depots.

Changes to VAT registration details.

There is no VAT registration, but rather a tax registration cover-

ing all applicable taxes when required. Any change relevant from a tax perspective should be

communicated to the tax authorities as soon as possible. The law fixed a timeline of 10 days only

when it is about closing of the company or regarding a permanent establishment when the con

tract already submitted for registration purposes has been amended. Any change should be com-

municated via an official letter (i.e., paper).

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

VAT, including the zero rate.

The VAT rates are:

• Standard rate: 19%

• Reduced rate: 9%

The standard rate of VAT applies to all supplies of goods or services, unless a specific provision

allows for a reduced rate or exemption.

Examples of goods and services taxable at 9%

• Sales transactions involving the distribution of electricity and natural gas for a consumption of

less than 250 kilowatt hours (KWH) and 2,500 thermal units per quarter

• Sales of heavy fuel oil, butane, propane and their mixture consumed in the form of liquefied

petroleum gas (GPL-C)

• Pawnbroking transactions with households

• Sale of tickets to cinematographic theaters

• Operations carried out by maritime and air construction sites

• As a transitional measure and until 31 December 2024, the services related to tourist activities,

hotel, spa, classified tourist catering, travel and rental of tourist transport vehicles are subject

to the reduced rate of the value added tax

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT

and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Transactions carried out by startup (where the taxable person meets certain conditions to be

qualified as “startup company”)

• Constructions and services relating to the prospecting, research, exploitation, liquefaction or

pipeline transport of liquid and gaseous hydrocarbons, carried out by or on behalf of the nation-

al hydrocarbon company SONATRACH

• Acquisition operations carried out by banks and financial institutions within the framework of

leasing operations

• Sales operations relating to pharmaceutical products mentioned in the national drug nomencla

ture

• Exportations of goods and services

Al g e r i A 19

Note that the following are subject to the “lump sum tax regime” – natural persons exercising an

industrial, commercial or artisanal activities, whose annual turnover does not exceed DA8 mil

lion, excluding some activities listed by the Article 282ter of the Code of Direct Taxes.

Option to tax for exempt supplies.

Taxable persons making exempt supplies may opt to tax such

supplies by request to the tax authorities.

E. Time of supply

The VAT tax point rules depend on the nature of the transaction and the related sector as follows:

• The tax point for the sale of goods is at the earlier of when the goods are physically delivered

or when the invoice is issued (i.e., the legal delivery) to the customer.

• The tax point for construction works is the time full or partial payment is made.

• The tax point for services is the time full or partial payment is made.

Deposits and prepayments.

Where the deposit is not considered as a part of the price nor as a part

of a turnover, then no VAT is due on the deposit, except for a bank deposit, which is considered

as a service provided by the bank.

Where the prepayment is part of the total price and therefore subject to VAT two scenarios are to

be considered:

• Goods: the tax point is normally the date of delivery of goods. However, in case of prepayment

or advance payment, VAT will be applicable on the amount paid in advance.

• Services: prepayments are considered as partial payments of the price, thus the date the prepay

ment made is considered as the tax point.

Continuous supplies of services.

There are no special time of supply rules for continuous supplies

of services. These types of supplies are subject to the general rules (see above).

Goods sent on approval for sale or return.

The tax law does not explicitly refer to goods delivered

for approval; the delivery is considered as completed once the propriety of the goods is trans

ferred from the seller to the buyer. In that case, the taxable event is the approval of the client.

Reverse-charge services.

The reverse-charge mechanism is applicable to the supply of services

by taxable persons established outside Algeria in a country that has concluded a double tax

treaty with Algeria, with no legal presence locally (i.e., if no taxable presence/permanent estab

lishment is triggered by the onshore activities). The local customer must pay the due VAT on

behalf of the foreign provider and declare it on monthly tax returns.

Leased assets.

Leasing operations, services, studies and research as well as any operation other

than sales and construction works are subject to VAT at the date of collection or partial payment.

Imported goods.

The tax point for imported goods is the date on which the goods are customs

cleared.

Deemed supplies.

There is no special time of supply rules for deemed supplies. These types of

supplies are subject to the general rules (see above).

F. Recovery of VAT by taxable persons

A taxable person may recover input tax charged on goods and services supplied to it, for business

purposes. A taxable person generally recovers input tax by offsetting it against output tax charged

on supplies made. Input tax includes VAT charged on goods and services supplied in Algeria,

VAT paid on imports of goods and VAT self-assessed by the taxable recipient under the reverse-

charge mechanism.

A valid tax invoice or customs document is compulsory for a VAT refund claim.

20 Al g e r i A

The time limit for a taxable person to reclaim input tax in Algeria is until 20 December of the

following year from when the was input tax was omitted. It must be entered separately from the

deductible taxes relating to the current period for which the declaration was made.

Nondeductible input tax.

The right to deduct is not available where there is no conformity with

the operating principles of VAT. Moreover, input tax is not recoverable on purchases of goods and

services that are not used for business purposes (for example, goods acquired for private use).

Examples of items for which input tax is nondeductible

• Acquisition of passenger’s cars that are not considered as the main means of the company

• Restaurant meals and entertainment for employees and clients

• Goods, services, materials, real estate and offices that are not used for the purposes of the car

rying on of a taxable activity

• Hotel accommodation for clients

• Reception costs

Examples of Items for which input tax is deductible

(if related to a taxable business use)

• Service costs related to the business such as consulting reports, studies

• Lease payments related to the company’s office

• Acquisition of goods to be resold to the company’s customers

Partial exemption.

If an Algerian taxable person performs both exempt and taxable supplies, it

may only recover a portion of input tax. This situation is referred to as “partial exemption.”

For the calculation of deductible VAT, partial taxable persons are subject to specific rules that

have the effect of limiting the deduction to a fraction of the tax collected on their services and

goods.

This fraction is equal to the amount of the said tax affected by a general percentage of deduction

called “pro rata.”

Taxable persons are required to provide, within the first 25 days of March of each year, to the tax

department where they are registered, the percentage of deduction they apply during the current

year, as well as the overall elements used to determine this percentage.

Capital goods.

There are no specific regulations that apply to the refund of VAT for capital goods

in Algeria. As such, the general input tax recovery rules apply.

Where a capital good is acquired for less than five years and then it is transferred, the VAT

deducted upon the asset’s acquisition should be reversed according to a pro rata for the remaining

years.

Where a taxable person carries out both activities that are “taxable and exempt” (i.e., partial

exemption), the deduction of the VAT should be made under the prorate rule. See the subsection

above for more details.

Refunds.

In case of a VAT credit, it is possible to ask for a refund of VAT in the following four

cases:

• Exempt supplies (including exports)

• Supplies to a sector or clients benefiting from a VAT exemption purchase certificate

• Termination of taxable activities

• In case of VAT rate differences between input and output tax

Taxable persons must meet the following conditions for being eligible for a VAT refund:

• Hold regular and compliant bookkeeping

• Provide a copy of the tax role (no tax debts)

Al g e r i A 21

• The reporting of the estimated deductible VAT amount on the monthly declarations by the

beneficiary

• The VAT refund request must be made to the director of the competent tax authorities’ office

no later than the 20th of the month following the quarter for which the refund is requested. Tax-

able persons who are “partially exempted” as defined above should submit their refund request

annually (before April 30 of the year related to this VAT credit for which a refund is requested).

• The amount of VAT credit related to a given quarter for which a refund is requested should be

equal or more than DZD1 million. This limitation amount does not apply on taxable persons

who are “partially exempted” as defined above.

Pre-registration costs.

Input tax incurred on pre-registration costs in Algeria is not recoverable.

Bad debts.

A taxable person is entitled to recover any output tax already accounted for to the tax

authorities in respect of bad debts (i.e., where it has not been able to collect VAT due from its

customers). VAT on a bad debt is recovered at the VAT rate that was applied to the original trans

action. The tax law also requires that the taxable person reverses the input tax already deducted

given that the supply operation will not trigger an output tax charge.

Noneconomic activities.

Input tax incurred on purchases that are used noneconomic activities is

not recoverable in Algeria.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Algeria is not

recoverable.

H. Invoicing

VAT invoices.

Any person liable for VAT who supplies goods or services to another taxable person

must issue to the latter an invoice or document serving as an invoice.

Invoices or documents serving as an invoice, drawn up by the taxable person, must necessarily

show, in a distinct manner, the following information:

• Name and information of the seller (corporate name, legal form of the taxable person)

• Name and information of the customer (denomination, address, trade register number, tax ID)

• Date

• Unit price excluding taxes

• Total price excluding taxes

• Nature and rate of the applicable taxes, notably VAT

• The total amount of the invoice including VAT

Credit notes.

A VAT credit note may be used to reduce the VAT charged and to be reclaimed on

a supply. It is also possible to cancel an incorrect invoice and issue a revised one.

Electronic invoicing.

Electronic invoicing is allowed in Algeria, but not mandatory. The invoice

does not need to be verified by the tax authority before issuing. It is, however, recommended to

print and store all invoices, in the event that any invoices are requested for inspection in the case

of a tax audit by the tax authority. The Algerian law provides some requirements for any issued

electronic invoice, most notably to include the purchaser/the buyer information, the price exclud

ing taxes, the VAT rate and the net amount. If the electronic invoice does not contain such

required information, then the invoice may be rejected, notably by the tax authorities for the

deduction of the related VAT.

Simplified VAT invoices.

Authorization of simplified VAT invoices is granted expressly to taxable

persons by the administration in charge of the commerce and can only be used for transactions

22 Al g e r i A

that are repetitive and regular sales of goods to the same customer. Summary invoices are allowed

for covering transactions with a customer, for a maximum period of one month. It must contain

the prescribed information as outlined above for full VAT invoices.

Self-billing.

Self-billing is not allowed in Algeria.

Proof of exports.

To benefit from VAT exemption on exports, the taxable person must:

• Provide a document issued by the bank, proving the repatriation of export’s payment in foreign

currency

• Join the above document to the annual tax return to justify the exemption of the related profit

from corporate income tax (before 30 April of the following year)

Foreign currency invoices.

Invoices related to import/export transactions can be issued in a foreign

currency. However, the applicable VAT is generally issued in a separate invoice in the domestic

currency, which is the Algerian dinar (DZD).

Supplies to nontaxable persons.

There are no special invoicing rules for supplies to nontaxable

persons in Algeria. As such, full VAT invoices are required.

Records.

In Algeria, examples of what records that must be held for VAT purposes include

accounting documents and in particular the invoices, contracts, purchase orders, monthly tax

returns, identification information related to suppliers and customers.

Records must be kept for a minimum of four years, in line with the tax audit prescription. How-

ever, for Algerian trade legislation the prescription is fixed at 10 fiscal years. In Algeria, compa-

ny books and records must be held within the country. Such records must be kept at the level of

the local company (i.e., in Algeria) and should be available to be provided in a timely manner in

the case of tax audits.

Record retention period. Records of invoices must be kept for a period of 10 years, in line with

the Algerian trade legislation.

Electronic archiving. Electronic archiving is allowed in Algeria. Documents can be archived elec-

tronically and physically. However, in case of a tax audit, the physical document should be made

available for the tax authorities.

I. Returns and payments

Periodic returns.

In principle, any person registered for VAT is required to file periodic returns

and pay the relevant tax due to the Treasury. The said return is called G-50 form and is filed

monthly to the competent tax authority (within the first 20 days following the end of the month).

The form must state all information related to turnover, collected, payable and deductible VAT.

Periodic payments.

Payments are to be made alongside the monthly tax return filling and should

be remitted to the tax authorities before the 20th of the following month.

In the case of payments after the deadlines, penalties for late payment apply, counted from the

date on which they should have been paid. However, when the electronic payments made within

the given deadlines suffer a delay not incumbent either on the taxable person or on the financial

institution, provided that this delay does not exceed 10 days from the date of the payment, the

late penalties do not apply.

Electronic filing.

Electronic filing is mandatory in Algeria for certain taxable persons. VAT must

be reported electronically on the monthly tax return (G50 form). If the taxable person is regis

tered at the Direction of Large Companies (DGE), which is the tax authority where large com-

panies register, the monthly tax return should be submitted on DGE’s online platform called

“JIBA-YA’TIC.” It is recommended to print it afterward to keep it in the taxable person’s records.

Al g e r i A 23

If the taxable person is registered at a regional tax inspection, the monthly tax return should be

printed and remitted physically to the tax collector.

It is always recommended to keep physical copies at the level of the taxable person, as they are

required in case of a tax audit.

Payments on account.

Payments on account are not required in Algeria.

Special schemes.

Lump sum tax regime. The lump sum tax regime is a single global tax regime

that covers VAT, PIT (personal income tax) and TAP (tax on professional activity) and applicable

natural persons exercising an industrial, commercial as well as artisanal activities, whose

annual turnover does not exceed DA8 million, excluding some activities listed by the Article

282ter of the Code of Direct Taxes. The Code of Direct Taxes sets the rate of lump sum tax as

follows: 5%, for the activities of production and sale of goods and 12%, for other activities.

Furthermore, new taxable persons that meet the scope of the lump sum tax regime, may opt to

be taxed according to the standard regime when they file their declaration of existence, as pro

vided for in Article 183 of the Direct Taxes and Similar Taxes Code.

Annual returns.

Annual returns related to VAT are not required in Algeria. However, an annual

tax return in term of corporate income tax (CIT) is required before April 30 of FY(n+1).

Supplementary filings.

In the case of a taxable person carrying out wholesale activity, a dedicated

template, including the information related to the clients, must be filed. This template should be

submitted on an annual basis.

Correcting errors in previous returns.

Omissions and errors can be corrected voluntarily by sub-

mitting a supplementary monthly tax return (G50 form) and including the additional tax amount

to be paid. An explanative letter should also accompany the corrective returns.

Digital tax administration.

There are no transactional reporting requirements in Algeria.

J. Penalties

Penalties for late registration.

Taxable persons who fail to subscribe their declaration of existence

within the required time are liable to a fiscal fine amounting at DZD30,000.

Penalties for late payment and filings.

The late filing of the monthly tax return (G50 form) gives

rise to the application of a penalty of 10%. The penalty is based on the amount of unpaid VAT

due. This penalty is raised to 25% after the Administration has given notice to the person liable

by registered letter with acknowledgment of receipt to regularize its situation within a period of

one month. Finally, it is specified that the date of the deposit to be held will be that of the “deliv

ery” to the receiver, therefore the “reception” by the latter and not the sending by the taxable

person. Tax authorities can proceed with internal assessments based on the information provided

by the taxable person, its clients and its suppliers.

Penalties for errors.

When following an audit, it appears that the annual turnover declared by a

taxable person is insufficient or in the case of a deduction made in error, the amount of the

evaded rights (i.e., the unpaid tax due to the error) is increased by:

• 10% when the amount of rights evaded, per year, is less than or equal to DZD50,000

• 15% when the amount of rights evaded, per exercise, is greater than DZD50,000 and less than

or equal to DZD200,000

• 25% when the amount of duties established, per financial year, is greater than DZD200,000

• In case of fraudulent maneuvers, the penalty is set at 100% on all rights. In addition, the tax

authorities could instruct to apply the below correctional sanctions (“Penalties for fraud”) in

case the evaded amount exceeds 10% of the amount due.

24 Al g e r i A

There are no specific penalties associated with the late notification or failure to notify the tax

authorities of changes to a taxable person’s VAT registration details. For further details, see the

subsection Changes to VAT registration details above.

Rulings. Taxable persons registered with the DGE can submit a ruling request to the tax authori-

ties to be advised on the compliant way of proceeding. A ruling can be opposed to the tax admin-

istration to challenge its position.

Penalties for fraud.

The breach of the laws and regulations governing VAT are sanctioned by tax

or correctional penalties, depending on whether the offenses have been committed in good faith

and without fraudulent intent or, on the contrary, the offense is due to fraudulent acts committed

knowingly.

The penalties for those who knowingly decreased or tried to decrease the total or a part of the

taxable basis or the applicable tax are:

• A criminal fine of DZD50,000 to DZD100,000, where the amount of the duties evaded does

not exceed DZD100,000

• Imprisonment from two months to six months and a fine of DZD100,000 to DZD500,000, or

only one of these two penalties when the amount of duties evaded is greater than DZD100,000

and does not exceed DZD1 million

• Imprisonment from six months to two years and a fine of DZD500,000 to DZD2 million, or

only one of these two penalties when the amount of duties evaded is greater than DZD1 million

and does not exceed DZD5 million

• Imprisonment from two years to five years and a fine of DZD2 million to DZD5 million, or

only one of these two penalties when the amount of duties evaded is greater than DZD5 million

and does not exceed DZD10 million

• Imprisonment from 5 to 10 years and a fine of DZD5 million to DZD10 million, or only one

of these two penalties when the amount of duties evaded is greater than DZD10 million

Personal liability for company officers.

Company officers cannot be held personally liable in the

case of non-voluntary errors and omissions. However, in the case of fraudulent actions, legal

representatives and managers of the companies are jointly and severally liable with the company

and would be subject to sanctions mentioned in the above subsection Penalties for fraud.

Statute of limitations.

The statute of limitations in Algeria is four years. Hence, the tax authorities

may review the last four years’ returns to identify errors and charge penalties.

Angola

ey.com/GlobalTaxGuides

Angola GMT +1

Ernst & Young Angola Limitada

Presidente Business Center

Largo 17 de Setembro, n.º 3 – 3.º Piso

Sala 341

Luanda

Angola

Direct all queries regarding Angola to the persons listed below in the Lisbon, Portugal, office.

Indirect tax contacts

Amilcar Nunes +351 217-912-218

amilcar.nunes@pt.ey.com

Lisa Rato +351 962 104 076

+244 944 218 129

lisa.rato@pt.ey.com

Value-added tax (VAT) entered into force in Angola on 1 October 2019, revoking the existing consumption

tax (Imposto de Consumo).

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Imposto sobre o valor acrescentado (IVA)

Date introduced 1 October 2019

Trading bloc membership Southern Africa Development Community

African Continental Free Trade Area (AfCFTA)

Administered by Administração Geral Tributária (AGT)

(https://agt.minfin.gov.ao/PortalAGT/)

VAT rates

Standard 14%

Reduced 5%, 7%

Other Zero-rated (0%) and exempt

VAT number format 5 4 2 3 4 5 6 7 8 9

VAT return periods Monthly

Thresholds

Registration AOA10 million

Deregistration Less than AOA10 million

Recovery of VAT by

non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods or services made, used or exploited in Angola by a taxable person

• The importation of goods

26 An g o l A

For VAT purposes, the territory of Angola includes the land and water, as well as the subsoil in

the terms prescribed in article 3 of the Republic of Angola’s Constitution, as well as other territo

rial or international areas where law or international agreements recognize Angola’s tax jurisdic-

tion, such as the concessions map.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for VAT in every jurisdiction

where it has customers that are not taxable persons. In Angola, no services are subject to the “use

and enjoyment” provisions.

The Angolan VAT Code set forth, as a general rule, that the place of supply of services is deemed

to be located in Angola whenever the acquirer has herein its place of business/head office or has

a permanent establishment from which the services are acquired or, in the absence of such, when

the acquirer has domicile or habitual residence in Angola. However, the Angolan VAT Code also

foresees exceptions to the mentioned place of supply of services’ general rule determining that

“without prejudice to the provisions in the preceding paragraphs to this, the supply of services

whose effective use and enjoyment takes place in national territory are always subject to VAT.”

The definition of “effective use and enjoyment” is not established in the VAT law nor exist any

guidelines from the AGT in this regard. However, the AGT tends to consider that services, even

if physically carried on in full outside Angola, are herein located in case they are somehow con

nected with Angola.

Transfer of a going concern.

Normally the sale of the assets of a VAT-registered or VAT-registrable

business will be subject to VAT at the appropriate rate. However, a transfer of a business as a

going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is

the sale of a business or part of a business capable of separate operation, including assets. Where

the sale meets the conditions, the supply is treated as outside the scope of VAT. In Angola, a

TOGC is treated as outside the scope of VAT where the following conditions are met:

• The goods and services transferred are capable (as a whole) of forming a separate business in

their own right

• The recipient (transferee) is a taxable person or becomes a taxable person as a result of the

transfer, and performs exclusively output transactions that entitle the right of VAT deduction

Transactions between related parties.

In Angola, there are no specific rules that indicate the value

for VAT purposes for transactions between related parties. However, the VAT Code sets forth that

VAT related to simulated transactions (or simulated price) is not recoverable.

C. Who is liable

A taxable person is any business entity or individual that makes taxable supplies of goods or

services or importation of goods in the course of a business in Angola. A taxable person that

begins activity must notify the VAT authorities of its liability to register for VAT purposes.

Nevertheless, if the taxable person only incurs a one-off single taxable transaction it will not be

required to file the declaration of beginning of activity at the tax authorities regarding such mat

ter. In Angola, there are three VAT regimes in place:

• General VAT regime, which is applicable to taxable persons with an annual turnover (and/or

import of goods) of more than AOA350 million.

• Simplified VAT regime, which applies to taxable persons whose annual turnover (and/or import

of goods) is higher than AOA10 million and lower than AOA350 million.

• Exclusion VAT regime, applicable to taxable persons with annual turnover lower than

AOA10 million. Under this regime, taxable persons are treated as final consumers (they do not

charge VAT on the output transactions nor can they deduct any input tax).

An g o l A 27

From 1 January 2021 the transitory VAT regime has been eliminated and entities with an annual

turnover and/or import of goods transactions higher than AOA350 million must move to the

general VAT regime and must comply with local bookkeeping and Standard Audit File for Tax

(SAF-T) rules from that date, as well as with the remaining VAT obligations.

As a general rule, imports of goods are subject to VAT. The VAT taxable base is the customs value

of the goods, obtained according to the customs legislation in force, including the following (if

not included already): customs duties, other taxes (except for VAT) or administrative charges due

on the import of goods and ancillary costs (such as packaging, transport, insurance and other

charges), including ports and airports costs.

Exemption from registration.

If the taxable person only incurs a one-off single taxable transaction,

it will not be required to file the declaration of beginning of activity at the tax authorities regard

ing such matter.

Voluntary registration and small businesses.

There is the possibility of voluntary registration to

the VAT general regime if the following cumulative requirements are met:

• Have organized bookkeeping and updated registration with the Angolan tax authorities

• No tax or customs debts

• Have ERP systems prepared to issue invoices according to the current rules in force

• Be prepared to submit by electronic means the VAT returns and accounting and invoicing infor

mation (SAF-T file)

Group registration.

Group VAT registration is not allowed in Angola.

Fixed establishment.

In Angola there is no legal definition of a fixed establishment for VAT pur-

poses. The AGT does not provide such a definition. Mainly, the only criterion applicable is

whether or not the taxable person performs taxable transactions located in Angola.

Non-established businesses.

A “non-established business” is a business that is not registered nor

has permanent establishment in the territory of Angola. Non-established businesses that perform

taxable operations in Angola should nominate a representative who is a taxable person for VAT

purposes. The representative must comply with all the obligations created under the VAT Code

for taxable persons, namely the declaration and registration obligations. The representative will

be liable for the payment of the VAT due. The Angolan VAT Code sets forth that non-established

business may opt for a simplified VAT registration (under which there is no requirement to

nominate a tax representative). At the time of preparing this chapter, however, such option depends

on further regulation, which has not yet been published (but is expected to occur within the upcom-

ing months).

If no tax representative is nominated, the VAT should be self-assessed and paid by the purchaser

(if the purchaser is a taxable person for VAT purposes).

Tax representatives.

As mentioned above, non-established businesses should nominate a tax

representative for VAT purposes in Angola. In case of default (nonpayment of VAT due within

the legal deadline), the representative and the non-established business are jointly liable for the

payment of the VAT due.

Reverse charge.

The reverse-charge mechanism is applicable whenever a non-established entity

does not nominate a VAT representative and the services are deemed located in Angola, notably:

• Provision of services related with real estate properties located in Angola

• Accommodation and catering services supplied in Angola

• Provision of services connected with movable assets made (total or partially) in Angola

• Provision of services connected with the services relating to the access of cultural, artistic,

sporting, scientific, educational and similar events, including the access of fairs and exhibitions

(as well as the provision of services considered auxiliary so such activities) in Angola

28 An g o l A

• Leasing of motor vehicles, pleasure crafts, aircraft or any other vehicles when they are put at

the disposal of the recipient in Angola

• Provision of services related with the transport of passengers in Angola

• Other services used, or which exploitation occurs in Angola

Domestic reverse charge.

There are no domestic reverse charges in Angola.

Digital economy.

There are no specific VAT rules in Angola for digital supplies.

The general rule for the place of supply is that the services are deemed to be located/supplied in

Angola whenever the customer has in Angola its place of business/head office or has a perma

nent establishment, from which the services are acquired, or, in the absence of such, when the

customer has domicile or habitual residence in Angola. However, the VAT Code sets forth excep

tions to such rule, by establishing other (taxation) drivers, regardless of the place where the

customer is located. One of these exceptions is established by the “use and enjoyment” criteria

outlining that the supply of services whose effective use and enjoyment takes place in national

territory are always subject to VAT. The definition of effective use and enjoyment is neither fore

seen in the VAT law nor do any guidelines exist from the Angolan tax authorities in this regard.

Therefore, in practice, nonresident providers of electronically supplied services will be deemed

to be located in Angola under the use and enjoyment criteria.

Nonresident providers of electronically supplied services for business-to-consumers (B2C) sup

plies are required to register and account for VAT on their supplies in Angola.

Nonresident providers of electronically supplied services for business-to-business (B2B) sup

plies are not required to register and account for VAT in Angola. Instead, the customer is required

to self-account for the VAT due, by way of the reverse-charge mechanism. See the Reverse-

charge subsection above.

There are no other specific e-commerce rules for imported goods in Angola.

Online marketplaces and platforms. No special rules exist for online marketplaces and platforms

in Angola.

Registration procedures.

For VAT purposes, a declaration of beginning of activity (Form Modelo

06) must be filed 15 days prior to starting to perform the activity, through electronic means. No

other documents are required to be filed as long as the taxable person is already registered at the

Commercial Registry. If this is not the case, further documents may be required.

Deregistration.

Individuals or companies subject to VAT must, within 30 days from the date of

termination of activity, submit a Declaration of Cease of Activity through electronic means.

The activity is deemed ceased when one of the following conditions is verified:

• The company is no longer trading for a period exceeding two consecutive years (note that in

this situation AGT will presume that the goods of the entity that still exist were sold)

• Extinction of the assets of the company (the goods were sold or were used to private use of the

titular, the staff or, more generally, for purposes different of the company’s business)

• Transfer of the property of the entity (e.g., TOGC)

• AGT can declare, on their own authority, the cessation of activity, if considering that there are

grounds to sustain that the company’s activity is being used for fraudulent purposes

Changes to VAT registration details.

When there is a change in certain VAT registration details

(such as name, address, starting/stopping to make imports, exports), the taxable person is obli

gated to inform the tax authorities of such changes within the following 15 days after the change

through the submission of a declaration of changes of activity by electronic means.

An g o l A 29

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

VAT.

The VAT rates are:

• Standard rate: 14%

• Reduced rate: 5%, 7%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods or services, unless a specific measure

provided for a reduced rate, the zero rate or an exemption.

There is also a 2% VAT rate that is applicable to the import of goods and the subsequent onward

supplies in the province of Cabinda (except for oil sector, light passenger vehicles, alcoholic

beverages, tobacco, jewelry and watches). In addition, a 1% VAT rate applies to the import of

food products and onward supplies in the province of Cabinda.

The 2022 State Budget Law set forth a new reduced VAT rate of 7%, applicable to certain food

products, agricultural inputs, hotel accommodation and restaurant services. This new reduced

VAT rate of 7% entered into force on 1 January 2022.

Such rate is expected to continue under

force in 2023, pursuant to the 2023 State Budget Law, but at the time of preparing this chapter,

the Budget Law is not yet finalized (indeed the Proposal Budget Law has not yet been released).

Examples of goods and services taxable at 0%

• Exports:

– Dispatched to a foreign country by the seller or someone acting on their behalf

– Repair, maintenance lease and other operations relating to the ships identified above as well

as for aircraft used by companies that develop cross-border traffic activities

– Supply, conversion, repair, maintenance, freight and rental, including leasing, of vessels and

aircraft affected to air and sea navigation companies that are principally engaged in interna

tional traffic, as well as the transmission of supply goods placed on board the referred vessels

and aircraft, as well as services rendered to meet their direct needs and those of its cargo

– Supplies of goods destined to international organizations recognized by Angola or to mem

bers of the same organisms within the limits and with the conditions established in interna-

tional agreements concluded by Angola

– Transport of passengers, cargo or mail proceeding from abroad

Examples of goods and services taxable at 5%

• Certain food products (for example, sugar cane)

• Agricultural inputs (for example, live animals, seeds and fertilizers)

Examples of goods and services taxable at 7%

• Certain food products (listed in Annex I of OGE 2022, for example, milk, beans, rice, water,

meat, fish, eggs, soap)

• Agricultural inputs (listed in Annex I of OGE 2022)

• Hotel and restaurant services, only if the correspondent service providers comply cumulatively

with the following:

– Registration of all immovable property and/or motor vehicles that are owned or used by the

service provider

– Issuance of invoices through electronic invoicing systems

– Submission of the due tax returns from previous years

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT

and that do not qualify for input tax deduction.

30 An g o l A

Examples of exempt supplies of goods and services

• Medication and other related products for therapeutic and prophylactic ends

• Wheelchair and similar vehicles destined for people with disabilities as well as braille machines

and other gadgets used to correct learning disabilities

• Books

• Leasing and letting of immovable property (excluding financial leases and the accommodation

services provided by hotels and entities with similar activity)

• Collective public transportation services

• Banking and financial operations carried out by banking financial institutions and nonbanking

financial institutions, including the financial leasing, apart from these activities if a tax or a

consideration is charged by the service provided

• Insurance activities

• Supply of fuels according to Annex II of the VAT Code

Option to tax for exempt supplies.

It is possible to waive the VAT exemption related to the supplies

of medication and other related products for therapeutic and prophylactic ends as well as the

supplies of books. Taxable persons that want to waive the VAT exemption must file a declaration,

by electronic means, to the General Tax Authorities and meet certain requirements.

If AGT does not reply within 30 days, the request is tacitly accepted. Once accepted, this waive

is valid from 1 January of the following civil year (unless the taxable person starts its activity

during the year, in which case the taxable person can request to waive the exemption from the

beginning of its activity).

E. Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” Under the gen-

eral rule, an invoice should be issued by the fifth business day following the date of the supply.

The actual tax point becomes the date on which the invoice is issued. However, if no invoice was

issued, tax becomes due on the fifth business day after the basic tax point. If the payment occurs

before the invoice is issued, even if partially, the corresponding VAT is due at the same time of

the payment. The same is applicable in case payment occurs or invoices are issued before the

finalization of the taxable operations.

The basic time of supply for goods is when they are made available to the client or at the time

the transaction was fully or partially settled (before the client has received the goods).

There are no special time of supply rules in Angola for construction works.

The basic time of supply for services is when they are rendered or at the time the referred provi

sion of services was fully or partially settled (before the service has been provided).

Deposits and prepayments.

For advance payments, the tax point is the date on which the advance

payment is received. The supplier must issue an invoice as soon as advance payment is received.

Continuous supplies of services.

With regard to continuous supplies of services, the time of supply

occurs at the end of the period concerning each payment. However, when the payment schedule

is not defined or exceeds 12 months, the VAT is due at the end of each 12-month period.

Goods sent on approval for sale or return.

As a general rule, when goods are made available before

the sale takes place, a taxable supply of goods is deemed to have taken place when the underlying

contract is finalized. Additionally, when goods are sent on a consignment basis, tax is due if after

180 days the acquirer does not return the goods.

Reverse-charge services.

The rules stated above also apply to reverse-charge services.

An g o l A 31

Leased assets.

Since leasing agreements are usually considered a continuous supply of services,

the time of supply occurs at the end of the period foreseen for each payment, under the rules

above mentioned.

Imported goods.

The tax point for the importation of goods will be in the moment that the for-

malities of customs duties are completed.

Personal use.

When company goods are permanently assigned to an employee for personal use

the tax point occurs when the assignment takes place. The same rule is applicable when pri

vately owned goods are assigned to company use.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax incurred with the acquisition of goods and services

deemed indispensable for the maintenance of the business. A taxable person generally recovers

input tax by deducting it from output tax charged on the supplies of goods or services carried out

as well as tax paid on the import of goods.

Input tax includes VAT charged on goods and services supplied in Angola, VAT paid on import

of goods and VAT self-assessed on the reverse-charge services.

The time limit for a taxable person to reclaim input tax in Angola is two months, since input tax

should be deducted in the VAT return of the month of issuance of the underlying invoice or in the

following month.

To deduct VAT, the taxable person must be in possession of invoices or other equivalent docu

ments compliant with the legal requirements applicable for the invoices’ issuance.

Nondeductible input tax.

There are some types of costs that, by their nature, may easily be used

for personal purposes. As such, the legislator has opted to deny the right to input tax on these

expenses – except when the same constitute the core of the entity’s activity.

Examples of items for which input tax is nondeductible

Input tax is not deductible on the following operations:

• Expenses with acquisition, manufacturing or import, leasing (including financial lease), trans

formation and repair of tourism cars (being those considered as vehicles, with trailer included,

that are not exclusively used for the carriage of goods or to perform an agricultural, commercial

or industrial activity, or even used for cargo and passenger or only for passenger transport

purposes, it does not have more than 10 seats, with the inclusion of the driver), leisure boats,

helicopters, airplanes, motorbikes and motorcycles

• Expenses relating to housing, food, beverages and hospitality expenses

• Expenses relating to acquisition or import of tobacco

Special input tax rules apply to oil companies.

Examples of items for which input tax is deductible

(if related to a taxable business use)

• All except the abovementioned ones and resulting from simulated operations.

Partial exemption.

Input tax directly related to exempt supplies of goods or services is not gener-

ally recoverable. If an Angolan taxable person makes both exempt and taxable supplies, it may

not recover input tax in full. This situation is referred to as “partial exemption.”

The VAT Code provides for two methods to recover VAT when a company makes both exempt

and taxable supplies. The first that should be applicable by rule is a pro rata method according

to which VAT is only deductible in the same ratio as the annual amount of operations that origi

nate deductibility vs. the exempt operations that don’t give rise to deductibility.

32 An g o l A

There is also a second method, referred to as the “direct allocation method,” which prescribes the

real allocation of all or part of the goods and services used. The Angolan VAT authorities may

impose the use of the direct allocation method to prevent distortions of competition. Approval

from the tax authorities is required to use the partial exemption standard method. This is effec

tively the direct allocation method in Angola and can only be used in the following month and

onward to the one when the AGT approval was obtained. This can be done through a written

request. Special methods are not allowed in Angola.

Capital goods.

The VAT Code is silent on a specific rule for input tax deduction for capital goods.

This said, taxable persons are obliged to record any purchases to allow monitoring of the input

tax deductions made.

The records, to be filed together with the VAT tax return, should contain, for all goods, the fol

lowing elements (requirements):

• Data of the acquisition

• Value of the input tax

• Value of the input deducted

Refunds.

If the amount of input tax recoverable in a monthly period exceeds the amount of output

tax payable in that period, the taxable person has an input tax credit that will be carried forward

to the next taxable periods.

However, if the taxable person has been in a credit position for three consecutive months and the

tax credit is equal or higher than AOA300,000, it could apply for a VAT refund.

A refund may also be requested (regardless the previous requirements) if any of the following

circumstances verifies:

• The taxable person ceases operations

• The tax credit situation results from zero-rated VAT transactions

• The taxable person switches to the “non-subject VAT” scheme (see Section I below)

The VAT refund is requested through the correspondent VAT return.

The request for a VAT refund will trigger an inspection by the tax authorities to confirm that the

taxable person is indeed entitled to the VAT refund being claimed. For this purpose, the following

documents/information may be requested (in digital format) by tax authorities within the VAT

refund inspection:

• Invoices or equivalent documents regarding the goods or services acquired, which underlie the

VAT credit

• Customs declaration of import of goods

• Payment document of import VAT

• General analytical balance sheet and journal of accounting movements for the period of VAT

credit

• Explanatory note on the VAT adjustments made in favor of taxable person

• Any document necessary to assess the legitimacy for the request for the reimbursement of the

VAT credit

• Proof of export document (to be submitted electronically)

• Document or letter of comfort of the intermediary banking institution in the export process to

ensure that export revenues are repatriated to the country in accordance with the Foreign

Exchange Act

The following conditions must be met for a refund request to be granted (if one or more of these

conditions is not met, the refund request can be suspended or rejected):

• The taxable person must be fully compliant with its declarative and reporting obligations (VAT,

excise duties, industrial tax and property taxes) related to previous tax periods

An g o l A 33

• Have

electronically communicated the SAF-T files (one for “Invoicing” and other for

“Acquisitions of Goods and Services”) for the previous periods, without divergences with the

amounts disclosed in the VAT return

• Existence of a bank account of which the taxable person is the holder, confirmed by the cor

respondent bank (should be an entity established in Angola)

• Input tax deductible cannot refer to transactions made with other taxable persons with a non

existent or invalid tax number (except for the transactions where the VAT due was reverse

charged by taxable person)

• The suppliers’ annex (which is filed as an annex to the VAT return) should not include reference

to taxable persons who have suspended or ceased their activity in the period to which the VAT

refers to

The payment deadline of the VAT refund is foreseen to end at the last day of the third month

following the filing of the refund claim, after which indemnity interest will be due for the delay.

The VAT refund will be reimbursed in cash or through a tax credit certificate. This tax credit

certificate (electronic format) can be used to pay customs duties and other taxes (except for with

held taxes) within the five years’ expiry period.

In case the taxable person has any tax debt when the VAT refund is to be granted, the VAT

credit amount will be offset with the correspondent tax debt.

Pre-registration costs.

Input tax incurred on pre-registration costs is non-recoverable in Angola.

Bad debts.

Taxable persons may deduct the VAT amount related with bad debts revealed in its

accounting records, as well the irrecoverable debts resulting from the execution and insolvency

proceedings. A bad debt is considered to exist when the following conditions are met: (i) a non

payment risk is duly justified, (ii) the credit is overdue for more than 18 months and (iii) there is

objective evidence of its impairment and the collection efforts/actions made.

Noneconomic activities.

Input tax incurred on purchases that are used for noneconomic activities

is not recoverable in Angola.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Angola is not

recoverable.

H. Invoicing

VAT invoices.

Taxable persons should, by rule, issue invoices per operation (for all taxable sup-

plies – including exports).

Non-established entities that are required to nominate a representative must issue invoices with

their VAT registration number, along with the VAT number and address of the chosen representa

tive additionally to the other ordinary requirements of any invoice.

Credit notes.

A VAT credit note can be issued to reduce the VAT charged and reclaimed on a

supply (e.g., return of the goods or a discount). A credit note must be cross-referenced to the

original invoice and contain the following phrase, “anulação ou rectificação” (cancelation or

correction). The supplier can make the reductions if it has in its possession the proof that the

customer agreed and acknowledged with such procedure.

Electronic invoicing.

Electronic invoicing is mandatory in Angola for certain taxable persons. It

is mandatory for taxable persons with an annual turnover higher than AOA10 million. For this

purpose, it is mandatory to have a billing software previously certified by the AGT. For other

taxable persons (i.e., those with an annual turnover equal or less than AOA10 million), elec

tronic invoicing is allowed, but not mandatory.

34 An g o l A

Simplified VAT invoices.

The Angolan VAT law does not contain any provision on simplified VAT

invoices. However, under certain conditions, it is possible to raise other types of documents

(namely entrance tickets, tickets of transports and tolls; documents issued by automatic distribu

tion electronic machines or electronic systems) instead of invoices if the acquirer of the goods is

not a taxable person (but an individual entity) and these goods or services acquired are not linked

or connected with any business activity.

These documents should be sequentially numbered, dated and contain the following information:

• Suppliers’ VAT identification number, full name and address

• Quantity and nature of the goods supplied or the extent and nature of the services rendered

• The price and the amount of the VAT due (if applicable)

However, it is mandatory to raise an invoice for this type of operations if the client requires it.

Self-billing.

Self-billing is allowed in Angola. Under the Angolan Legal Regime for Self-billing,

self-billing corresponds to the issuance of invoices/receipts by the acquirers on behalf of their

suppliers. Any entity who is a tax resident in Angola may adopt self-invoicing on the acquisition

of products of specific sectors (that is, agriculture, forestry, aquaculture, apiculture, poultry, fish-

eries and cattle, as also foreseen by the previous regime) or acquisition of any service.

However, this possibility (of issuing self-invoices) is only applicable when the supplier is an indi-

vidual entity who is unable to issue invoices or equivalent documents.

The issuance of invoices/receipts by the acquirer of goods and/or services (in place of their cor

respondent suppliers) must be made in accordance with specific legal requirements, namely

reference should be made in the self-invoice to the word “

Autofacturação” (which means self-

invoicing in Portuguese), and the self-invoice must be issued through a certified billing software

program.

The issuers of self-invoices take due action to report to the tax authorities the tax registration

process of their suppliers/providers (whom they are replacing on the invoices’ issuance) that are

not yet registered and whenever one of the following situations occurs:

• Are issued three (or more) self-invoices to the same supplier, within a minimum period of three

months

• The total amount of a single acquisition is equal to or greater than AOA500,000

Issuer of self-invoices who are wholesale traders will be subject to an obligation of reporting the

sale of goods made to private entities in the amount of AOA1 million or higher.

The issuance of self-invoices is also subject to the following limits:

• Self-invoices should not correspond to more than 20% of the total costs of goods sold and

materials consumed and costs with supplies of goods and services rendered by third-party enti

ties of the issuer.

• If the products acquired in covered sectors (that is, agriculture, forestry, aquaculture, apiculture,

poultry, fisheries, cattle) contribute exclusively to the realization of the acquirer entity’s corpo

rate purpose, the costs resulting from self-invoicing can be considered at 60%.

There are no special provisions demanding for a written agreement. The invoice/receipt should

be raised when the payment is received.

Proof of exports.

VAT is not chargeable on exported goods. However, an invoice should be raised

per supply of goods or services and in order to qualify as VAT-free, exports must be supported

by evidence that confirms the goods have left Angola (e.g., customs authorities’ document or

statement issued by the customer disclosing the goods’ destination).

An g o l A 35

Foreign currency invoices.

Invoices must be issued in the domestic currency, which is the Angolan

kwanza (AOA), except when related with import and export operations, which are subject to the

international trade rules. As such, the invoices should be issued in Portuguese containing the unit

price and total price in local currency.

Supplies to nontaxable persons.

The VAT invoicing rules for supplies to nontaxable persons are

the same as those outlined above, under the

Simplified invoices subsection. Otherwise, full VAT

invoices are required.

Records.

In Angola, examples of what records must be held for VAT purposes include all invoic-

es and equivalent documents (issued and received), accounting records regarding output and

input supplies, and correspondent VAT applicable and receivables.

Taxable persons are obliged to archive and conserve on national territory all invoices and equiv

alent documents, as well as records concerning the analysis, programming and implementation

of computer systems used.

In Angola, VAT books and records must be held within the country.

Record retention period. All invoices and equivalent documents must be kept, according to the

legislation in place, by the taxable person for five years.

Electronic archiving. Electronic archiving is mandatory in Angola. Backup copies of the invoic

es and equivalent documents must be archived in digital format and be available for immediate

consultation of the AGT (if needed).

I. Returns and payments

Periodic returns.

VAT returns and their annexes must be submitted on a monthly basis, by elec-

tronic means, in the taxable person portal. Monthly VAT returns must be submitted by the last

business day of the month following the one when the operations took place.

Periodic payments.

After the submission of the periodic return, and in case VAT is due, the billing

document should be issued automatically. VAT amounts due should be paid in AOA, by the last

business day of the month following the one when the operations took place. The payment of the

VAT due can be made via bank transfer, at an ATM machine (

Multicaixa). Payments can also be

made in installments (see the subsection

Payments on accounts below).

Electronic filing.

Electronic filing is mandatory in Angola for all taxable persons. VAT returns

must be filed online via the taxable person portal.

Payments on account.

Effective 18 September 2022, the AGT has provided taxable persons with

the option to pay VAT due in installments. Taxable persons can now pay any VAT due in five

installments, with a possibility to make payments through multiple bank accounts. The install

ment payments must reflect the equitable division of all items that make up the total amount

payable (i.e., VAT payable, legal surcharges and penalties, and interest if applicable). The option

to pay VAT in installments is only possible if the VAT payable is equal to or exceeds AOA3 mil

lion.

Special schemes.

Simplified VAT regime. The simplified VAT regime was introduced by the 2021

State Budget Law, and it is expected to continue under force in 2023 (as already occurred in

2022), pursuant to the 2023 State Budget Law. At the time of preparing this chapter, the pro

posal Budget Law has not yet been finalized.

The simplified VAT regime is available for taxable persons with an annual turnover higher than

AOA10 million and lower than AOA350 million (unless they opt for the general VAT regime).

Under the simplified regime, taxable persons must assess a 7% VAT over the previous three

36 An g o l A

months’ turnover. The taxable person can deduct up to 7% of the VAT on the acquisition of goods

and services.

Taxable persons that perform VAT-exempt transactions (even if they perform taxable transactions

as well) should pay stamp tax at a rate of 7% on receipt of discharge of such transactions (relat

ed to item 23.3 of the table attached to Stamp Tax Code), which may be allowed against income

tax. This payment obligation of stamp duty at a 7% rate on the receipt of discharge of VAT

exempt transactions (this applies only to taxable persons under the general VAT regime that carry

out exclusively VAT-exempt transactions or taxable persons under the simplified VAT regime) is

not applicable to the supply of air transport of passenger services of international traffic and

leasing of immovable property (these services are subject to the corresponding rate applicable

under the Stamp Duty Code).

The VAT payment is made on a monthly basis and must comply with local bookkeeping and

SAF-T rules from that date, as well as with the remaining VAT obligations.

Exclusion VAT scheme. The exclusion VAT regime is applicable for the entities with a turnover

lower than AOA10 million (during the previous 12 months). These taxable persons are also

obliged to submit the declaration of the beginning of the activity, as well as the declaration of

cease of the activity. Under this regime, taxable persons have to file on a monthly basis and by

electronic means, a report containing the information of the suppliers (mapa de fornecedores)

stating the acquired goods and services from suppliers under the VAT general regime. Addi-

tionally, taxable persons are also obliged to issue invoices that state: “IVA – Regime de não

sujeição,” and store the documents related to the sales performed and the goods or services

acquired.

Cash accounting. The VAT cash scheme is applicable to entities with a turnover equal or lower

to AOA equivalent to USD250,000 and do not carry out any domestic exempt operations. This

regime could also be applicable for companies with business activity only related with the distri

bution of drinking water and electric power. In case the entities chose to apply for such regime,

it must remain in it for three years and the invoices should state “IVA Regime de Caixa.”

Additionally, certain taxable persons should be required to withhold (IVA Cativo) 100% of the

VAT of their acquisitions (oil companies, the Angolan State – except public companies) and oth

ers should be required to withhold 50% of the VAT of their acquisitions (the National Bank of

Angola and the commercial banks, insurance and reinsurance companies, and telecommunica

tion operators). In this case, the taxable person should charge VAT on the invoice and the

acquirer will withhold the VAT – at the moment the invoice is received – and will be responsible

for the payment of the VAT to AGT.

There is also a special VAT regime applicable to the province of Cabinda.

Annual returns.

Annual returns are not required in Angola.

Supplementary filings.

Suppliers List. Taxable persons with an annual turnover (of taxable sup-

plies or imports) with a value greater than AOA10 million and lower than AOA350 million must

file the monthly VAT return along with a correspondent annex outlining list of suppliers.

Correcting errors in previous returns.

Any corrections to previous VAT return must be made

through the correspondent amendment VAT return. However, the VAT deduction should be made

on the VAT return of the period or the following one to when the underlying invoices or equiva

lent document was issued. Therefore, corrections to VAT deduction after such time limit will not

be accepted.

Digital tax administration.

Standard Audit File for Tax (SAF-T). Taxable persons under the gen-

eral VAT regime are required to file a Standard Audit File for Tax (SAF-T) file type “Invoicing”

and “Acquisition of Goods and Services” until the last day of the month following that in which

An g o l A 37

the operations were carried out. The SAF-T file type “Invoicing” refers to all invoices issued by

the taxable person during the relevant period and SAF-T file type “Acquisitions of Goods and

Services” refers to all invoices received.

A SAF-T file type “Accounting” should disclose all accounting records in accordance with the

data structure foreseen by applicable law and made available to the tax authorities if requested.

J. Penalties

Penalties for late registration.

If the taxable person files declaration of beginning of activity after

the deadline (15 days prior to starting the activity) the penalty is equal to 5.862 UCF (currently

1UCF = AOA88), for cases of negligence. If the situation is legalized with 30 days from the

deadline, the penalty is reduced to half.

If the taxable person fails to submit a VAT return or does so after the legal deadline has passed,

the payment of a fine equal to 5.862 UCF (currently, in the amount of AOA515,856) for each in

fraction will be due. At this point, if the situation is rectified in 30 days’ time, the value of the

fine is reduced by half.

Penalties for late payment and filings.

If the VAT returns are not submitted in time, the AGT will

proceed with the tax assessment on its own authority. This assessment is based upon the VAT

returns submitted in the previous months. The applicable penalty for not or late filing the VAT

return is the same as mentioned for the declaration of beginning of activity.

With regard to outstanding VAT (under assessment of VAT is equal to the failure to deliver VAT),

the applicable penalty is 25% of the outstanding VAT amount, with a minimum of AOA5,000.

When the outstanding VAT results from reverse-charge operations, the applicable penalty is twice

the outstanding amount, with a minimum of 569 UCF.

If the taxable person fails to pay the VAT assessed by the AGT within the established deadline,

proceedings aiming at the coercive collection of the tax due, plus legal costs, will ensue.

Penalties for errors.

For the invoicing and accounting errors, the penalties are the following:

• 5% of the invoice’s value if any of the following invoicing elements is missing or incorrectly

identified: price, name, address or tax number of the issuer (per invoice)

• 1% of the invoice’s value if the other legal requirements for issuance of invoices are missing or

incorrectly identified (per invoice)

• If there was a supply of services or goods but an invoice was not raised, the applicable penalty

is 7% of the operation’s amount or 15% of such amount in cases where invoices were not raised

for more than four times

The tax authorities may proceed with corrections whenever it finds that the tax due on the return

submitted is inferior or the deduction is superior to what is due. The inaccuracies may be assessed

during the course of an inspection or simply from the confrontation of different returns submit

ted.

The late notification of or failure to notify the tax authorities of changes to a taxable person’s

VAT registration details may result in a penalty of 5.862 UCF. For further details, see the subsec

tion Changes to VAT registration details above.

Penalties for fraud.

When the taxable person participates in tax fraud or tax avoidance, the right

to input tax deduction is denied.

The taxable person is presumed to participate in tax fraud or tax evasion when the price paid by

the services and goods acquirer is lower than the market prices. This presumption may be refut

able.

38 An g o l A

Personal liability for company officers.

Company officers cannot be held personally liable for

errors and omissions in VAT declarations and reporting in Angola.

Statute of limitations.

The statute of limitations in Angola is five years. With reference to the time

limit applicable for taxable persons, the Angolan tax authorities understand that the provision of

the VAT Code that sets forth the VAT deduction must be reported in the VAT return of the period

of issuance of the correspondent underlying invoice or in the following VAT return. This is a

statute of limitation provision. As such, no VAT amendments in favor of the taxable person are

accepted after that two-month time limit.

Anguilla

ey.com/GlobalTaxGuides

The Valley GMT -4

Direct all queries regarding Anguilla to the persons listed below in the Bridgetown, Barbados office.

Indirect tax contacts

Marilyn Husbands +1 (246) 467 8601

marilyn.husbands@bb.ey.com

La-Tanya Phillips +1 (246) 430 3882

la-tanya.phillips@bb.ey.com

Dipesh Panicker +1 (246) 256 3251

dipesh.panick[email protected]y.com

Denise Brewster +1 (246) 430 3816

denise.brewst[email protected]y.com

Anguilla implemented a goods and services tax (GST) on 1 July 2022. The GST replaced the accom-

modation tax, the public entertainment tax, the environmental levy, the communications levy and

the interim goods tax.

A. At a glance

Name of the tax Goods and services tax (GST)

Local name Goods and services tax (GST)

Date introduced 1 July 2022

Trading bloc membership Caribbean Community and Common Market (CARICOM)

(note Anguilla is an associate member of CARICOM and is

therefore not subject to CARICOM’s trade policy)

Administered by

GST rates

Standard 13%

Other Zero-rated (0%) and exempt

GST number format Tax Identification Number, 10-digit number beginning with

1 for individual registrants or 2 for corporate registrants

GST return periods Monthly

Thresholds

Registration

Mandatory XCD300,000

Voluntary

Recovery of GST by

non-established businesses No

B. Scope of the tax

GST applies to the supply of taxable goods and services by a taxable person in Anguilla and to

the importation of goods and services (other than exempt imports).

40 An g u i l lA

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for GST in that jurisdiction

where it has customers that are not taxable persons. In Anguilla the “use and enjoyment” provi

sions (B2B/B2C) apply to the supply of the following goods or services, and therefore are deemed

to take place Anguilla if the recipient uses or obtains the advantage of the goods or services, and

where the supply would be subject to VAT if the supplier meets the registration threshold:

• A transfer or assignment of a copyright, patent, license, trademark or similar right

• The service of a consultant, engineer, lawyer, architect or accountant; the processing of data or

supplying information or any similar service

• Advertising service

• The obligation to refrain from pursuing or exercising taxable activity, employment or a right

described in this subsection

• The supply of personnel

• The service of an agent procuring for the agent’s principal a service described in this section

• Leasing of movable property, other than transport property

Where the above services are supplied from a place of business in Anguilla but utilized outside

of Anguilla, the services are considered to be supplied in Anguilla and are considered to be zero-

rated exports.

Transfer of a going concern.

Transfer of going-concern rules do not apply in Anguilla. As such,

GST applies to all sales of a business or part of a business capable of separate operation includ

ing assets.

Transactions between related parties.

In Anguilla, for a transaction between related parties, the

value for GST purposes is calculated as the fair market value of the supply.

C. Who is liable

The registration turnover threshold is XCD300,000 (East Caribbean dollar) per annum. A person

must register for GST within 15 days of the following month if any of the below scenarios apply:

• The person’s turnover was equal to or greater than the XCD300,000 in the previous 12 months

period

• Based on reasonable grounds, the person’s annual turnover is expected to be equal to or great

er than XCD300,000 in the upcoming 12 months

Exemption from registration.

A taxable person may apply to the Comptroller for exemption from

registration if all or most of their taxable services are zero-rated, and where they can demonstrate

that, if they were to be registered, their input tax would exceed their tax payable on a continuing

annual basis.

Voluntary registration and small businesses.

The Comptroller may permit voluntary registration

to such persons who may have turnover below the registration turnover threshold upon receipt of

application for GST registration. However, no registration would be permitted where the Comp-

troller is satisfied that the person is not eligible for registration and in cases where the person has

no fixed place of abode and the Comptroller has reasonable grounds to believe that the person

will not keep proper records or will not submit regular and reliable tax returns.

Group registration.

Group GST registration is not allowed in Anguilla. However, taxable persons

who conduct their taxable activity in branches or divisions are required to register in the name of

the taxable person and not in the names of its branches and divisions. Where a taxable activity is

conducted by a taxable person in branches or divisions, the taxable person is deemed to be a

An g u i l lA 41

single person conducting the taxable activity for purposes of the GST Act. All members of a GST

branch or division in Anguilla are jointly and severally liable for GST debts and penalties. How-

ever, this information was provided by the Deputy Comptroller and has not yet been addressed

in law.

Fixed establishment.

In Anguilla

there is no legal definition of a fixed establishment for GST

purposes. A nonresident business that carries on a taxable activity would be required to register

for VAT purposes if it meets the registration threshold as outlined below.

Non-established businesses.

Non-established businesses are required to register for GST if they

make taxable supplies in Anguilla that exceed the registration threshold.

Tax representatives.

For established businesses, they can appoint a third-party representative,

such as an external accountant or business advisor, to submit a GST registration form on behalf

of the taxable person. It is also possible to delegate responsibility to manage certain aspects of

the taxable person’s account. For non-established businesses, they can also appoint a local tax

representative. For both types of taxable persons, appointing a tax representative is optional and

not mandatory.

Reverse charge.

The reverse-charge mechanism applies in Anguilla. Where a resident person in

Anguilla receives a supply of services from a nonresident person and such services are utilized

or consumed in Anguilla, other than to make taxable supplies, GST is payable by the recipient of

the services.

Domestic reverse charge.

There are no domestic reverse charges in Anguilla.

Digital economy.

There are no specific rules relating to the taxation of the digital economy.

Nonresident providers of electronically supplied services for business-to-consumer (B2C) sup

plies would be required to register and account for GST in Anguilla.

Nonresident providers of electronically supplied services for business-to-business (B2B) sup

plies are not required to register and account for GST on supplies in Anguilla. Instead, the cus-

tomer is required to self-account for the GST due by way of the reverse-charge mechanism (see

the Reverse-charge subsection above).

There are no other specific e-commerce rules for imported goods in Anguilla.

Online marketplaces and platforms. No specific rules exist for online marketplaces and platforms

in Anguilla.

Registration procedures.

Taxable persons are required to register in the prescribed form (by paper)

with the Anguilla Comptroller. The Comptroller is required to register a person who applies for

registration within 10 days of receipt of the application.

Deregistration.

A taxable person may deregister when they cease to carry on taxable activities and

notifies the Comptroller in writing of such cessation within 15 days. The taxable person will

ordinarily be deregistered with effect from the last calendar day of the tax period during which

all such taxable activities ceased or from such other time as the Comptroller may determine.

The Comptroller is not required to cancel the registration of a taxable person where the Comp-

troller has reasonable grounds to believe that the person will carry on any taxable activity at any

time within 12 months from that date of cessation.

Changes to GST registration details.

A taxable person must notify the Comptroller, in writing,

within 15 days of any change in the name, address, place of business, constitution, name of

partners or nature of the principal activity or activities of the taxable person; any change of

address from which, or name in which, any taxable activity is carried on by the taxable person;

42 An g u i l lA

and any changes in circumstances if the taxable person ceases to operate or close on a temporary

basis, except where it closes to due to a cessation of carrying on a taxable activity.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

GST, including the zero rate.

The GST rates are:

• Standard rate: 13% .

• Zero rate: 0%

The standard rate of GST applies to all supplies of goods or services, unless a specific measure

provides for a reduced rate, the zero rate or an exemption.

Examples of goods and services taxable at 0%

• Exports, except goods that have been or will be re-imported into Anguilla by the supplier

Examples of exempt supplies of goods and services

• Financial services

• Insurance services in the course of carrying on insurance business in or from Anguilla, limited

to life insurance, annuities, and savings products and supplying or arranging for the insurance

of international transport and health insurance

• Medical services and devices

• Prescription drugs

• Sanitary products

• Registered education services

• Services in a qualifying nursing home, residential care facility for aged, indigent, infirmed or

disabled persons who need permanent care

• Services rendered as day care, including after-school care, and by a summer camp for children

aged under 17

years old

• Lease, license, hire rental or other form of supply of accommodation, to the extent that it is a

supply of the right to occupy or be accommodated in premises for 183 days or more

• Leasehold land by way of lease (not being a grant or sale of the lease of that land) to the extent

that the subject land is used or is to be used for the principal purpose of accommodation in a

residential dwelling erected or to be erected on that land, where the lease is for 183 days or

• Supply of the following immovable property: vacant land; a residential dwelling that is resold

by the initial purchaser, including all subsequent sales of such property, and sold by the first-

time owner after two years of occupancy of such premises by the owner or its immediate fam

ily; or a tourism accommodation development such as condominiums, villas, hotels, resorts and

similar establishments, and luxury real estate products

• Lease, license, hire rental of land except for use as described above where the lease is for 183

days or more

• Lease, license, hire rental of land to the extent that it is to be used for agricultural purposes and

tourism accommodation development

• Religious service by an approved religious organization

• Public domestic transport and international transport

• Games of chance

• Gasoline, diesel and liquid propane gas from 1 July 2022 until 30 June 2023

• Bikes and bike parts

• Goods approved for conditional exemption as provided by the government of Anguilla

Option to tax for exempt supplies.

The option to tax exempt supplies is not available in Anguilla.

An g u i l lA 43

E. Time of supply

The time when GST becomes due is called the “time of supply.” In general, the time of supply

for goods and services supplied by a taxable person is the earliest of the following events:

• The date of issuance of the invoice by the supplier

• The date on which any consideration is received for the supply

• The date on which the goods are made available to the recipient or the services are performed

A taxable person must account for GST in the GST period in which the time of supply occurs,

regardless of whether payment is received.

Deposits and prepayments.

Generally, deposits other than deposits on a returnable container are

not regarded as consideration for a supply because they are given merely as security for the per

formance of an act. However, when the supplier applies the deposit as consideration for the sup-

ply or when the deposit is forfeited, the supply is deemed to take place.

Continuous supplies of services.

Goods supplied under a rental agreement, or services supplied

under an agreement that provides for periodic payments are treated as successively supplied for

successive parts of the period of the agreement, and each of the successive supplies occurs when

a payment becomes due or is received, whichever is the earlier.

Goods sent on approval for sale or return.

There are no special time of supply rules in Anguilla for

supplies of goods sent on approval for sale or return. As such, the general time of supply rules

apply (as outlined above).

Reverse-charge services.

There are no special time of supply rules in Anguilla for supplies of

reverse-charge services. As such, the general time of supply rules apply (as outlined above).

Leased assets.

Goods supplied under a rental agreement are treated as successively supplied for

successive parts of the period of the agreement, and each of the successive supplies occurs when

a payment becomes due or is received, whichever is the earlier.

Imported goods.

GST is payable on the import of goods or services, other than exempt imports.

An import of goods occurs when the goods are entered for purposes of the Customs Act.

F. Recovery of GST by taxable persons

GST paid by a taxable person is recoverable as input tax if it relates to goods and services

acquired solely for the purposes of making taxable supplies. Input tax is recovered by offsetting

it against output tax (that is, tax charged on supplies made) in the GST return for each GST

period.

If input tax exceeds output tax in a GST period, the excess will be carried forward to the next

period and will be treated as deductible input tax credit for that period. Further excesses will be

carried forward consecutively for a maximum of three tax periods and if after that period the

excess credit remains, the taxable person may apply for a refund.

The time limit for a taxable person to reclaim input tax in Anguilla is three years.

Nondeductible input tax.

Input tax may not be recovered on purchases of goods and services that

are not used for business purposes.

Examples of items for which input tax is nondeductible

• A passenger vehicle, unless the person is in the business of dealing in, or hiring of, such

vehicles, and the vehicle was acquired for the purposes of such business.

• Goods and services acquired for the purpose of entertainment or providing entertainment

unless the person is in the business of providing entertainment and the taxable supply or import

44 An g u i l lA

relates to the provision of taxable supplies of entertainment in the ordinary course of that busi-

ness, or the person is in the business of providing taxable supplies of transportation services

and the entertainment is provided to passengers as part of the transportation service.

• Fees or subscriptions paid by the person in respect of membership of any person in a club,

association, or society of a sporting, social or recreational nature.

Examples of items for which input tax is deductible

(if related to a taxable business use)

• Business entertainment

• Passenger vehicles

Partial exemption.

A partial recovery calculation is required where costs incurred relate to both

taxable and exempt supplies. Regulations provide a standard method of apportionment to cal-

culate the amount of input tax the taxable person is entitled to claim. The standard method of

appointment is calculated as follows:

A x B/C

• A is the total amount of the input tax payable in respect of supplies and imports received during

the period, less the sum of the input tax attributable to supplies or imports acquired or made,

which are directly allocable to the making of taxable supplies and in respect of deductions that

are disallowed under the GST Act.

• B is the total amount of taxable supplies made by the taxable person during the period.

• C is the total amount of all supplies made by the taxable person during the period.

A taxable person may, where the fraction B/C is more than 0.90, deduct the total amount of the

input tax on the supplies/imports acquired or made during the period.

A taxable person may not, where the fraction B/C is less than 0.10, claim input tax deduction on

taxable supplies made during the period.

The above do not apply to a financial institution making both taxable and exempt supplies during

a period. Instead, the amount of the input tax claimed by a financial institution shall be the

amount of input tax payable in respect of supplies or imports received that are directly allocable

to the making of taxable supplies.

The Comptroller may use an alternative basis to determine the amount of input tax permitted.

This is determined on a case-by-case basis.

The Deputy Comptroller has indicated that the IRD would be made aware of the nature of sup

plies of a taxable person upon registration of the entity. However, approval from the tax authori-

ties is not required to use the partial exemption standard method or special methods in Anguilla.

Capital goods.

In Anguilla “capital goods” are defined as assets, or components of assets, which

are of a character subject to an allowance for depreciation and which are used in the course or

furtherance of a taxable activity.

There are no special input tax recovery rules for capital goods. The normal input tax rules apply.

Refunds.

A credit exists where a registered taxable person’s input tax exceeds the output tax for

that month. Except for exports, the difference will be carried forward to the next month’s return

and will be treated as a deductible input tax credit for that month. Further excesses will be carried

forward consecutively for a maximum of three months and if after three months the excess

credit remains, that registered taxable person may then apply for a refund.

A registered taxable person whose taxable activities represent more than 50% zero-rated sup

plies, may request a refund on a monthly basis. The Comptroller is required to serve a taxable

An g u i l lA 45

person claiming a refund, a notice in writing of the decision in respect of the claim within two

calendar months of receiving the claim except where there is an audit. Where a refund is due and

is not paid within two calendar months of the application and it is not subject to audit, the Gov-

ernment of Anguilla will pay interest at the rate of 1% per month.

The Comptroller may, subject to appropriate conditions and restrictions, authorize to refund part

or all the GST incurred in relation to a taxable acquisition or import made by the Governor’s

Office, diplomats, approved nonprofit bodies and public international organizations.

Pre-registration costs.

A taxable person can claim GST incurred on costs prior to registration in

the first tax period in which the person is registered in respect of taxable supplies and imports of

goods, including capital goods. This is on the basis that the capital goods are for use or resupply

in a taxable activity carried on by the person after registration. This applies where the supply or

import takes place no more than 12 months prior to the date the registration takes effect, the

goods are on hand at the date of registration and the evidentiary requirements are satisfied.

Bad debts.

A GST registrant is entitled to claim an input tax deduction for sales made with res-

pect to a taxable supply written off as a bad debt, i.e., when the amount owed is written off in

accounting records. The taxable person can make an adjustment by claiming as input tax the

amount previously declared as output tax.

Noneconomic activities.

Input tax incurred on purchases that are used for noneconomic activities

is not recoverable in Anguilla.

G. Recovery of GST by non-established businesses

Input tax incurred by non-established businesses that are not registered for GST in Anguilla is

not recoverable.

H. Invoicing

GST invoices.

For all taxable supplies, the supplier must provide the buyer, if they are GST reg-

istered, a GST invoice within 40 calendar days of the supply. For a GST invoice to be valid, it

must show certain information as outlined in GST law.

Credit notes.

A tax credit note is required to be issued by a registered supplier to a purchaser

when a GST invoice previously issued charged GST greater than the tax properly chargeable. The

credit note must be in the form and contain the information as specified in GST law.

Electronic invoicing.

Electronic invoicing is allowed in Anguilla, but not mandatory.

Simplified GST invoices.

A registered supplier making a taxable supply is authorized to issue a

sales receipt, and not a full GST invoice, if the total consideration for the taxable supply is in

money and does not exceed XCD1,000.

Self-billing.

Self-billing is not allowed in Anguilla.

Proof of exports.

GST is charged at the zero-rate (0%) on supplies of exported goods. However,

to qualify as zero-rated, exports must be supported by evidence (e.g., export certificate or other

customs document) that confirms the goods have left Anguilla.

Foreign currency invoices.

Invoices must be issued in the domestic currency, which is the East

Caribbean dollar (XCD). However, the legislation does not expressly prohibit the issue of invoic-

es in a foreign currency.

Supplies to nontaxable persons.

There are no special invoicing rules for supplies to nontaxable

persons in Anguilla. As such, full GST invoices are required.

46 An g u i l lA

Records.

In Anguilla, examples of what records that must be held for GST purposes include

financial statements, accounting records, accounts, books, computer-stored information, diaries,

dispatch notes, delivery notes, bank statements, purchase invoices and debit notes, sales invoices

and credit notes, sales receipts, contracts, payroll data, order books, till rolls and any other docu

ments.

Every taxable person is required to maintain in Anguilla the following documents:

• A GST account, in which must be listed the total amount of GST due on sales in the period, the

total amount of GST reclaimable on purchases in the period, the net amount of GST payable to

IRD in the period, or if applicable, the net amount of GST reclaimable from IRD in the period

• Original tax invoices, tax credit notes and tax debit notes received by the person

• A copy of all tax invoices, tax credit notes and tax debit notes issued by the person

• Customs documentation relating to imports and exports by the person

• Accounting records relating to taxable activities carried on in Anguilla

• Any other records as may be prescribed by regulations

Record retention period. Records are required to be maintained in English and retained for seven

years after the end of the tax period to which they relate.

The Comptroller must always have, during normal working hours, and without any prior notice

to any person, full and free access to any premises, place, book, record or computer.

Electronic archiving. Electronic archiving is allowed in Anguilla. No further guidance has been

released.

I. Returns and payment

Periodic returns.

The tax period for taxable persons is the calendar month. GST returns are due

within 20 days after the end of the period, whether or not tax is payable in respect of that period.

Periodic payments.

Any tax due for the period must be remitted with the return to the tax author-

ity, by the 20th day of the month following the end of the tax period. GST due may be paid elec-

tronically by using the government’s platform (IRD online portal). It may also be paid by cash,

cheque, credit card or via online banking.

Electronic filing.

Electronic filing is allowed in Anguilla, but not mandatory. GST returns can be

filed electronically via the IRD’s online filing portal. Electronic filing is preferred in Anguilla

but is not mandatory.

Payments on account.

Payments on account are not required in Anguilla.

Special schemes.

No special schemes are available in Anguilla.

Annual returns.

Annual returns are not required in Anguilla.

Supplementary filings.

No supplementary filings are required in Anguilla.

Correcting errors in previous returns.

A taxable person may apply to the Comptroller to make an

addition or alteration to its GST returns within three years after the date the return was filed or

where an assessment is made after the three-year period, within 40 days after the notice of assess

ment is served.

Digital tax administration.

There are no transactional reporting requirements in Anguilla.

J. Penalties

Penalties for late registration.

A taxable person who fails to apply for registration is liable for a

penalty equal to double the amount of output tax payable from the time the taxable person is

An g u i l lA 47

required to apply for registration until the person files an application for registration with the

Comptroller. This penalty will not apply if the taxable person has been convicted of the equiva

lent criminal offense.

For the equivalent criminal office, a taxable person who knowingly or recklessly fails to apply

for GST registration as required or commits an offense and is liable on conviction to a fine not

exceeding XCD5,000 and imprisonment for a term not exceeding two years.

Penalties for late payment and filings.

A taxable person who fails to file a return within the

required due date is liable to a penalty that is the greater of XCD500 per day for each day or part

thereof and is liable to a penalty equal to 10% of the tax payable for the period of such return,

for each month or part thereof that the return remains outstanding. Any GST payable outstanding

by the due date is liable to a penalty equal to 20% of the amount payable.

For the equivalent criminal offense, a taxable person who knowingly or recklessly fails to file a

GST return, commits an offense and is liable on conviction to a fine not exceeding XCD5,000.

Where a person fails to lodge the return within a further period specified by the Comptroller by

notice in writing, that person commits an offense and is liable on conviction to a fine of

XCD5,000 for each day during which the failure continues or to imprisonment for three months

or both.

Penalties for errors.

A taxable person who knowingly or recklessly fails to furnish any import

declaration as required, commits an offense and is liable on conviction to a fine not exceeding

XCD5,000 and to imprisonment for a term not exceeding three years.

A taxable person who knowingly or recklessly fails to provide a tax invoice as required, or also

makes a false claim for refund, commits an offense and is liable on conviction to a fine not

exceeding XCD5,000 and to imprisonment for a term not exceeding six months.

The late notification of or failure to notify the tax authorities of changes to a taxable person’s

GST registration details may result in a fine not exceeding XCD5,000 and to imprisonment for

a term not exceeding two years where the failure was made knowingly or recklessly, or in any

other case, to a fine not exceeding XCD5,000. For details, see the Changes to GST registration

details subsection above.

Penalties for fraud.

For false or misleading statements, the penalty imposed will be an amount

determined by the Comptroller. It will only be imposed if the false statement reduced the amount

of tax liability or if a criminal penalty was not imposed for the false statement or omission.

A taxable person who knowingly or recklessly uses a false GST registration number, including

the GST registration number of another person on a return, notice or other document, commits

an offense and is liable on conviction to a fine not exceeding XCD20,000 and to imprisonment

for a term not exceeding two years.

A taxable person who makes a false or misleading statement or omission in a material, commits

an offense and is liable on conviction to a fine not exceeding XCD5,000 or to imprisonment for

a term not exceeding two years or both.

Personal liability for company officers.

Where an offense has been committed by a company, every

person who at the time of the commission of the offense was a representative officer, director,

general manager, secretary or was acting in or purporting to act in such capacity is deemed to

have committed the offense. The officers would be subject the general penalty of XCD10,000 or

imprisonment for one year or both.

Statute of limitations.

The statute of limitations in Anguilla is five years. However, generally,

there is no limitation period within which the tax authority can issue an assessment for output

48 An g u i l lA

tax. But, where the tax authority wishes to issue an assessment because it is dissatisfied with a

return or accompanying documents, the assessment must be issued within five years after the

return or documents are furnished. However, this limitation period does not apply where the

default that prompted the assessment was due to fraud, or gross or willful neglect.

K. Transitional provisions

Time of supply and charging GST.

If taxable services were rendered before the date on which the

GST Act comes into effect and payment is made within three months after the Act comes into

effect, GST is not imposed on the supply.

If in relation to a supply of goods or services title to goods passes, delivery of goods is made or

services are rendered after the date on which the GST Act comes into operation; and payment is

received, or an invoice is issued within three months before that date; the payment is treated as

having been made or the invoice is treated as having been issued on the date on which the Act

comes into operation.

Contracts silent on GST.

Where contracts were concluded between two or more parties before the

entry into force of the GST Act, and no provision relating to tax was made in the contract, the

supplier may recover from the recipient tax due on any taxable supplies made under the contract

after the date on which the Act comes into operation.

Where contracts concluded after the date on which this Act comes into operation does not include

a provision relating to tax, the contract price is deemed to include a provision relating to tax, the

contract price is deemed to include tax and the supplier under the contract is required to account

for the tax due.

Antigua and Barbuda

ey.com/GlobalTaxGuides

Saint John’s GMT -4

Direct all queries regarding Antigua and Barbuda to the persons listed below in the Bridgetown, Barbados,

office.

Indirect tax contacts

Marilyn Husbands +1 (246) 467 8601

marilyn.husbands@bb.ey.com

La-Tanya Phillips +1 (246) 430 3882

la-tanya.phillips@bb.ey.com

Dipesh Panicker +1 (246) 467 8631

dipesh.panick[email protected]y.com

Denise Brewster +1 (246) 430 3816

denise.brewst[email protected]y.com

A. At a glance

Name of the tax Antigua and Barbuda Sales Tax (ABST)

Local name Antigua and Barbuda Sales Tax (ABST)

Date introduced 29 January 2007

Trading bloc membership Caribbean Community and Common Market (CARICOM)

Administered by Inland Revenue Department (IRD)

(https://ird.gov.ag/index.php/antigua-and-barbuda-sales-tax/)

ABST rates

Standard 15%

Reduced 14%

Other Zero-rated (0%) and exempt

ABST number format General tax identification number (TIN) consisting of

5/6 digits and the suffix “58” is added to signify ABST

(e.g., XXXXXX-58)

ABST return periods Monthly

Thresholds

Registration XCD300,000 (or none for certain taxable persons)

Recovery of ABST by

non-established businesses No

B. Scope of the tax

ABST applies to the following transactions:

• The supply of taxable goods and services by a taxable person in Antigua and Barbuda

• The importation of taxable goods from outside Antigua and Barbuda, other than exempt

imports

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

50 An t i g uA A n d bA r b u dA

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for ABST in that jurisdiction

where it has customers that are not taxable persons. In Antigua and Barbuda, no services are

subject to the “use and enjoyment” provisions.

Transfer of a going concern.

Normally the sale of the assets of an ABST-registered or ABST-reg-

istrable business will be subject to ABST at the appropriate rate. However, a transfer of a business

as a going concern (TOGC) may be zero-rated under certain conditions. A TOGC is the sale of

a business or part of a business capable of separate operation including assets. Where the sale

meets the conditions, the supply is treated as zero-rated. In Antigua and Barbuda, a TOGC is

treated as zero-rated of ABST where the following conditions are met:

• The supply would otherwise have been a taxable supply that was not a zero-rated supply

• The supplier has agreed in writing with the recipient that the taxable activity is supplied as a

going concern

• The supplier has notified the Commissioner, in writing, of the details of the supplies treated as

zero-rated because of the transfer, including the quantities and values of the things supplied

Transactions between related parties.

The value of the supply of transactions between related par-

ties is the ABST-exclusive fair market value of the supply. There is no difference between the

supply of goods and services.

C. Who is liable

Antigua and Barbuda ABST law imposes a registration requirement on any person who makes

taxable supplies in Antigua and Barbuda, other than a person whose annual turnover is less than

XCD300,000 a year.

In general, any person that begins making taxable supplies in Antigua and Barbuda and expects

to exceed the registration threshold above must apply to the ABST authorities for registration

within 21 days after the date on which taxable supplies are first made. Additionally, government

entities, local authorities, councils, promoters or proprietors of public entertainment and profes

sionals such as lawyers, accountants or auditors are required to register irrespective of whether

they exceed the registration threshold.

Exemption from registration.

The ABST law in Antigua and Barbuda does not contain any provi-

sion for exemption from registration.

Voluntary registration and small businesses.

A person may apply for voluntary registration if they

are making taxable supplies below the mandatory ABST registration threshold (XCD300,000) if

they meet the following conditions:

• Are making or will make taxable supplies

• Carry on taxable activities from a fixed place

• Will keep proper records

• Will file regular, reliable ABST returns and comply with other tax obligations

Group registration.

Group ABST registration is not allowed in Antigua and Barbuda.

Fixed establishment.

In Antigua and Barbuda, there is no legal definition of a fixed establishment

for ABST purposes. A non-established business that carries on a taxable activity would be

required to register for ABST purposes if it meets the registration threshold as outlined below.

Non-established businesses.

A non-established business is a business that does not have a fixed

establishment in Antigua and Barbuda. A non-established business must register for ABST in

Antigua and Barbuda where it carries on a taxable activity in Antigua and Barbuda and meets the

registration requirements as outlined above (i.e., exceeds the registration threshold). Input tax

incurred by non-established businesses is not recoverable unless the non-established business is

registered for ABST.

An t i g uA A n d bA r b u dA 51

Tax representatives.

Tax representatives are not required in Antigua and Barbuda. However, a tax-

able person can voluntarily choose to appoint a tax representative if they wish to do so.

Reverse charge.

The reverse-charge mechanism applies in Antigua and Barbuda. Where a resident

taxable person in Antigua and Barbuda receives a supply of services from a nonresident taxable

person (i.e., a business-to-business [B2B] supply), ABST maybe payable by the recipient of such

services. This occurs where the supply of services would have been taxable in Antigua and

Barbuda had they been performed there, they are utilized or consumed there and the recipient

uses the services to make exempt supplies, for private or domestic use, or to provide entertain

ment other than in the course of a taxable supply of entertainment.

Domestic reverse charge.

There are no domestic reverse charges in Antigua and Barbuda.

Digital economy.

There are no specific rules relating to the taxation of the digital economy. In

practice, nonresident providers of electronically supplied services for B2B and business-to-con

sumer (B2C) supplies would be required to register and account for ABST in Antigua and

Barbuda. This only applies to services that are physical performed or used in Antigua and

Barbuda.

There are no other specific e-commerce rules for imported goods in Antigua and Barbuda.

Online marketplaces and platforms. No special rules exist for online marketplaces and platforms

in Antigua and Barbuda.

Registration procedures.

Taxable persons are required to register in the prescribed form (by paper

or email to irdtaxpa[email protected]v.ag) with the Antigua and Barbuda Inland Revenue Depart-

ment (IRD) and are required to provide the incorporation documents of the person being regis

tered. Registration with the Inland Revenue Department is required prior to completing ABST

registration. If submitting the ABST registration application by paper, the application must be

sent to the following address:

Woods Centre

Friars Hill Road

St. John’s

Antigua, W.I.

Deregistration.

A taxable person must deregister when they cease to make taxable supplies and

must notify the Commissioner in writing of such cessation within 15 days of the cessation. The

taxable person will be deregistered, subject to minimum registration period of two years, with

effect from the date set out in the notice of cancellation.

Changes to ABST registration details.

A taxable person must notify the Commissioner in writing,

within 14 days of any change in the name, address, place of business or nature of the taxable acti-

vity of the taxable person.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

ABST, including the zero rate.

The ABST rates are:

• Standard rate: 15%

• Reduced rate: 14%

• Zero-rate: 0%

The standard rate of ABST applies to all supplies of goods and services unless a specific measure

provides for the reduced rate, zero rate or an exemption.

52 An t i g uA A n d bA r b u dA

Examples of goods and services taxable at 0%

• Exported goods and services

• Supply or import of food for human consumption (as specified in the ABST regulations)

• Supply of electricity provided to residential premises for domestic use (or in any other case, as

provided in the ABST regulations)

• Supply or import of water

• Supply or import of fuel, as defined under the following Customs tariff headings:

– 2710.10 Motor spirit (gasoline) and other light oils and preparations

– 2710.20 Kerosene and other medium oils (not including gas oils)

– 2710.30 Gas oils

– 2710.40 Fuel oils, not elsewhere specified or included

– 2711.00 Petroleum gases and other gaseous hydrocarbons

Examples of goods and services taxable at 14%

• Supply of hotel accommodation and other accommodation for a period of more than 45 days

may be taxable at a rate of 14% if the supplier chooses not to treat it as an exempt supply

The term “exempt supplies” refers to supplies of goods and services that are not liable to ABST

and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Financial services

• Supply of goods to taxable persons if used solely in connection with making exempt supplies

• International transport services, including international mail services provided by the General

Post Office

• Domestic postal services by the General Post Office

• Sale of real property relating to residential premises (“real property” includes an estate, inter

est, easement, or right, whether equitable or legal, in, to, or out of land, including anything attached

to land or things permanently fastened to anything attached to land)

• Lease, license, hire or other form of supply of the right to occupy or be accommodated in resi-

dential premises

• Supplies relating to land

• Holiday or hotel accommodation if the accommodation is provided to an individual for a

period of more than 45 days

• Residential accommodation to an individual for more than 45 days

• Transportation of passengers by land, sea or air within Antigua and Barbuda

• Education services

• Medical, dental, nursing, convalescent, rehabilitation, midwifery, paramedical, optical or other

similar services in particular circumstances

• Services in a nursing home or residential care facility

• Prescription medicines

• Veterinary services

• Supply of gambling conducted by a nonprofit association approved by the Minister

• Supply of unimproved land or of land to be used for agricultural purposes

• Supply of unprocessed agricultural products

• Supply of live animals or insects, other than domesticated animals generally held as pets

• Local entertainment services

Option to tax for exempt supplies.

The supply of hotel or other accommodation for a period of

less than 45 days is subject to the standard rate of 15%. Accommodation for a period of more

than 45 days is an exempt supply. Where the supplier chooses not to treat the supply as exempt,

the supply is subject to ABST at the reduced rate of tax of 14%.

An t i g uA A n d bA r b u dA 53

E. Time of supply

In general, the time of supply for goods and services supplied by a taxable person is the earlier

of the following events:

• The date of issuance of the invoice by the supplier

• The date on which any consideration is received for the supply

Deposits and prepayments.

There are no special time of supply rules in Antigua and Barbuda for

deposits and prepayments. As such, the general time of supply rules apply (as outlined above).

Continuous supplies of services.

Where a progressive or periodic supply is treated as a series of sep-

arate supplies made successively, each successive supply is treated as being made on the earliest

of the following events:

• The date on which an invoice for the progressive or periodic payment corresponding to the

supply is issued by the supplier, but only if a separate invoice is issued for each such supply

• The date on which the progressive or periodic payment corresponding to the supply is due

• The date on which any of the progressive or periodic payment corresponding to the supply is

received

• The first day of the period, if any, to which the progressive or periodic payment relates

• The first day on which the recipient is able to commence use or enjoyment of the successive

part of the actual supply which corresponds to the supply

Goods sent on approval for sale or return.

There are no special time of supply rules in Antigua and

Barbuda for supplies of goods sent on approval for sale or return. As such, the general time of

supply rules apply (as outlined above).

Reverse-charge services.

There are no special time of supply rules in Antigua and Barbuda for

supplies of reverse-charge services. As such, the general time of supply rules apply (as outlined

above).

Leased assets.

If payment for the leased goods is made progressively or periodically, the time of

supply rules applicable to continuous supplies of services should be applied (as outlined above).

In any other case, the general time of supply rules apply.

Imported goods.

ABST is payable on the importation of goods other than an exempt import. ABST

on the entry of imported goods becomes due and payable at the time when the goods are entered

for the purposes of the Customs (control and management) Act and is payable by the importer.

F. Recovery of ABST by taxable persons

The ABST paid by a taxable person is recoverable as input tax if it relates to goods and services

acquired for the purposes of making taxable supplies. Input tax is recovered by offsetting it

against output tax (that is, tax charged on supplies made) in the ABST return for each ABST

period.

Any refunds arising from the above may be carried forward and offset against any net VAT tax

payable in a subsequent tax period.

The time limit for a taxable person to reclaim input tax in Antigua and Barbuda is three years.

This is from the date the taxable person has the right to apply for the refund.

Nondeductible input tax.

Input tax may not be recovered on purchases of goods and services that

are not used for taxable or business purposes.

Examples of items for which input tax is nondeductible

• Personal passenger vehicles, spare parts, repair and maintenance services

• Personal or private entertainment

54 An t i g uA A n d bA r b u dA

• Membership in recreational associations or clubs

• Domestic or private acquisitions and imports

Examples of items for which input tax is deductible

(if related to taxable business use)

• Entertainment, not supplied to related persons or employees

• Passenger vehicles, spare parts, repair and maintenance services

• Acquisitions and imports

Partial exemption.

If all supplies made by a taxable person during a tax period are taxable sup-

plies (i.e., standard-rated, reduced-rated and zero-rated supplies), the input tax incurred in the

period is deductible in full. However, if some, but not all, of the supplies made by the person

during the tax period are taxable supplies, a partial recovery calculation may be required. This

means that a partial recovery calculation is required where costs incurred relate to both taxable

and exempt supplies. The ABST Act provides a standard method of apportionment to calculate

the amount of input tax the taxable person is entitled to claim. The standard method of apportion

ment is calculated as A x B/C, where A, B and C represent the following:

A = The total amount of the input tax payable in respect of acquisitions and imports made by the

taxable person during the period, less the sum of the input tax attributable to acquisitions or

imports acquired or made, which are directly allocable to the making of taxable supplies, and in

respect of deductions which are disallowed under the ABST Act.

B = The total amount of taxable supplies made by the taxable person during the period.

C = The value of all supplies made by the taxable person during the period.

C does not include the value of supplies made through a taxable activity carried on by the taxable

person outside Antigua and Barbuda. This covers foreign operations carried on by the entity

outside of Antigua and Barbuda such as branch operations.

A taxable person may, where the fraction B/C is more than 0.90, deduct the total amount of the

input tax on the supplies/imports acquired or made during the period. A taxable person may not,

where the fraction B/C is less than 0.10, claim input tax deduction on taxable supplies made

during the period.

The above standard method does not apply to financial institutions making both taxable and

exempt supplies during a tax period. Instead, the amount of the input tax claimed by a financial

institution is calculated as A x B/C, where A, B and C represent the following:

A = The total amount of input tax payable in respect of taxable acquisitions or imports made in

the preceding calendar year valued at XCD100,000 or more.

B = The value of all taxable supplies made by the taxable person during the preceding two cal

endar years.

C = The value of all supplies made by the taxable person during the preceding two calendar years,

other than supplies made through a taxable activity carried on by the person outside Antigua and

Barbuda.

Capital goods.

In Antigua and Barbuda, capital goods (known as capital assets) are defined as an

asset, whether tangible or intangible, acquired by a person for use in the person’s taxable activity

but does not include:

• Consumables or raw materials

• An asset acquired for the principal purpose of resale in the ordinary course of carrying on the

person’s taxable activity, whether or not the asset is to be sold in the form or state in which it

was acquired

In Antigua and Barbuda there are no special input tax recovery rules for capital assets. The nor

mal rules outlined above apply. Where a capital asset is used to make both taxable and exempt

An t i g uA A n d bA r b u dA 55

supplies, the taxable person is required to apportion the input tax according to the partial exemp-

tion formula outlined above. However, a taxable person must make an adjustment to the initial

input tax credits claimed if the actual use of a capital asset does not match the initial intended

use of the capital asset and the difference between the actual and intended use was greater than

10% of the total actual use of those goods or services.

Refunds.

A refund arises when the total input tax credits allowed in the tax period exceed the total

output tax payable for that tax period. The difference will be carried forward to the next month’s

return and will be treated as a deductible input tax credit for that tax period. Further excesses will

be carried forward consecutively for six consecutive months. If after six months there is an

excess credit of XCD100 or more, the taxable person may then apply for a refund. If the excess

credit does not exceed XCD100, it is carried forward and used as input tax creditable in that

period.

Pre-registration costs.

Input tax incurred on pre-registration costs in Antigua and Barbuda is not

recoverable.

Bad debts.

Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad

debts) can be recovered in Antigua and Barbuda.

A taxable person is allowed to claim bad debt

relief for tax paid in respect of a taxable supply made by the taxable person where the whole or

part of the consideration for the supply is subsequently treated as a bad debt.

Noneconomic activities.

Input tax incurred on purchases that are used for noneconomic activities

is not recoverable in Antigua and Barbuda.

G. Recovery of ABST by non-established businesses

Input tax incurred by non-established businesses that are not registered for ABST in Antigua and

Barbuda is not recoverable.

H. Invoicing

ABST invoices.

A taxable person making a taxable supply to a registered recipient (i.e., a B2B

supply) is required to issue the recipient with a full ABST invoice at the time of the supply. An

ABST invoice is necessary to support a claim for input tax recovery.

Credit notes.

A credit note, or debit note must be issued when the quantity or consideration shown

on a tax invoice is altered. Credit and debit notes must contain broadly the same information as

a tax invoice.

Electronic invoicing.

Electronic invoicing is allowed in Antigua and Barbuda, but not mandatory.

There are no provisions in the law for electronic invoicing in Antigua and Barbuda. In practice,

standard paper invoicing is preferred, but electronic invoicing may be accepted.

Simplified ABST invoices.

A taxable person making a taxable supply to a registered recipient (i.e.,

a B2B supply) is authorized to issue a sales receipt in lieu of a full ABST invoice, if the consid

eration for the taxable supply is in cash and does not exceed XCD50.

A taxable person making a taxable supply to an unregistered recipient (i.e., a B2C supply) is

prohibited from issuing a full ABST invoice but instead must issue a sales receipt to the recipient.

Self-billing.

Self-billing is not allowed in Antigua and Barbuda.

Proof of exports.

ABST is charged at a rate of 0% on supplies of exported goods. However, to

qualify as zero-rated, exports must be supported by evidence that confirms the goods have left

Antigua and Barbuda. Evidence of the consignment or delivery of goods to an address outside

Antigua and Barbuda; or the delivery of the goods to the owner, charterer or operator of a ship

or aircraft engaged in international transport for the purpose of carrying the goods outside

56 An t i g uA A n d bA r b u dA

Antigua and Barbuda is considered sufficient evidence that the goods have been exported, in the

absence of proof to the contrary.

Foreign currency invoices.

Invoices may be issued in a foreign currency from the domestic one,

the Eastern Caribbean dollar (XCD). The currency in which the invoice is issued should be clear-

ly indicated on the invoice. In the case of imports, the amount is to be converted at the exchange

rate as determined by the Customs (control and management) Act. In all other cases, the amount

is to be converted at the exchange rate applying between the currency and the XCD at the time

the amount is taken into account.

Supplies to nontaxable persons.

A taxable person must not issue full ABST invoices to nontaxable

persons. Instead, sales receipts must be issued. See the Simplified ABST invoices subsection

above.

Records.

In Antigua and Barbuda, examples of what records must be held for ABST purposes

include:

• Copy of all ABST invoices, ABST credit notes and ABST debit notes issued by the taxable per-

son, maintained in chronological order

• All ABST invoices, ABST credit notes and ABST debit notes received by the taxable person,

whether originals or copies

• All customs documentation relating to imports and exports of goods by the taxable person

• Generally for all imported services, sufficient written evidence to identify the supplier and the

recipient, and to show the nature and quantity of services supplied, the time of supply, the place

of supply, the consideration for the supply and the extent to which the supply has been used by

the recipient for particular purposes

In Antigua and Barbuda, ABST books and records must be held within the country.

Record retention period. Records must be retained for seven years after the end of the tax period

to which they relate.

Electronic archiving. Electronic archiving is mandatory in Antigua and Barbuda. Registered tax

able persons must retain their records by electronic means by use of electronic tills or point of

sale systems and computerized accounting systems.

I. Returns and payment

Periodic returns.

The ABST period in Antigua and Barbuda is the calendar month. The ABST

return must be filed one calendar month after the end of the tax period (i.e., the deadline dates

vary each month according to the last date of each month, e.g., 28th, 30th, 31st).

Periodic payments.

Any tax due for the period must be remitted by the same date as the return

deadline, i.e., one calendar month after the end of the tax period.

Payments to the IRD can be made by credit/debit card (in person at the tax authorities’ offices),

direct deposit, mail (a form and check), cash/check (in person at the tax authorities’ offices) and

e-payment (online).

Ideally, payment should be submitted with the return, but in some instances (e.g., for wire trans

fer and direct deposit) this may not be possible. In such instances the payment memo should

indicate what the payment is in respect of.

Electronic filing.

Electronic filing is allowed in Antigua and Barbuda, but not mandatory. ABST

returns can be submitted electronically via email to ird.acbrevenue@ab.gov.ag.

Payments on account.

Payments on account are not required in Antigua and Barbuda.

Special schemes.

No special schemes are available in Antigua and Barbuda.

An t i g uA A n d bA r b u dA 57

Annual returns.

Annual returns are not required in Antigua and Barbuda.

Supplementary filings.

No supplementary filings are required in Antigua and Barbuda.

Correcting errors in previous returns.

If a taxable person discovers an error or an omission from

a previous ABST return, the taxable person is required to file an amended return. A request to

amend a return must be made in writing within three years after the end of the tax period to which

the return relates.

Digital tax administration.

There are no transactional reporting requirements in Antigua and

Barbuda.

J. Penalties

Penalties for late registration.

A taxable person who fails to apply for registration is liable for an

administrative penalty equal to double the amount of ABST payable from the time the taxable

person is required to apply for registration until the person files an application or is registered by

the Commissioner, whichever is earlier. This penalty will not apply if the taxable person has been

convicted of the equivalent criminal offense.

A person who knowingly or recklessly fails to apply for ABST registration commits a criminal

offense and is liable on conviction to a fine not exceeding XCD10,000 or imprisonment for a

term not exceeding two years or both.

Penalties for late payment and filings.

A taxable person who fails to file an ABST return within

the required due date is liable to a penalty equal to the greater of XCD500 or 5% of the ABST

payable for the period to which the return relates. Any ABST payable which is outstanding by the

due date is liable for interest equal to 1% per month on the amount unpaid, calculated from the

date the payment is due until the date the payment is made.

Penalties for errors.

Failure to maintain proper records could result in a penalty of XCD50 per

day for each day that the failure continues. No penalty is imposed in the following circumstanc

es:

• Where a false statement is made, if the person who made the statement did not know and could

not reasonably be expected to know that the statement was false or misleading.

• Where incorrect information relating to a recipient is included in an ABST invoice, credit note

or debit not if the person after taking all due care reasonable believed that the information relat

ing to the recipient is correct.

The late notification or failure to notify changes to a taxable person’s ABST registration details

to the Commissioner as required is liable to a maximum penalty of XCD1,000. A taxable person

who fails to notify the tax authorities of changes to their ABST registration details commits a

criminal offense and is liable on conviction to a fine not exceeding XCD10,000 or imprisonment

for a term not exceeding two years or both. For further details, see the subsection Changes to

ABST registration details above.

Penalties for fraud.

A taxable person who willfully evades, or attempts to evade the assessment,

payment, or collection of ABST commits an offense and is liable on summary conviction to a

fine not exceeding XCD25,000, or to imprisonment for a term not exceeding two years, or both.

A taxable person who uses a false TIN, issues a false ABST invoice, credit note, debit note or

provides these documents in a manner that is contrary to the requirements of legislation commits

an offense and is liable on conviction to a fine not exceeding XCD25,000 or to imprisonment for

a term not exceeding two years.

Personal liability for company officers.

Where an offense has been committed by a company, every

person who at the time of the commission of the offense was a director or other similar officer

58 An t i g uA A n d bA r b u dA

of the company or was acting in or purporting to act in such capacity is deemed to have commit-

ted the offense. The officer would be subject to the corresponding penalty for the offense.

Officers will not face liability if the offense was committed without their knowledge, and they

exercised all such diligence to prevent the commission of the offense as ought to have been exer

cised in the circumstances.

Statute of limitations.

The statute of limitations in Antigua and Barbuda is three years. The start

date for the tax authorities to assess an administrative penalty or institute criminal proceedings

vary and are as follows:

• If the facts giving rise to the administrative penalty or the offense involve the doing of an act,

within three years after the doing of the act.

• If the facts giving rise to the administrative penalty or the offense involve the failure to do an

act, within three years after the Commissioner becomes aware of the failure.

• If the facts giving rise to the administrative penalty or the offense involve the nondisclosure or

incorrect disclosure of information relating to ABST liability for a tax period, within three years

after the correct ABST liability has become final for that tax period.

Argentina

ey.com/GlobalTaxGuides

Buenos Aires GMT -3

25 de Mayo 487

C1002ABI Buenos Aires

Argentina

Indirect tax contacts

Gustavo Scravaglieri +54 (11) 4510 2224

gustavo.scravaglieri@ar.ey.com

Ariel Becher +54 (11) 4318 1686

ariel.becher@ar.ey.com

Pablo Baroffio +54 (11) 4318 1600

pablo.baroffio@ar.ey.com

A. At a glance

Names of the taxes Value-added tax (VAT)

Turnover tax (IIBB)

Local names Impuesto al valor agregado (IVA)

Impuesto sobre los ingresos brutos (IIBB)

Date introduced January 1975 (VAT)

January 1977 (IIBB)

Trading bloc membership Mercosur

Administered by

VAT Federal Administration for Public Revenues

(http://www.afip.gov.ar)

IIBB Revenue service of each province

(Dirección General de Rentas)

VAT rates

Standard 21%

Reduced 10.5%

Other 27%, zero-rated (0%) and exempt

IIBB rates (average)

Industrial 1% to 4%

Commerce and services 2.5% to 5%

Commission and

intermediation 4.9% to 8%

VAT and IIBB number

format30-99999999-1

VAT and IIBB return

periods Monthly

60 Ar g e n t inA

Thresholds

VAT registration For corporations and other legal entities, commencement

of activity

For individuals, registration required if sales are the higher

of the following:

ARS6.0 million for goods

ARS4.2 million for services

IIBB registration Commencement of sales activity

Recovery of VAT or IIBB by

non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• Supply of goods or services made in Argentina by a taxable person

• Reverse-charge services received by a taxable person in Argentina

• The importation of goods

• The supply of digital services rendered by foreign parties with effective use in Argentina to

VAT non-registered taxable persons

IIBB applies to the supply of goods or services made in Argentina by a taxable person and recent-

ly in some provinces to the provision of certain services from foreign suppliers to users located

in certain Argentinean provinces.

VAT is a national tax, whereas IIBB is a provincial tax and applies to every stage of the supply

chain, i.e., a turnover tax, and is the reason why the rate is lower. IIBB is included in the sales

price and cannot be added at the end, whereas VAT is added to the sales price at the end. For

example, if the price for a supply is ARS100, IIBB is included in the 100, then VAT is charged

on the 100.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for VAT in every jurisdiction

where it has customers that are not taxable persons. In Argentina, no services are subject to the

“use and enjoyment” provisions. However, for import and export of services, it is relevant to

identify a similar concept, which is where the services are “effectively used or exploited.” This

rule applies to all services imported and exported.

Transfer of a going concern.

Transfer of going-concern rules do not apply in Argentina. As such,

VAT applies to all sales of a business or part of a business capable of separate operation, includ

ing assets.

Transactions between related parties.

In Argentina, for a transaction between related parties, the

value for VAT purposes is calculated at the market value.

C. Who is liable

A registered taxable person is a business entity or individual who makes taxable supplies of

goods or services while doing business in Argentina and who is required to register for VAT.

VAT registration is mandatory in the following circumstances:

• Corporations or other legal entities: on commencement of activities

• Individuals: if annual taxable turnover from supplies of goods exceeds ARS6.0 million and

annual taxable turnover from supplies of services exceeds ARS4.2 million

Ar g e n t inA 61

A registered IIBB payer is a business entity or individual who makes taxable supplies of goods

or services while doing business in Argentina. Registration is required on commencement of

activities. No turnover threshold applies.

Exemption from registration.

The VAT law in Argentina does not contain any provision for exemp-

tion from registration.

Voluntary registration and small businesses.

The VAT law in Argentina does not contain any provi-

sion for voluntary VAT registration, as there is no registration threshold (i.e., all entities that

make taxable supplies are obliged to register for VAT).

Group registration.

Group VAT registration is not allowed in Argentina.

Fixed establishment.

In Argentina there is no legal definition of a fixed establishment for VAT

purposes. However, the Argentine Income Tax Law (ITL) defines a “permanent establishment”

(PE) as a fixed place of business through which a foreign entity carries out its activity in full or

in part and includes in particular: a place of management or administration, a branch, an office,

a factory, a workshop, among others. A foreign company that triggers a PE should register a local

legal vehicle (branch or subsidiary). Such legal vehicle should register as a resident taxable per

son for the relevant taxes including VAT.

Non-established businesses.

Non-established businesses must register as a taxable person for

VAT or IIBB (through a local legal vehicle if created) if it makes regular supplies of goods or ser-

vices in Argentina and if it is required to account for VAT on its supplies.

If a non-established business meets the requirements to register a local entity, for example, per

manent establishment, in Argentina, it must account for the tax on supplies made in Argentina.

If a non-established business carries out taxable activities in the Argentine territory and is not

required to register a local entity, any beneficiaries, recipients, lessees, borrowers, agents and

intermediaries of nonresidents acting as substitute taxable persons will pay the VAT (the general

rate being 21%) and use the amounts paid as input tax to offset their own output tax. When it is

not possible to withhold the VAT, the law states that the substitute taxable person will be respon

sible for paying the VAT. A similar scheme has been implemented in certain provinces for turn-

over tax purposes for services rendered by nonresidents.

Tax representatives.

Tax representatives are mandatory in Argentina. In the case of corporations

or other legal entities, the tax representative is the natural person who uses a “fiscal password”

provided by the tax authority (AFIP) to carry out various tasks before AFIP. The name for this

role is “relationship manager.” In order to file the affidavits corresponding to those taxes for

which the taxable person has been registered, the relationship manager must access AFIP’s web

page (www.afip.gob.ar) and have a fiscal password with no less than security level 3, but it can

delegate such activities to other individuals.

Reverse charge.

Under the reverse-charge mechanism, the customer must calculate and pay the

VAT. This method applies to supplies made outside Argentina if the use or effective exploitation

of the supply occurs within Argentina and if the supply is within the scope of VAT. If the reverse

charge applies, a non-established supplier is not required to register for VAT. The reverse charge

does not apply for IIBB purposes.

Domestic reverse charge.

There are no generalized reverse-charge provisions for domestic trans-

actions when the supplier is an Argentine party. Only some specific regimes may involve the

buyer assessing the VAT (for instance, for those carrying out habitual purchases of goods to end

users).

Digital economy.

Digital services received by established VAT-registered taxable persons have to

apply the reverse-charge mechanism. For digital services received by Argentine individuals (i.e.,

62 Ar g e n t inA

nontaxable persons), such services are subject to VAT in Argentina when rendered by foreign

parties where the effective use of the services is conducted in Argentina.

Nonresidents who provide electronically supplied services do not need to register for VAT in

Argentina. There are no other e-commerce rules for imported goods in Argentina.

The definition of digital services includes, among others: website provision and hosting; digital-

ized product provision; remote system management and online technical support; web services

comprising data storage and online advertising; software as a service (SaaS); access or download

of images, text, information, video, music, games (including gambling games), including the use

of streaming technology without downloading those items to a storage device; dating websites;

internet services provision; e-learning; and data handling and calculation through the internet or

other networks.

The list of digital service providers for whom the collection agents must collect the VAT is pub

lished and updated by AFIP.

The responsible party for reporting and paying the VAT is the service recipient. If the recipient

is VAT registered it will be responsible for the payment of the tax. However, if it is a private con-

sumer (i.e., not VAT registered), the payment will be made by a resident intermediary (e.g., a

credit card company or bank). They are required to act as a collection agent. If more than one

intermediary is involved, the one required to act as a collection agent will be the agent with the

closest commercial relationship with the digital service provider.

The system does not require the non-established business to register for VAT, only the credit card

company would. The tax authorities provide a list of companies who are non-established and

providing digital services to private consumers in Argentina. Then the credit card companies

check this list and apply VAT to supplies made by the companies on the list. The list is updated

once per year. The credit card companies charge the VAT onto the private consumer and don’t

take it out of the selling price from the non-established business.

Online marketplaces and platforms.

No specific rules apply for foreign marketplaces and plat-

forms, other than the digital services provision (see above). For local marketplaces, specific rules

apply that are aimed at applying certain controls and domestic withholdings to sellers in such

marketplaces to ensure appropriate tax collection by the tax authorities of transactions routed by

such platforms.

Registration procedures.

To register for VAT, the taxable person or its legal representative must

access AFIP’s website and, using the fiscal password, select the option F420/T Alta de Impuestos/

Regimenes/Alta de Impuestos. The registration is performed online. The taxable person must be

previously registered with AFIP and have a tax ID number (CUIT), as described below.

The IIBB is applicable for each of Argentina’s 24 local jurisdictions, and the procedure for reg

istering a taxable person varies by jurisdiction. Taxable persons that develop their activities in

only one jurisdiction need only register there. For taxable persons that carry out activities in more

than one jurisdiction, registration will be governed by the multilateral agreement regime. These

taxable persons will register on AFIP’s website, using the fiscal password to register in each

jurisdiction in which activities will be carried out using the CM01 form. Additional documenta

tion could be requested, depending on the local jurisdictions.

If a taxable person is operating in more than one jurisdiction, the jurisdictions between them they

have multilateral agreements in place. They provide guidance on how to account for the VAT and

how it is allocated across the jurisdictions. Each jurisdiction has different procedures, e.g., dif

ferent forms, time frames and regimes.

Ar g e n t inA 63

A corporation’s legal representative is the chairman of the board. The request for registration

before the national tax authorities (AFIP) must be filed by the legal representative of the legal

entity, with the CUIT number and fiscal password (security level 3). The registration is filed

through the application “Módulo Inscripción De Personas Jurídicas – F. 420/J – Versión 2.0”

available on AFIP’s website. To complete the registration, the legal representative must bring the

signed 420/J form to the correct AFIP office with all other mandatory documentation.

Deregistration.

Taxable persons can deregister from VAT through the AFIP webpage, with the

taxable person or the tax representative using the fiscal password.

To deregister from IIBB, the taxable person should comply with the mechanisms established by

the local jurisdiction. Taxable persons who wish to deregister from IIBB under the multilateral

agreement regime need to file the request online on the AFIP website.

Changes to VAT registration details.

Any changes to the taxable person’s registration details (name

of company, address, type of business, etc.) must be notified to the tax authorities within 10 days.

The filing must be made utilizing paper forms and accompanying the relevant documentation

supporting the changes.

D. Rates

For VAT, term “taxable supplies” refers to supplies of goods and services that are liable to VAT,

including supplies at the zero rate.

In Argentina, the following four rates of VAT apply:

• Standard rate: 21%

• Reduced rate: 10.5%

• Increased rate: 27%

• Zero-rate: 0%

• Specific rates (applicable to taxable persons engaged in certain publishing activities, not exceed-

ing certain sales thresholds): 5%

The standard rate of 21% applies to all supplies of goods or services, unless a specific measure

imposes the higher rate or provides for a reduced rate, the zero rate or an exemption.

Examples of goods and services taxable at 0%

• Exported goods

• Exported services

Examples of goods and services taxable at 10.5%

• Interest and commissions on loans made by banks

• Sale, preparation, manufacturing or construction and final import of certain capital assets

• Long-distance passenger transportation (over 100 km)

• Sale or import of newspapers, magazines and similar periodic printed publications

Examples of goods and services taxable at 27%

• Telecommunications not used exclusively in a dwelling

• Supply of gas, electric power and water not used exclusively in a dwelling

• Sewage disposal and drainage services

The term “exempt supplies” is used for supplies of goods and services that are not liable to tax.

Exempt supplies do not generate a right of input tax deduction (see Section F).

Examples of exempt supplies of goods and services

• Education

• Rental of real estate under certain conditions

• Books

64 Ar g e n t inA

• Some staples, such as water and milk for specified buyers

• Local passenger transportation rendered by cabs (less than 100 km)

• International transportation

• Interest on preferred shares and equity securities, bonds and other securities issued by the fed

eral government, provinces and municipalities

Option to tax for exempt supplies.

The option to tax exempt supplies is not available in Argentina.

For IIBB, the term “taxable supplies” refers to supplies of goods and services that are liable for

IIBB, including supplies at the zero rate.

In Argentina, numerous rates of IIBB currently apply. Standard rates between 1% and 4% apply

to industrial activities, the medium rates between 2.5% and 5% apply to commercial activities,

and the increased rates between 4.9% and 8% apply to commissions and intermediation services.

A zero rate applies in some cases.

The following lists provide some examples of supplies that are taxed at various rates of IIBB or

that are exempt in the Province of Buenos Aires.

Examples of goods and services taxable at 0%

• Exported goods

• Exports of services in some jurisdictions

Examples of goods and services taxable at between 1% and 4%

• Other manufacturers (not included in exemptions)

• Ship constructions

• Agricultural products

Examples of goods and services taxable at between 2.5% and 5%

• Repairs of engines, machines, locomotives, ships, aircraft, pumps and certain other items

• Electricity distribution

• Hotel services

• Restaurants

• Communications

• Equipment loans

• Sales of goods (in general)

• Sales of machines and equipment

Examples of goods and services taxable at 8%

• Sales of tobacco

• Commissions

• Banks and intermediation

The term “exempt supplies” is used for supplies of goods and services that are not liable for tax.

Examples of exempt supplies of goods and services

• Education

• Rental of real estate under certain conditions

• Interest on bank accounts and fixed-term deposits, depending on the local jurisdiction

• Manufacturer activities under certain conditions

• Sales of fixed assets

E. Time of supply

The time when VAT or IIBB becomes due is called the “time of supply” or “tax point.” The basic

time of supply for goods is the earlier of when the goods are delivered or when the invoice is

issued. The basic time of supply for services is the earlier of when the service is performed or

completed, or when full or partial payment of the consideration is received.

Ar g e n t inA 65

Deposits and prepayments.

The only provisions in Argentinean VAT law concerning deposits and

prepayments are those where a prepayment fixes the payable price. In these situations, the “time

of supply” occurs at the moment when the prepayment is made.

The time of supply rule for deposits and prepayments does not differ for supplies of goods or

services.

There are no specific rules for where the deposits and prepayments are refundable or nonrefund

able, or where the supply does not take place. Therefore, in practice these aspects do not nor-

mally change the time of supply rules outlined above.

Continuous supplies of services.

For continuous supplies, the time of supply is established by law

on a monthly basis. This means that the time of supply is triggered on a monthly basis, i.e., on

the last day of each month, such that there is a triggering event each month.

Goods sent on approval for sale or return.

Argentina does not have specific rules for these circum-

stances. As such, normal tax point rules apply.

Reverse-charge services.

The measures regarding reverse-charge services apply to VAT, not to

IIBB. The time of supply for a reverse-charge service is the earlier of when the service is pro

vided or when the consideration is paid in full or in part.

The recipient of the service must pay the tax within 10 days after the time of supply arises. The

amount paid may be treated as input tax (see Section F) in the tax period immediately following

the tax period when the tax point arose.

Leased assets.

The time of supply would generally take place upon the due date or the collection

of the rental, whichever occurs first.

Imported goods.

The time of supply for imported goods is when the goods clear all customs

procedures. At that time, VAT is due along with custom duties.

The VAT rate applies to the normal price defined according to import duties plus the taxes due

to the import itself or deriving from it.

F. Recovery of VAT by taxable persons

Note that only VAT is recoverable, as it is based on a credit and debit system. IIBB is not recov-

erable, as it is cumulative, and there is no credit system. As such, all references in this section to

“input tax” is in respect of VAT and not IIBB.

A taxable person may recover input tax (also known as credit VAT), which is VAT charged on

goods and services supplied to it for business purposes. Input tax is generally recovered by being

deducted from output tax (also known as debit VAT), which is VAT charged on supplies made.

Input tax includes VAT charged on goods and services supplied within Argentina, VAT paid on

imports of goods and self-assessed VAT on reverse-charge services.

A valid tax invoice or customs document must generally accompany a claim for input tax.

The time limit for a taxable person to reclaim input tax in Argentina is in the monthly period in

which it is invoiced. However, in practice, it should also be possible to reclaim input tax for

previous periods.

Nondeductible input tax.

Input tax may not be recovered on purchases of goods and services that

are not used for business purposes (for example, goods acquired for private use by entrepre

neurs). In addition, input tax may not be recovered for some items of business expenditure.

66 Ar g e n t inA

The following lists provide some examples of items of expenditure for which input tax is not

deductible and examples of expenditure related to a taxable business use for which input tax is

deductible.

Examples of items for which input tax is nondeductible

• Accommodation

• Private use of business assets

• Parking

• Restaurants

Examples of items for which input tax is deductible

(if related to business use)

• Advertising

• Business gifts

• Purchase, lease or hire of a car, up to a threshold of ARS4,200 (except for cabs)

• Business entertainment

• Purchase, lease or hire of vans and trucks

• Mobile phones

• Travel expenses

• Taxis

Partial exemption.

When purchases of goods, final imports, leases and performance of services

are used for both taxable and exempt activities, the VAT paid on purchases can only be credited

if directly related to taxable activities (including exports). If purchases are used for both taxable

and exempt activities, an annual pro rata calculation must be carried out by which the percentage

of taxable revenues is compared to total revenues. This percentage is then applied on the input

tax on purchases. The result is the amount of creditable input tax, being the remaining portion

not creditable. Businesses will have to make provisional estimations of such pro rata during the

monthly calendar, and an annual final adjustment is carried out in the last month of the tax year.

Approval from the tax authorities is not required to use the partial exemption standard method in

Argentina. Special methods are not allowed in Argentina.

Capital goods.

VAT related to the purchase of capital goods can be credited in the month in which

the purchase takes place, by applying the same rules that would apply for the purchase of any

other goods (special refund mechanism is explained below). If capital goods are used for both

taxable and exempt activities, the partial exemption rules (see above) will apply. Therefore, if the

capital goods are used for both taxable and exempt activities the portion of the taxable activities

over total revenues determines the computable portion (this calculation only impacts the year of

acquisition).

Refunds.

The taxable person pays monthly on the total amount invoiced, offset by the amount of

input tax invoiced to the taxable person during the same period. If the VAT credit is higher than

the amount of VAT debit during any tax period, such excess is only credited against future tax

liabilities, not refunded, except in the case of exporters who may request a refund.

In addition, the reimbursement of VAT credits resulting from the purchase, manufacture, prepara

tion or import of fixed assets (other than automobiles) that remain as a VAT credit for the taxable

person after six months may be requested, under certain conditions.

A taxable person that has paid too much VAT in a period in error may request a refund of the

overpaid amount. Interest is paid by the VAT authorities on overpaid tax at the monthly rate

published by the tax authorities that is updated on a quarterly basis (3.84% monthly for the third

quarter of 2022).

Ar g e n t inA 67

If the IIBB tax assessment shows an excess in favor of the taxable person, it will be allocated and

deducted in future filings.

Pre-registration costs.

Input tax incurred on pre-registration costs in Argentina is not recoverable.

Bad debts.

Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad

debts) cannot be recovered in Argentina.

Noneconomic activities.

Input tax incurred upon purchases that are used for noneconomic activi-

ties (e.g., supplies not related to the business, donations) must be reimbursed through their inclu-

sion as higher output tax.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Argentina is

not recoverable.

H. Invoicing

VAT invoices.

A taxable person must generally provide a VAT sales invoice for all taxable supplies

made, including exports. A VAT invoice is necessary to support a claim for input tax deduction.

The invoicing rules are set at the national level, so typically apply to VAT. IIBB is not separately

broken down, and the invoice is a self-assessment on the same price. As such, the VAT sales

invoice format is used for all supplies, and the tax authorities accept the VAT sales invoice, set

by national rules, not local.

Credit notes.

A credit note may be used to reduce the VAT and IIBB charged and reclaimed on a

supply of goods and services. A credit note must contain the same information as a sales invoice.

Electronic invoicing.

Electronic invoicing is mandatory for all taxable persons in Argentina. There

are different options to interact with the tax authorities for the purposes of issuing the invoices.

One option is the exchange of information between the ERP system of the taxable person and

AFIP´s website. Another option is to issue the invoices by manually logging into the AFIP’s web-

site with the fiscal password of the taxable person.

Simplified VAT invoices.

Sale of goods and provisions of services (among other transactions) must

follow strict invoicing requirements. Certain activities expressly stated in the regulations are

relieved from complying with such requirements and may issue invoicing according to their

particular practices (for example, banks, passenger transportation activities, sale of tickets for

certain entertainment activities, director’s fees, judicial fees).

Self-billing.

Self-billing is not allowed in Argentina.

Proof of exports.

The shipping permit issued for exports is the customs document that formally

authorizes the exit of those goods.

Argentine VAT and IIBB are not chargeable on supplies of exported goods. However, to qualify

as VAT-free, exports must be supported by evidence that the goods have left Argentina. The

related input tax may be reimbursed by the federal government. Invoices for export transactions

must be identified with the letter “E” to distinguish them from invoices for domestic supplies.

If services rendered in Argentina are invoiced to a foreign person and if the effective exploitation

occurs abroad (export of services), the services are subject to IIBB in most jurisdictions, except

the City of Buenos Aires, Córdoba, Entre Rios, Neuquén, Mendoza and the Province of Buenos

Aires, under certain circumstances.

68 Ar g e n t inA

Foreign currency invoices.

If an invoice is issued in foreign currency, the values for VAT and IIBB

purposes must be converted to the domestic currency, which is the Argentine peso (ARS). If no

authorized exchange rate applies, the conversion must be done using the selling exchange rate of

the Argentine National Bank that applies at the end of the day immediately preceding the date of

the tax point.

Supplies to nontaxable persons.

Taxable persons are required to issue official invoices or receipts

to private consumers. Typically, such invoices are identified by letter “B” and do not show the

VAT amount breakdown from the net price (i.e., the “B” invoices only show the total amount

including VAT).

Records.

In Argentina, examples of what records must be held for VAT purposes include account-

ing books, such as the journal, inventories and balances, etc. These are required to be archived

by commercial regulations. In addition, tax regulations require an archive with all invoices issued

and received, including a special record for monthly purchases and sales. In Argentina, VAT

books and records must be held within the country.

Record retention period. In general cases, records and documents should be maintained for a

period of 10 years, considering tax rules in force and also general civil/commercial law rules.

Electronic archiving. Electronic archiving is allowed in Argentina. Records required by corporate

law (i.e., accounting books) can be archived physically (i.e., paper) or also electronically, subject

to a special authorization granted by corporate authorities, which may also include the “purchas-

es” and “sales” books. Tax rules allow electronic archiving of electronic invoices issued and

received, as well as monthly detail of purchases and sales, which are submitted to the tax author-

ities on a monthly basis.

I. Returns and payment

Periodic returns.

VAT and IIBB returns are submitted for monthly periods. Certain entities quali-

fying as small or medium companies may apply for VAT submissions on a quarterly basis.

Returns are due between the 12th to the 22nd day of the month following the end of the return

period. The actual due date depends on the last figure of the taxable person’s identification num

ber and the due date may vary from month to month.

Periodic payments.

Payment in full is due between the 12th to the 22nd day of the month follow-

ing the end of the return period. Return liabilities must be paid in Argentine pesos. VAT payments

may be offset by a credit balance arising from another tax collected by the Federal Administration

for Public Revenues. This measure does not apply to IIBB.

In addition, VAT and IIBB payments may be offset with withholdings of these taxes. If the with

holdings generate a credit in favor of the company, the company may ask for reimbursement from

the local tax authorities. In the case of VAT, this credit may be used to offset other national taxes

or sold to another company.

Electronic filing.

Electronic filing is mandatory in Argentina for all taxable persons. VAT and

IIBB are submitted on the tax authority’s webpage. In general, a copy of those electronically filed

tax returns can be viewed and retrieved from the website, but it is highly recommended that tax

able persons maintain their own copies in secure storage.

Payments on account.

Different rules established by national and provincial tax authorities estab-

lish situations in which the taxable persons are withheld a portion of the taxes (upon collections)

and charged additional taxes (when making purchases), being those amounts withheld or charged

considered as payments on account of the final tax liability. For instance, withholding regimes

on sales (applicable by certain customers) and additional charges upon purchases (applicable by

Ar g e n t inA 69

certain suppliers) may be applicable both for VAT and turnover tax purposes. Importation of

goods is also subject to VAT and turnover tax additional charges. Furthermore, credits in bank

accounts may be subject to a turnover tax withholding system.

All withholdings and additional charges suffered become a payment on account in the related tax

returns. In case of an excess, it may be carried forward for future monthly periods or in some

cases be used to pay other taxes (belonging to the same jurisdiction) or even reimbursed. Differ-

ent mechanisms also exist to mitigate the effects of these regimes, by requesting exclusion cer

tificates or a reduction in the local withholding rates.

Taxable persons should also be aware, based on its size, location, amount of revenues, appoint

ment, among others, of the obligation to act as withholding agent in payments to suppliers or

invoices to clients, in which case they will have to implement such regimes and submit the with

held amounts to the tax authorities in separate tax returns.

Special schemes.

Simplified regime. Individual taxable persons whose annual taxable turnover

from supplies of goods does not exceed ARS6,019,594.89 and annual taxable turnover from sup

plies of services does not exceed ARS4,229,985.60 can opt for a simplified regime (Monotributo)

by which through a monthly fixed payment (determined based on several categories) they replace

the payment of VAT and income tax, among other simplified characteristics.

Annual returns.

For IIBB, taxable persons registered under the multilateral agreement regime

must file an annual affidavit — form CM05 — due in June of the following year. For local tax

able persons, some jurisdictions, such as the city of Buenos Aires, require an annual filing.

Supplementary filings.

The national tax authorities require the monthly filing of a complete detail

of all purchases and sales, containing the client/supplier’s information, information of the

amounts on each invoice, VAT and other taxes withheld or collected, etc. These filings are done

electronically on a monthly basis.

Correcting errors in previous returns.

Amended tax returns are filed by taxable persons following

the same procedure for original returns, through the tax authorities’ webpage.

Digital tax administration.

There are no transactional reporting requirements in Argentina.

J. Penalties

Penalties for late registration.

A person that has not yet been registered for VAT and IIBB with

tax authorities cannot perform commercial activities of any kind. Penalties and interest are

assessed for late registration or payment, such as when a person developed a commercial activ

ity before registering and paying. Penalties also apply to VAT or IIBB fraud.

Penalties for late payment and filings.

For VAT, penalties may include:

• A penalty ranging from ARS200 to ARS400 for failure to file a tax return

• A penalty of up to 200% of the tax due for unpaid VAT

• Fines ranging from 2 to 6 times the amount of tax evaded

In addition, interest is assessed at a 4.25% monthly rate on unpaid amounts (compensatory inter

est rate is updated on a quarterly basis; this rate corresponds to the third quarter of 2022).

Criminal tax evasion may be punished by a term of imprisonment, depending on the severity of

the case.

For IIBB, penalties similar to the VAT penalties outlined above are established in each local jur-

isdiction as part of IIBB enforcement.

70 Ar g e n t inA

Penalties for errors.

Omission penalties may be up to 100% of the omitted tax (or 200% if it cor-

responds to transactions with foreign parties). If errors are detected and duly amended, the pen-

alties may be reduced by different percentages, depending on the moment of recognition (for

instance, no penalty may apply if the error is corrected before any audit by the authorities).

The late notification of or failure to notify the tax authorities of changes to a taxable person’s

VAT registration details may result in the application of fines for noncompliance with formal

obligations. In general terms, these fines are not significant. For further details, see the subsec

tion Changes to VAT registration details above.

Penalties for fraud.

In the case of fraud, penalties are increased to a range between two and six

times the amount of the omitted tax. In addition, depending on the amounts, the tax criminal law

may apply.

Personal liability for company officers.

Directors, managers and legal representatives of corporate

VAT taxable persons can be personally and jointly liable if the company does not pay within

15 days upon receiving a payment request from the authorities. An exception applies if the indi

viduals can prove that they are not personally responsible for the lack of payment.

Statute of limitations.

The statute of limitations in Argentina is between 5 and 10 years. The time

limit that the tax authorities (AFIP) can go back to review returns, identify errors and impose

penalties is five years in the case of registered taxable persons. It is the same time limit for non-

registered taxable persons who have no legal obligation to register with the AFIP or who have

such obligation to register and have not complied with it, and who may spontaneously choose to

regularize their situation. In the case of non-registered taxable persons, the statute of limitation

is 10 years.

The statute of limitation will be counted from 1 January of the year following the date the tax

return should have been filed or the tax should have been paid.

There is no time limit for taxable persons to voluntarily correct errors in previous VAT returns.

Armenia

ey.com/GlobalTaxGuides

Yerevan GMT +4

1 Northern Avenue

Yerevan 0001

Armenia

Indirect tax contacts

Kamo Karapetyan +374 (10) 500-790

+374 (99) 88-67-00

kamo.karapety[email protected].com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Avelacvats arzheqi hark (AAH)

Date introduced 1 January 2018

Trading bloc membership Eurasian Economic Union (EAEU)

Administered by Ministry of Finance (http://www.minfin.am)

State Revenue Committee (http://www.petekamutner.am)

VAT rates

Standard 20%

Other Zero-rated (0%) and exempt

VAT number format Tax identification number/1

VAT return periods Monthly/Quarterly

Thresholds

Registration AMD115 million (for the preceding or current calendar year)

Recovery of VAT by

non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• Supply of goods if the place of supply of goods is considered to take place in the Republic of

Armenia (the RA) (referred to as “Armenia” henceforth in the chapter)

• Performance of works and (or) rendering of services in Armenia

• Importation of goods under the customs procedure “Release for domestic consumption”

• Importation of goods with the status of Eurasian Economic Union (EEU) product to the terri

tory of Armenia from EEU member countries

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for VAT in every jurisdiction

where it has customers that are not taxable persons. In Armenia, no services are subject to the

“use and enjoyment” provisions.

72 Ar m e n i A

Transfer of a going concern.

Transfer of going-concern rules do not apply in Armenia. As such,

VAT applies to all sales of a business or part of a business capable of separate operation, includ

ing assets.

Transactions between related parties.

In Armenia, for a transaction between related parties, the

value for VAT purposes is calculated at arm’s length. Effective from 1 January 2020, transfer

pricing rules apply in Armenia. As such, the arm’s-length principle is considered the valuation

standard to estimate the transfer price in Armenia for provision of services or supply of goods

between related parties. While VAT is not explicitly included in the scope of transfer pricing

regulations, the arm’s-length principle is applied for VAT purposes.

C. Who is liable

Legal entities, individual entrepreneurs and notaries are considered VAT payers. If the sales

turnover does not exceed AMD115 million (the VAT registration threshold) in the preceding tax

year, all these entities (except for the nonresident legal entities and permanent establishments of

nonresident legal entities) and individuals may become turnover taxable persons by submitting

an appropriate written statement to the tax authority by 20 February of the tax year. However, if

such a statement has been submitted and the sales turnover at any time during the year exceeds

the VAT threshold, such entities and individuals will be considered VAT payers from that moment.

Exemption from registration.

The tax code of Armenia does not contain any provision for exemp-

tion from registration.

Voluntary registration and small businesses.

It is possible for a taxable business that is not a VAT

payer under the tax code of Armenia to register for VAT on a voluntary basis. Voluntary registra

tion is conducted on the basis of application submitted to the tax authorities in a form established

by the government of Armenia. The application can be submitted electronically. The electronic

application is submitted through the taxable person’s online account.

Group registration.

Group VAT registration is not allowed in Armenia.

Fixed establishment.

In Armenia there is no legal definition of a fixed establishment for VAT

purposes. However, the same permanent establishment rules that apply for direct taxation also

apply for VAT purposes. The permanent establishment (PE) of a nonresident organization is a

place of business activity that is registered as a taxpayer in the tax authority, and through which

a nonresident organization carries out entrepreneurial activity in Armenia, regardless of the dura

tion of the business. The place of business activity includes but is not limited to the following:

• Any place of production, processing, consolidation, re-packaging, packaging and/or supply of

goods

• Any place of management

• Any place of geological investigation of the subsurface, exploration, preparatory works for

extraction of mineral resources and/or extraction of mineral resources and/or performance of

works, provision of supervision and/or monitoring services over exploration and/or extraction

of mineral resources

• Any place of conduct of the activity related to the installation, adaptation and exploitation of

gaming machines, computer networks and communication channels, amusement rides, as well

as related to transport or other infrastructure

• Place of sale of goods in the territory of Armenia

• Any place of performance of construction activities and/or construction and installation works,

as well as of provision of supervision services over performance of these works

• Location of the representative office or the branch office, except for the representative office

that exclusively performs preparatory or auxiliary activity

• Location of a legal entity or an individual carrying out brokerage activities in Armenia on

behalf of a nonresident legal entity or an individual in accordance with the law of Armenia on

insurance and insurance activities A PE is also triggered when works are performed and/or the

Ar m e n i A 73

services are provided by employees and/or other staff hired by a nonresident organization where

such activities are carried out in the territory of Armenia for at least 183 calendar days in a tax

year, starting from the day of commencement of the entrepreneurial activity within the frame

work of one or more related projects.

Non-established businesses.

A “non-established” business is a foreign business that does not have

a fixed establishment in Armenia.

If a non-established business is conducting VAT taxable entrepreneurial activities (including

electronic services) in Armenia, but the Armenian persons that have contractual relations with

them are not VAT payers (i.e., a business-to-consumer supply (B2C) or business-to-business

(B2B), where the customer is a business entity operating under the preferential tax system), the

non-established business is responsible for bearing any VAT liability in Armenia according to the

terms and procedures established by the tax code. Such businesses must register and account for

VAT when making taxable supplies of goods and services in Armenia.

For business-to-business (B2B) supplies (where the customer is a business entity operating under

the general tax system) a non-established business is not required to register and account for VAT

in Armenia, as the customer self-accounts for the VAT via the reverse-charge mechanism (see the

Reverse-charge subsection below).

Tax representatives.

Tax representatives are not required in Armenia.

Reverse charge.

Reverse-charge VAT generally applies to supplies of goods and services and

imports made by non-established businesses in Armenia. Persons considered VAT payers that

have contractual relations with foreign businesses are responsible for bearing any VAT liability

instead of such non-established businesses according to the terms and procedures established by

the tax code.

An Armenian established VAT taxable person engaged in business activities with a non-estab

lished business may issue a tax invoice indicating its own tax identification number and VAT

number on behalf of a foreign entity that is not registered in Armenia as a person supplying goods

or services. This tax invoice shall be considered to be issued by the foreign supplier and accord

ingly shall allow that person to deduct the amount of VAT from output tax.

Domestic reverse charge.

There are no domestic reverse charges in Armenia.

Digital economy.

Effective from 1 January 2022, the concept of electronic services and related

regulations took effect in the Armenia tax code. According to the code, the provision of elec

tronic services shall be considered the provision of services via an information and telecommu-

nication network (electrical connection), including via the internet, the provision of which is

impossible without the use of information technology. The list of electronic services is defined

by the respective decree of the government of Armenia and is published on the official webpage

of the tax authority.

Nonresident providers of electronically supplied services for B2B supplies (in which the cus

tomer is a VAT payer) will not be required to register and account for VAT in Armenia. Instead,

the customer self-accounts for the Armenian VAT by way of the reverse-charge mechanism (via

issuing a self-invoice) on the invoice amount payable to the supplier. See the Reverse-charge

subsection above. The self-assessed VAT is eligible for a credit to the extent that the customer’s

business allows the customer to take input tax credits and the customer has performed all neces

sary steps defined by the law necessary for VAT credit.

Nonresident providers of electronically supplied services for B2C supplies will be required to

nonresident business shall be obliged to calculate and pay VAT in Armenia (the same rule applies

also to B2B transactions in which the customer is not a VAT payer).

74 Ar m e n i A

Online marketplaces and platforms. No special rules exist for online marketplaces and platforms

in Armenia.

Registration procedures.

VAT registration is automatic if the conditions for being considered a

VAT payer are met. Generally, taxable persons are given the following options in Armenia. They

can either (i) act as a turnover taxable person, (ii) operate under the micro-entrepreneurship sys-

tem or (iii) act as a VAT payer. Therefore, if the taxable person meets the conditions prescribed

by the tax code for being considered a turnover taxable person or an entity operating under the

micro-entrepreneurship system, then the taxable person only submits the corresponding form of

statement available in the online tax service system on operating under either of the selected tax

systems. If this statement is not submitted within the deadlines set forth by the tax code, then the

taxable person is automatically considered a VAT payer. Taxable persons working under the turn-

over tax or micro-entrepreneurship system can submit a statement available in the online tax ser-

vice system to become VAT payer.

Deregistration.

Deregistration is not possible in Armenia. However, in case of meeting certain

criteria and submitting respective applications, taxable persons may operate under turnover tax

or micro-entrepreneurship systems starting the year that follows the year when the taxable person

was a VAT payer.

For further details on the turnover tax and micro-entrepreneurship schemes, please see the Spe-

cial schemes subsection below, under Section I. Returns and Payment.

Changes to VAT registration details.

If legal entities that are VAT payers want to make changes to

registration details (name of company, address or type of business), they must submit the cor

responding documentation to the Agency for State Register of Legal Entities of the Ministry of

Justice of Armenia. Documents are submitted in paper form. Thus, registration details are auto-

matically updated and become accessible to the tax authorities. As a result, no separate documents

are submitted to the tax authorities.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

VAT, including the zero rate.

The VAT rates are:

• Standard rate: 20%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods and services unless a specific measure

provides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

• Export outside the customs border of Armenia

• Delivery of international transportation services for carriage of consignments, mail and (or)

passengers

• For goods imported to Armenia under the customs procedure “Customs Transit,” delivery of

works and (or) services directly related to transportation of these goods from the customs bor

der of their import to customs border of their export in the Republic of Armenia

• Supply of fuel for airplanes on international flights and supply of goods for consumption dur

ing the flights for the staff and passengers of the airplanes

• Supply of goods for passengers of international routes in duty-free shops in Armenia, as well

as supply of those goods by other taxable person to the organizer of the duty-free shop

• Supply of maintenance (including navigation, take-off and landing services), repair and re-equip-

ment of the means of transport for international transportation, as well as supply of services for

Ar m e n i A 75

passengers, baggage, cargo and mail on international flights, and supply of services to

passengers during the flights

• Supply of services (including those provided by agencies and intermediaries) directly related

to the provision of services described in the preceding item

• Performance of works and supply of services for which Armenia is not treated as the place of

their delivery

• Supply of goods for the official use of diplomatic representations, consular institutions and

international organizations deemed equal thereto, as well as performance of works and supply

of services to them

• Transactions on the delivery of services by a telecommunication operator or postal communica

tion operator duly registered in the Republic of Armenia to the respective foreign operators for

which amounts payable against reciprocal services as part of international networking services

are mutually cleared, pursuant to bylaws of the International Telecommunication Union (ITU)

or the World Postal Union accordingly

The term “exempt supplies” refers to supplies of goods or services that are not liable to VAT and

that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Supply of education at secondary schools, vocational schools for qualification and requalifica-

tion and specialized secondary and higher educational institutions

• Supply of copy books and music books, albums for drawing, children’s and school literature,

and school educational publications

• Sale of scientific and educational editions published by higher educational institutions, special

ized scientific organizations and the National Academy of Sciences of Armenia

• Implementation of scientific and research programs, basic educational programs as well as

organization of educational competitions, tournaments and Olympics organized in accordance

with the standards established by the government of Armenia

• Supply of services related to the care of children in preschool institutions, care for persons in

boarding schools, children’s homes, institutions caring for disabled children and invalids and

nursing homes, as well as supply of goods produced, and services rendered by the persons liv

ing under the care of these institutions

• Supply of newspapers and magazines

• Gratuitous supply of goods by nongovernmental, charitable and religious organizations, gratu

itous performance of works and (or) rendering of services

• Supply of insurance and reinsurance, including related services rendered by insurance media

tors (third parties who establish insurance relationships between insurers or reinsurers and

policyholders and support the implementation of organizational, legal and other activities) and

agents

• Supply of pension insurance, including related services rendered by mediators and agents

• Supply of financial services by banks, persons participating in securities’ markets, payment and

settlement organizations and lending organizations (certain cases)

• Supply of prosthetic and orthopedic items, medical assistance services (including prophylactic

diagnostic measures) and goods related to treatment that are prepared within the context of

medical assistance by patients in prophylactic enterprises and organizations, and services ren

dered by them

• Sale of irrigation water by water user associations

• Sale of tobacco products by taxable person who are not manufacturers and (or) importers of

tobacco products

• Organization of casinos

• Organization of gambling (including gambling by internet), totalizator and internet totalizator

• Sale of precious and semifinished jewelry products classified under the list specified in the tax

code

76 Ar m e n i A

• Supply of goods and services within humanitarian assistance and charitable projects by foreign

states, international intergovernmental organizations, international, foreign and Armenian pub-

lic organizations (including charities), religious and similar organizations and individual donors,

as well as supply of goods and services directly related and essential to the implementation of

such projects

• Supply of services to the organizer and operator of a free-economic zone and the supply of

goods in the territory of a free-economic zone

• Transactions carried out within the scopes of subsidies, subventions and grant projects if these

projects are awarded the endorsement of the professional commission formed by the govern

ment of Armenia

• Supply of the right of ownership over a share or unit in the charter or share capital of the orga

nization

• Supply of goods and/or provision of service within the framework of reorganization of the

organization carried out as prescribed by law

• Until 31 December 2030, the supply of spacecraft and space equipment, repairs or moderniza

tion thereof, the provision of services and (or) performance of works for earth remote monitor-

ing satellite data transmission and processing, and for the management of spacecraft during

launch, flight and landing

• The provision of property for leasing (in various forms) based on a leasing contract by banks

and lending organizations shall be exempt from VAT if no VAT has been assessed and paid

during the acquisition of that property

• Tourism services provided to foreign tourists, as well as agency services provided by travel

agencies, if within the framework of these services, the travels, trips, excursions are carried out

in the territory of the Republic of Armenia

• Alienation (i.e., transfer of ownership rights over the goods from one person to another) of real

estate by the investment fund to the person participating in the given investment fund, if the real

estate was previously acquired by the investment fund from the given person as an investment

in the investment fund for a unit or a share

• Import from EEU member countries to the duty-free shops operating in the Republic of Arme-

nia of goods having the status of an EEU good

• Import of cultural items into the territory of the Republic of Armenia

• Import and/or alienation of electric vehicles classified under the codes listed in the tax code

from 1 January 2022 to 1 January 2024

Option to tax for exempt supplies.

The taxable person can submit a written statement to the tax

authority to obtain a waiver from the VAT exemption.

E. Time of supply

The time when VAT becomes due is called the “tax point.” The tax point is the moment when

goods are delivered to or accepted by the customer or works or services are performed. For con

tinuous supplies (for example, operating leases), the tax point is the last day of a reporting

period.

Deposits and prepayments.

There are no special time of supply rules in Armenia for deposits and

prepayments. As such, the general time of supply rules (as outlined above) apply.

Continuous supplies of services.

In cases of continuous supply of goods, the same rules as men-

tioned above are applied. In cases of continuous supply of services, the last day of each month is

considered to be the time of supply unless the service agreement stipulates other periods (phases)

for provision of services (quarter, semester, year, etc.). In the latter case, the last day of respective

period is considered to be the time of supply.

Ar m e n i A 77

Goods sent on approval for sale or return.

Time of supply of goods is the time foregoing:

• The moment when the goods are transferred to the buyer, except for cases when, according to

supply contract, the ownership over the goods is transferred to the buyer in other point of time.

The latter point will be considered as time of supply

• The moment when the goods are accepted by the buyer, except for cases when, according to the

sales agreement, the ownership over the goods is transferred to the buyer at another point of

time. The latter point will be considered as time of supply

Notably, in cases when the ownership right over the goods is subject to state registration, the time

of supply will be considered the time of state registration.

Reverse-charge services.

The time of supply for services subject to the reverse-charge rules is

determined in accordance with rules that are similar to the standard rules described above.

Leased assets.

For asset leasing services, the time of supply is considered to be the last day of

each month. However, if the leasing contract stipulates that provision of the leasing services ends

before the last day of the reporting period, the time of supply is considered to be the last day the

service is rendered.

Imported goods.

The tax point for imported goods is the moment of importation of goods into

Armenia.

F. Recovery of VAT by taxable persons

A taxable person that performs economic activities in Armenia may generally recover input tax

by deducting it from output tax, which is VAT charged on supplies made. Input tax includes the

following:

• Amounts of VAT indicated in tax invoices issued by the suppliers of goods, works and services

purchased or received during the reporting period in Armenia

• Amounts of VAT paid to customs or tax bodies of Armenia for goods imported into Armenia

under the customs procedure “Release for domestic consumption”

The excess amount of input tax over output tax in the reporting period can either be carried for-

ward and offset against output tax in subsequent reporting periods or refunded (see the Refunds

subsection below).

There is no set time limit for a taxable person to reclaim input tax in Armenia. This mean that

effectively the input tax may be carried forward indefinitely until its complete recovery.

Nondeductible input tax.

Input tax may not be deducted in the following circumstances:

• The person carrying out entrepreneurial activities is not considered to be a VAT payer.

• VAT was paid for transactions that are exempt from VAT, not subject to VAT or referring to

special tax systems.

• The tax invoice was issued without actual supply of goods, works or services.

• VAT was paid for transactions that were recognized as invalid.

• VAT was paid on the purchase or import of passenger cars, except for the cars acquired for the

purpose of resale or provision of car rent services.

• Passenger cars used under any leasing contract, except for cases when passenger cars are used

for car rental services.

Examples of items for which input tax is nondeductible

• Taxable person conducts an exempt activity. At the end of the month, the taxable person

receives a tax invoice for electricity. The taxable person cannot deduct the amount of VAT

indicated in the tax invoice as the activity that he/she conducts is exempt from VAT.

• Taxable person purchases a passenger car for office use. The taxable person cannot deduct the

VAT amount paid for the purchased car. The VAT amount is capitalized in the value of the car

and is depreciated during the useful life of it.

78 Ar m e n i A

Examples of items for which input tax is deductible

(if related to a taxable business use)

• Taxable person conducts an activity that is subject to VAT. At the end of the month, the taxable

person receives a tax invoice for electricity, rent of office premises and purchased fixed assets.

The taxable person deducts the amount of VAT indicated in the invoices after all the require

ments of the tax code are met.

Partial exemption.

If a taxable person makes both taxable and nontaxable transactions, it may not

deduct input tax in full from output tax. It may deduct only the amount of input tax related to the

goods and services used in taxable transactions. For this purpose, taxable persons shall maintain

separate accounts for taxable and nontaxable transactions, as well as for the services and goods

purchased for conducting such transactions.

If it is impossible to maintain separate accounts, the amount of input tax subject to deduction in

each reporting period must be prorated based on the ratio of taxable turnover to total turnover

(VAT exclusive) of the business in the reporting period.

Approval from the tax authorities is not required to use the partial exemption standard method in

Armenia. Special methods are not allowed in Armenia.

Capital goods.

An input tax adjustment is required if input tax is deducted for the purchase, con-

struction or importation of fixed assets in a reporting period and if the asset is used in a subse-

quent reporting period for making supplies of goods or services that are not subject to VAT. The

adjustment applies to 20% of the amount of depreciation calculated for the fixed asset.

An adjustment may (i.e., at the taxable person’s discretion) also be made if no input tax is deduct

ible in the reporting period in which the acquisition is made because, at the time of acquisition,

the fixed asset is directly attributable to making non-VAT taxable supplies and if the asset is

subsequently used for making supplies that are subject to VAT.

If the taxable person makes both taxable and exempt supplies, the input tax recovery is based on

16.67% of the amount of depreciation calculated for the fixed asset under the tax code and on

the ratio of VAT taxable supplies to all supplies made.

Refunds.

Under the Armenian tax code, refunds are available. In cases when a taxable person has

a recoverable VAT amount as of the 21st day of the month following each month, this amount

can be debited to the taxable person’s unified account based on the application of the taxable

person and after appropriate tax review made by tax authorities.

Pre-registration costs.

Input tax incurred on pre-registration costs in Armenia is not recoverable.

Bad debts.

Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad

debts) cannot be recovered in Armenia.

Noneconomic activities.

Input tax incurred in relation to noneconomic activities is recoverable in

Armenia in certain situations. For example, input tax incurred from acquisitions by a company

for nonbusiness purposes, e.g., purchases for charity. Input tax is recoverable irrespective of

whether it is incurred in relation to economic or noneconomic activity.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Armenia is

not recoverable.

H. Invoicing

VAT invoices.

VAT payers supplying goods, works and services to legal entities and individual

entrepreneurs must issue tax invoices if these supplies are subject to the standard rate of VAT.

Ar m e n i A 79

VAT invoices are not issued for supplies that are subject to the zero rate of VAT. A VAT invoice

must be issued on delivery of goods or completion of supply of works or services to the cus

tomer. A VAT invoice is necessary to support a claim for input tax deduction. Tax invoices can

be issued electronically only. Depending on the business carried out by the taxable person, tax

invoices may be issued in advance, provided that the goods are supplied, or the works or ser

vices are rendered on the supply date mentioned in the tax invoice.

Credit notes.

The tax code in Armenia does not contain any rules with respect to the issuance of

credit notes. Instead, the tax code allows issuance of adjusting invoices.

Electronic invoicing.

Electronic invoicing is mandatory in Armenia for all taxable persons. After

state registering in Armenia and receiving a tax identification number, the entity applies to the

corresponding tax service unit and receives the login information to sign in the e-invoicing sys

tem. Then the taxable persons get access to issuing and accepting invoices by signing them digi-

tally.

Simplified VAT invoices.

Simplified VAT invoicing is not allowed in Armenia. As such, full VAT

invoices are required.

Self-billing.

Self-billing is allowed in Armenia. Taxable persons can only issue self-invoices on

behalf of nonresident entities to declare the reverse-charge VAT.

Proof of exports.

For export purposes to countries that are not members to the Eurasian Economic

Union, appropriate declarations are filed with the customs authority by specialized brokers based

on the invoice information issued by the exporter. For export purposes to countries that are mem

bers to the Eurasian Economic Union, appropriate tax declarations are filed with the tax author-

ity based on the invoice issued to the recipient. The customs authority grants approval for export

after confirming that the invoice data and declarations are consistent and that all necessary doc-

uments are presented.

Foreign currency invoices.

In general, tax invoices are issued by VAT payers in the domestic cur-

rency only, which is the Armenian dram (AMD). However, commercial invoices can be issued in

foreign currencies for transactions carried out with non-established businesses. In such cases, the

daily foreign currency exchange rates published by the Central Bank of Armenia are taken into

consideration.

Supplies to nontaxable persons.

VAT invoices are not issued for supplies to nontaxable persons,

unless specifically requested by them.

Records.

In Armenia, examples of what records must be held for VAT purposes include the docu-

ments necessary for the calculation of the tax base and filing of tax calculation reports, as well

as documents substantiating the amount of income received/expenses incurred and taxes paid

(withheld). In Armenia, VAT books and records must be held within the country. While the tax

code does not provide any guidance on the place where such records must be kept, in practice,

the records are kept locally in Armenia.

Record retention period. The retention period should be not less than five years starting from the

reporting period the documents refer to.

Electronic archiving. Electronic archiving is allowed in Armenia. However, there are no special

rules defined by the tax code for electronic archiving. Electronic documents are stored in the

server of the tax authority and do not have time limits when it comes to archiving.

I. Returns and payment

Periodic returns.

VAT payers must file their VAT and excise tax unified returns monthly by the

20th day of the month following the reporting month.

80 Ar m e n i A

For electronic services provided to B2C or B2B (in which the customer is not a VAT payer) by

nonresident providers, the VAT returns are filed quarterly by the 20th day of the quarter following

the reporting quarter.

Periodic payments.

VAT due is payable to the state budget by the 20th day of the month following

the reporting month.

For goods imported into Armenia under the customs regime “Release for domestic consump

tion,” VAT must be paid before release of the imported goods under customs regime “Release for

domestic consumption.”

For goods imported into Armenia from EEU countries, VAT must be paid by the 20th day of the

month following the month of importation.

For electronic services provided to B2C or B2B (in which the customer is not a VAT payer) by

nonresident providers, the VAT due is payable to the state budget by the 20th day of the month

following the reporting quarter.

Electronic filing.

Electronic filing is mandatory for all taxable persons in Armenia. All taxable

persons must file all returns electronically through their accounts online (https://file-online.tax

service.am). All tax returns are kept electronically in the taxable persons’ same accounts online.

Nonresident providers of electronic services must file the quarterly returns electronically through

their accounts online (https://file-online.taxservice.am/pages/evatuser/evatNonResidentProvid-

ingEServices.jsf). All tax returns are kept electronically in the nonresident providers’ same

accounts online.

Payments on account.

Payments on account are not required in Armenia.

Special schemes.

Turnover tax. Turnover tax is a substitute for VAT and corporate income tax. To

qualify as a turnover taxable person, sales turnover of taxable persons from all types of activities

for the preceding tax year and current tax year must not exceed AMD115 million. It only applies

to Armenian resident taxable persons. The tax code defines the list of business activities the

performance of which are restricted under the turnover tax.

When it comes to the tax base, sales turnover of the transactions considered objects of taxation

under the turnover tax is taken. Objects of taxation under the turnover tax system are supply of

goods, performance of works and provision of services.

Depending on the type of activity carried out by the turnover taxable person, the tax rates can

differ and range from 1.5% to 25%.

The reporting period for preparing and paying the turnover tax is the reporting quarter. Turnover

taxable persons must file their reports and transfer the payments to the state budget by the 20th

day of the month succeeding every reporting quarter.

Micro-entrepreneurship. In the framework of micro-entrepreneurship, taxable persons are exemp-

ted from taxation under VAT, corporate income tax, as well as turnover tax. To qualify for the

taxation under the micro-entrepreneurship system, sales turnover of taxable persons from all

types of activities for the preceding tax year must not exceed AMD24 million. It also only applies

to Armenian resident taxable persons. The tax code defines the list of business activities the

performance of which are restricted under the micro-entrepreneurship.

Annual returns.

Annual returns are not required in Armenia.

Supplementary filings.

To support the set off of VAT amounts paid for imports made from EEU

Member States to Armenia, taxable persons must submit the import tax declarations to the tax

authority.

Ar m e n i A 81

Correcting errors in previous returns.

Errors or omissions from prior periodic filings can be cor-

rected by submitting adjusted electronic returns to the tax authority. Errors are corrected either

voluntarily or based on the notifications received from the tax authorities as a result of internal

reviews.

Digital tax administration.

All invoices must be issued, and all tax reports are prepared and sub-

mitted to the tax authority digitally, which are used by the tax authority for tax administration

purposes. This is treated as real-time reporting in Armenia.

J. Penalties

Penalties for late registration.

Late registration penalties are not applicable because late registra-

tion is not possible in Armenia.

Penalties for late payment and filings.

The penalty for filing a VAT return late is 5% of the calcu-

lated tax for each 15-day period, up to a maximum penalty of the total tax amount.

In addition, interest is charged on late tax payments at a rate of 0.04% of the tax due for each day

of delay (up to 730 days).

Penalties for errors.

The penalty for understatement of VAT payable equals 50% of the amount

not declared. A penalty of 100% of the above amount is applied if a violation is repeated within

one year.

The penalty for the violation of instructions established by the government of Armenia for the

issuance of tax invoices (including adjusted tax invoices) equals double the amount of the remu

neration with respect to the respective tax invoice (including the amount of VAT) but not less than

AMD5 million.

There are no specific penalties associated with the late notification or failure to notify the tax

authorities of changes to a taxable person’s VAT registration details. For further details, see the

subsection

Changes to VAT registration details above.

Penalties for fraud.

The head of the legal entity, sole entrepreneur, individual or other responsible

person is punished by a penalty in the amount from 20 to 50 times the monthly income or restric

tion of freedom from one to three years, or short-term imprisonment from one to two months, or

imprisonment from two to five years, if they carry out any of the following crimes:

• Does not submit in the procedure defined by the law or time frames the return, calculation or

declaration defined by the law with the aim of not paying taxes, duties or other payments in

large amounts

• Does not submit in the procedure defined by the law or time frames another mandatory docu

ment giving rise to the obligation to calculate or pay a tax, duty or other payment

• Inserts false information in the return, calculation, declaration or another document giving rise

to an obligation to calculate or pay tax, duty or another payment

• Conceals the object of taxation

• Manifests deception

Monthly income is determined as 35% of the average monthly income received by the indi-

vidual during the 12 months preceding the date of committing the crime. The average monthly

income includes the salary and other payments equivalent thereto and passive income (dividends,

interest, royalty and rent fee) received by the individual. When calculating the monthly income,

the taxes, duties or other fees withheld from them are not considered.

In case there is lack of income or it is impossible to determine the amount thereof for the indi

vidual who committed the crime, the amount of penalty is calculated in the amount of the mini-

mum salary at the time of committing the crime (AMD68,000 (net of taxes and mandatory

payments) in 2022).

82 Ar m e n i A

In case due to the calculation, the amount of monthly income of the individual is less than the

amount of the minimum salary (AMD68,000 (net of taxes and mandatory payments) in 2022),

then the amount of the penalty is determined on the basis of the minimum salary.

Personal liability for company officers.

Penalties for fraud apply to and are imposed on the direc-

tors and chief accountants of the taxable person company. Please see the section Penalties for

fraud

above.

In addition, failure by any company officers/officials to file the tax reports and other documents

specified in the Armenian tax code and other legal acts with the Armenian tax authorities or

reporting false information are punished under an administrative penalty from AMD10,000 to

AMD15,000. If the same action leads to tax evasion, a penalty from AMD15,000 to AMD20,000

is imposed.

Statute of limitations.

The statute of limitations in Armenia is three years. This is three years from

the year the violation of the requirements of the Republic of Armenia laws were made.

Taxable persons cannot make voluntary adjustments of tax returns or deductible amounts if three

years have passed from the end of the reporting period to which the adjustments relate.

Aruba

ey.com/GlobalTaxGuides

Oranjestad GMT -4

EY Street address:

Mail address: Vondellaan 4

P.O. Box 197 Oranjestad

Oranjestad Aruba

Indirect tax contacts

Anushka Lew Jen Tai +297 521-4440

anushka.lew.jen.t[email protected].com

Bryan D. Irausquin +599 (9) 430-5075

(resident in Curaçao) bryan.ir[email protected]y.com

Fong-Mang Cheong +5999 430-5071

(resident in Curaçao) fong-mang.[email protected]y.com

Stefan van Riezen +599 9 430 5035

Stefan.van.Riezen@an.ey.com

Rose Boevé +5999 690-2016

(resident in Curaçao) rose.boeve@an.ey.com

Note that the government announced to postpone the intended introduction of a VAT system until further

notice. It is not expected to be introduced before 2025.

A. At a glance

Name of the taxes Revenue tax (RT)

Health tax (HT)

Local names Belasting over bedrijfsomzetten – BBO

Belasting additionele voorziening PPS-projecten – BAVP

Bestemmingsheffing AZV – BAZV

Date introduced 1 January 2007 – BBO

1 July 2018 – BAVP

1 December 2014 – BAZV

Trading bloc membership None

Administered by Departamento di Impuesto

RT rates

Standard 4% (combined rate of BBO (2.5%) and BAVP (1.5%))

Other Exempt

HT rates

Standard 3%

Other Exempt

RT and HT number format XXXXXXX (7 digits)

RT and HT return periods Monthly

Thresholds for RT and HT None

Recovery of RT and HT by

non-established businesses No

84 Aru bA

B. Scope of the tax

Persons subject to RT and HT are businesses (i.e, taxable persons) that supply goods or provide

services in Aruba. The tax base equals the gross revenue (in cash or in kind) generated from the

supply of goods or services in Aruba by taxable persons.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for RT and HT in every juris

diction where it has customers that are not taxable persons. In Aruba, no services are subject to

the “use and enjoyment” provisions.

Transfer of a going concern.

Transfer of going concern rules do not apply in Aruba. As such, the

RT and HT apply to all sales of a business or part of a business capable of separate operation

including assets.

Transactions between related parties.

In Aruba, there are no specific rules that indicate the value

for RT and HT purposes for transactions between related parties. However, in general an arm’s-

length compensation should be considered.

C. Who is liable

In principle, for RT and HT purposes, an entrepreneur is an individual or business entity that

delivers goods or performs services (engages in taxable activities) in Aruba. A taxable person can

also be regarded as anyone who exploits an asset to realize sustainable revenue. The taxable

person that realizes the revenue is subject to RT and HT.

A legal entity is not regarded as a taxable person for RT and HT purposes if it does not participate

in economic activities in Aruba and is in possession of a foreign exchange license or is exempt

from the requirement to hold one.

Exemption from registration.

The RT and HT laws in Aruba do not contain any provisions for

exemption from registration. Companies that have a nonresident status for foreign exchange

transaction purposes at the Central Bank of Aruba and that do not participate in the economic

sphere of Aruba are not required to register for the RT and HT.

Furthermore, free zone companies are exempt from RT and HT with respect to the rendering of

services or the supply of goods to nonresidents.

The revenue of certain oil and gas exploration and exploitation companies is exempt from RT

and HT to the extent that the revenue is made with the exploration and exploitation of oil and

gas.

Voluntary registration and small businesses.

The RT law in Aruba does not contain any provision

for voluntary RT registration.

However, private individuals who are regarded as taxable persons for RT and HT purposes and

who expect to not exceed a generated annual turnover of AWG50,000, (due to COVID-19 mea

sures, this threshold increased as of 1 January 2021 from AW12,000 to AWG84,000) can, in

principle, obtain a dispensation for RT and HT. The dispensation implies that, on the generated

turnover with the supply of goods or the rendering of services, no RT or HT is due. The taxable

person who exploits an asset in order to realize revenue on a continuous basis cannot apply for

this dispensation. In order to qualify for the dispensation, a request must be submitted no later

than 1 January of the following year.

Aru bA 85

Group registration.

If a parent company owns 100% of the legal and beneficial rights of shares in

a subsidiary established in Aruba, on request a fiscal unity for RT and HT purposes is recognized

and RT and HT are levied on the parent company as if one taxable person exists. Revenue gener

ated by intercompany transactions is exempt from RT and HT. There is no minimum time period

required for the duration of the fiscal unity. The fiscal unity starts in the month that the request

is filed and ends when the unity no longer meets the 100% ownership requirement.

Members of a RT/HT group in Aruba are not jointly and severally liable for RT/HT debts and

penalties. There is no specific legal provision nor policy based on which members are jointly and

severally liable for the RT/HT debts and penalties. Based on the RT/HT law, taxes are levied on

the parent company as if one taxable person exists, meaning that the other group members are

disregarded. This means that they would not be jointly and severally liable for the RT/HT of the

group nor individually.

Fixed establishment.

In Aruba there is no legal definition of a fixed establishment for RT or HT

purposes. However, generally, a fixed establishment is understood to be a business in Aruba of

an entity established outside of Aruba, characterized by a sufficient degree of permanence and a

suitable structure in terms of human and technical resources to enable it to provide the services

that it supplies and/or to acquire and use services for its own needs. A fixed establishment should

be capable of acting as a taxable person independently of the head office.

Non-established business.

A “non-established business” is a business that does not have a busi-

ness or fixed establishment in Aruba. A non-established business that performs taxable supplies

of goods or services (e.g. electronic services) is, in principle, required to register for RT/HT unless

the reverse-charge mechanism is applicable (on specific supplies of services as of 1 January 2023).

Tax representatives.

As of 1 January 2023, entrepreneurs that supply goods or provide services in

Aruba and are neither established in Aruba nor have a permanent establishment in Aruba, can

appoint a fiscal representative in Aruba instead of registering at the tax authorities (Departamento

di Impuesto) for RT and HT purposes. The fiscal representative acts on behalf of the taxable

person and takes care of its filing and payment obligations for RT and HT. The fiscal representa-

tive can be assigned by means of a written power of attorney. The Minister of Finance may des

ignate cases for which the appointment of a fiscal representative is mandatory.

Reverse charge.

As of 1 January 2023, the reverse charge mechanism should be applied on spe-

cific types of services in case these are provided to other businesses (B2B). These services are:

electronic, telecommunication, radio and television broadcasting services, services performed in

Aruba related to real estate located in Aruba, transportation of persons or goods in Aruba and

related services such as loading and unloading of goods and services performed in Aruba related

to movable property. Note that in the Explanatory Notes on the aforementioned changes to the

Aruba RT and HT legislation, it is mentioned that the reverse charge would apply on the render

ing of other (designated) services from foreign suppliers, such as services related to advertising

and marketing, consultancy, legal, tax, accounting and similar services. However, the legislation

was not amended accordingly, thus the reverse charge does not apply yet for the aforementioned

services.

Domestic reverse charge.

There are no domestic reverse charges in Aruba.

Digital economy.

As of 1 January 2023, the place of supply of electronic, telecommunication and

radio and television broadcasting services is the country of establishment or residence of the

customer (B2B and B2C).

Nonresident providers of electronically supplied services for business-to-consumer (B2C) sup

plies would be required to register and account for RT/HT in Aruba.

86 Aru bA

Nonresident providers of electronically supplied services for business-to-business (B2B) sup-

plies are not required to register and account for RT/HT on supplies in Aruba. Instead, the custom-

er is required to self-account for the VAT due by way of the reverse-charge mechanism (see the

Reverse charge subsection above).

Online marketplaces and platforms. No special rules exist for online marketplaces and platforms

in Aruba. Goods (e.g., software, clothing, books) that are ordered by Aruba residents via the inter-

net are not considered electronic services and therefore not subject to RT/HT in Aruba. However,

tourist levies and environmental levies can be levied from third parties (platforms) that facilitate

the rent of a hotel or lodging and that receive the payment from the guest.

Registration procedures.

To register for RT and HT, a taxable person, or an authorized representa-

tive, must submit a hard copy registration form to the tax authorities to receive a tax identifica-

tion number. This registration form can be downloaded from the website of the Aruban tax

authorities (http://www.impuesto.aw). The documents necessary for registration include original

chamber of commerce excerpt; identification of the applicant (in case of a director whose name

is identified in the chamber of commerce, a copy of their identification); and, in case the applica

tion is being done by a third party, a signed power of attorney. The registration request can be filed

by letter or digitally.

It takes an average of 10 working days for the tax authorities to complete

the registration process.

Deregistration.

To deregister for the RT or HT, a written application for deregistration must be

submitted to the tax authorities.

Changes to RT and HT registration details.

To notify the tax authorities of any changes to the

registration details, such as company name or address, the taxable person must submit a letter

informing the tax authorities of the applicable changes.

D. Rates

The term “taxable supplies” refers to supplies of goods or services that are subject to a rate of

RT and HT.

In Aruba, the term “revenue” refers to all remunerations (in cash or in kind) received by an entre-

preneur for the supply of goods or the rendering of services in the course of its business.

The RT standard rate is 4%. The standard rate of RT applies to revenue realized from performing

taxable activities in Aruba, unless a specific measure provides for an exemption. Please note that

this is a combined rate of BBO (2.5%) and BAVP (1.5%).

The HT rate of 3% applies to revenue realized from performing taxable activities in Aruba, unless

a specific measure provides for an exemption.

The term “exempt supplies” refers to supplies of goods and services that are not liable to RT.

Examples of exempt supplies of goods and services

• Sale of real estate (to the extent that transfer tax is due)

• Prescription medicines, including certain medical aids

• Renting apartments or hotel rooms to the extent that room tax is due

• Providing opportunities to gamble (to the extent that gaming tax is due)

• International transportation of goods and persons by ships or airplanes

• Renting real estate that is used as the renter’s own dwelling

• Investment income, such as interest, dividends and capital gains generated from the sale of

shares and other stocks

• Services provided by companies established in the free zone to customers outside Aruba

Aru bA 87

• Revenue generated from the supply of exported goods is exempt from RT and HT. However, to

qualify for this exemption, the exports of goods must be substantiated by proof that confirms

that the goods have left Aruba. The Minister of Finance may propose additional regulations. At

the time of preparing this chapter, no additional regulations have been adopted.

Option to tax for exempt supplies.

The option to tax exempt supplies is not available in Aruba.

E. Time of supply

RT and HT are levied on a cash basis. However, on request, a taxable person may opt for an invoice

(accrual) basis for RT and HT. The tax authorities need to approve this request.

Deposits and prepayments.

The tax point for deposits and prepayments arises upon receipt of the

payment for the goods or services.

Continuous supplies of services.

The tax point arises upon receipt of each payment for the con-

tinuously supplied goods or services.

Goods sent on approval for sale or return.

There are no special time of supply rules in Aruba for sup-

plies of goods sent on approval for sale or return. As such, the general time of supply rules apply

(as outlined above).

Reverse-charge services.

As of 1 January 2023, the reverse-charge mechanism should be applied

on specific types of services in case these are provided to other businesses (B2B): electronic,

telecommunication, radio and television broadcasting services, services related to real estate

located in Aruba, transportation of persons or goods in Aruba and related services such as load

ing and unloading of goods and services related to movable property. Note that the Aruban

government also mentioned in the Explanatory Notes to the Aruba RT and HT legislation that it

is the intention to levy RT and HT on the rendering of other (designated) services from foreign

suppliers, such as services related to advertising and marketing, consultancy, legal, tax, account

ing and similar services.

There are no special time of supply rules in Aruba for supplies of reverse-charge services. As

such, the general time of supply rules apply (as outlined above).

Leased assets.

The tax point arises upon the payment of each lease installment for both operation-

al and financial lease.

Imported goods.

The import of goods is not a taxable event for RT or HT in Aruba. Hence the

time of supply of imported goods is where the transport originates, i.e., outside of Aruba. How-

ever, the foreign supplier would not need to register for RT or HT in Aruba, as no RT or HT is

due on the goods upon importation. Note that the Aruban government announced in the Fiscal

Plan 2023 that it intends to introduce as of 1 June 2023 the levy of RT and HT on the import of

goods with a refund mechanism for trade goods.

F. Recovery of RT and HT by taxable persons

RT and HT cannot be recovered in Aruba.

G. Recovery of RT and HT by non-established businesses

RT and HT cannot be recovered in Aruba. As such, input tax incurred by non-established

businesses that are not registered for RT and HT in Aruba is not recoverable.

H. Invoicing

RT and HT invoices.

A taxable person must issue an invoice for all taxable supplies performed

including exports.

88 Aru bA

Taxable persons are prohibited to carry out the following:

• To state on their invoices and receipts that the RT and HT is levied on the (taxable) turnover

• To offer goods and services (which are taxable) against prices that do not include the RT and

HT due

Taxable persons can opt to reflect the RT and HT on their invoices/receipts. There are two per

missible ways to do so. The taxable person may:

• Separately state on the invoice/receipt that the price includes BBO/BAZV/BAVP

• Indicate on the invoice/receipt what part of the total price will be remitted as BBO/BAZV/

BAV P

The RT and HT percentage to be indicated on the invoice must be 7%.

Credit notes.

An RT and HT credit note must be issued when the quantity or remuneration of an

initial invoice issued should be updated. In general, credit notes must include the same informa

tion as the original RT and HT invoice.

Electronic invoicing.

Electronic invoicing is allowed in Aruba, but not mandatory. Although, there

is no specific legislation regarding the application of electronic invoicing in Aruba. However,

please note that there are specifications regarding the information presented that all invoices

(hard copy or electronic) must adhere to, and all taxable persons are required to insure the authen-

ticity of the electronic invoices. This includes the fact that PDF invoices

can be issued in Aruba.

Simplified RT and HT invoices.

Simplified RT and HT invoicing is not allowed in Aruba. As such,

full RT and HT invoices are required. Taxable persons that use the cash registration system can

suffice with only issuing a cash receipt containing certain information.

Self-billing.

Self-billing is not allowed in Aruba.

Proof of export.

Goods destined for export are exempt from RT and HT. The taxable person must

provide documents to prove the goods are destined for export.

Foreign currency invoices.

Invoices can be provided in any currency, including the local currency,

the Aruban florin (AWG).

Supplies to nontaxable persons.

There are no special invoicing rules for supplies to nontaxable

persons in Aruba. As such, full RT and HT invoices are required.

Records.

In Aruba, examples of what records must be held for RT/HT purposes include copies

of the returns and the underlying documentation. In Aruba, RT/HT books and records can be kept

outside of the country. The records do not have to be held physically in Aruba. The legislation

allows the records to be held digitally, as well, as long as the digital records are an exact copy to

the physical ones. Furthermore, the location is not specified in the legislation, as long as the

taxable persons can provide the records to the tax authorities within a reasonable time.

Record retention period. Taxable persons must retain copies of invoices for 10 years.

Electronic archiving. Electronic archiving is allowed in Aruba. However, there are no specific

rules on how the invoices should be administrated other than that upon request by the Aruba Tax

Inspector, these should be provided, and the information should be clear and definite.

I. Returns and payment

Periodic returns.

RT and HT combined returns are generally submitted on a monthly basis. The

RT and HT return must be filed within 15 days after the end of the month. The filing of the return

of the RT and HT amount can be done separately.

Periodic payments.

The RT and HT due must be paid within the same time period as the return,

which is within 15 days after the end of the month.

Aru bA 89

Electronic filing.

Electronic filing is mandatory in Aruba for all taxable persons. Filing is done

via the online portal BO impuesto (BOi). All companies who could be liable for RT and HT tax

are requested to register in the BOi system. The documents necessary to register are a copy of a

previously filed RT and HT, original chamber of commerce abstract, identification of the appli

cant (in case of a director whose name is identified in the chamber of commerce, a copy of their

identification), tax authorities’ template of authorization form and a username.

Payments on account.

Payments on account are not required in Aruba.

Special schemes.

No special schemes are available in Aruba.

Annual returns.

Annual returns are not required in Aruba.

Supplementary filings.

No supplementary filings are required in Aruba.

Correcting errors in previous returns.

Errors of previous returns can be corrected by filing an

objection within two months of the payment of the RT and HT returns. A RT and HT correction

can be filed within seven days via the BOi online portal. If the correction is made after seven

days, a correction request letter must be sent via email to the tax authorities ([email protected]).

Digital tax administration.

There are no transactional reporting requirements in Aruba.

J. Penalties

Aruba’s strict penalty system punishes the following two categories of infraction:

• Omissions

• Gross negligence or intent

Penalties for late registration.

In general, an Aruba taxable person who starts performing econom-

ic activities must register with the tax authorities in Aruba. Since there is no specific deadline for

registration, no penalty is imposed for late registration.

Penalties for late payment and filings.

However, if the late registration results in the late payment

of RT or HT or the late submission of RT or HT returns, administrative penalties may be

imposed.

The tax authorities can impose penalties for not filing the RT and HT return on time, for not

paying the amount due on time, for not paying or partially paying the amount due and for non

compliance with the prohibition mentioned under Section H for RT and HT on the invoice. As to

the latter penalty, it is our understanding that this penalty will not be imposed during a transi

tional period. These penalties can, however, accumulate. The following are the maximum penal-

ties that can be applied, which vary depending on the number of omissions:

• Not filing return on time: maximum penalty of AWG250

• Not paying on time: maximum penalty of AWG10,000

• Not paying or only partially paying: maximum penalty of AWG10,000

• Not including the RT and HT in the remuneration of the (taxable) supply of goods and/or ser

vices: maximum penalty of AWG10,000

• Stating the RT and HT in the calculation of the final price: maximum penalty of AWG10,000

If the late payment is caused by gross negligence or intent, penalties ranging from 25% to 100%

of the RT and HT payable may be imposed.

Penalties for errors.

The penalties for errors are the same as those for late filing and late payment

(as outlined above).

There are no specific penalties associated with the late notification or failure to notify the tax

authorities of changes to a taxable person’s RT/HT registration details. For further details, see the

subsection Changes to RT and HT registration details above.

90 Aru bA

Penalties for fraud.

Criminal penalties may also apply in certain circumstances, such as in cases

of fraudulent conduct. If the invoicing requirements are not met and a proper administration is

not in place, criminal penalties consisting of a penalty of AWG25,000 or a jail sentence for the

maximum duration of six months may be imposed.

Should gross negligence or intent be constituted, the amount of the penalty will be AWG100,000

and the jail sentence up to six years.

There are, in principle, no consequences for the tax advisor, provided that the tax advisor did not

contribute to fraud.

Personal liability for company officers.

In the Aruban tax legislation, the company is liable for fil-

ing and payment of the RT and HT returns correctly. However, a (former) director is jointly and

severally liable for unpaid RT and HT, including any penalty and collection fees due by the legal

entity.

Statute of limitations.

The statute of limitations in Aruba is five years. For the RT and HT, there

is a five-year statute of limitation period for the tax authorities to review the filed RT and HT

returns and impose an additional assessment. The five-year period begins as of the end of the

calendar year in which the tax liability originated. In case of bad faith by the taxable person upon

filing of the RT and HT return and/or upon payment of the RT and/or HT due, the statute of

limitation period is extended to 10 years.

In principle, the taxable person can file a voluntary correction within this period insofar as the

tax authorities is not yet aware of any errors in the RT and HT returns or payments. Should the

tax authorities inform the taxpayer of any audits or possible errors known by the tax authorities,

the taxpayer cannot voluntarily correct any errors.

Australia

ey.com/GlobalTaxGuides

Brisbane, Queensland GMT +10

Mail address: Street address:

GPO Box 7878 Level 51, 111 Eagle Street

Brisbane, Queensland 4001 Brisbane, Queensland 4000

Australia Australia

Indirect tax contact

John Ryan +61 (7) 3011 3523

john.ryan@au.ey.com

Melbourne, Victoria GMT +10

EY Street address:

Mail address: 8 Exhibition Street

GPO Box 67 Melbourne, Victoria 3000

Melbourne, Victoria 3001 Australia

Australia

Indirect tax contact

Michael Barnett +61 (3) 8575 6411

michael.barnett@au.ey.com

Brad Miller +61 (3) 9655 2718

brad.miller@au.ey.com

Perth, Western Australia GMT +8

EY Street address:

Mail address: 11 Mounts Bay Road

GPO Box M939 Perth, Western Australia 6000

Perth, Western Australia 6843 Australia

Australia

Indirect tax contacts

Gavin Shanhun +61 (8) 9429-2209

gavin.shanhun@au.ey.com

Anastasia Little +61 (8) 9429 2101

anastasia.lit[email protected]y.com

Sydney, New South Wales GMT +10

EY Street address:

Mail address: 200 George Street

GPO Box 2646 Sydney, New South Wales 2000

Sydney, New South Wales 2001 Australia

Australia

Indirect tax contacts

Jason Bailey +61 (2) 9248-4698

jason.baile[email protected].com

92 Au s t r A li A

Andrew Cavenor +61 (2) 8295-6243

andrew.ca[email protected].com

Ben Nolan +61 (2) 8295-6666

[email protected]y.com

A. At a glance

Name of the tax Goods and services tax (GST)

Local name Goods and services tax (GST)

Date introduced 1 July 2000

Trading bloc membership Comprehensive and Progressive Agreement for Trans-Pacific

Partnership (CPTPP)

Pacific Agreement on Closer Economic Relations Plus (PACER

Plus)

Administered by Australian Taxation Office (ATO) (www.ato.gov.au)

GST rates

Standard 10%

Other GST-free (zero-rated, 0%) and input taxed (exempt)

GST number format Australian Business Number (ABN) 12345678901

GST return periods Monthly (turnover in excess of AUD20 million; optional for all

other registered persons)

Quarterly (turnover below AUD20 million)

Annual with quarterly payments (turnover below

AUD2 million)

Annual (turnover below AUD75,000)

Thresholds

Registration AUD75,000 (AUD150,000 for nonprofit bodies)

Recovery of GST by

non-established businesses No

B. Scope of the tax

GST applies to the following transactions:

• Taxable supplies of goods and services, which are supplies connected with the “indirect tax

zone” (i.e., Australia) and made for consideration in the course of a business enterprise by an

entity that is registered or that is required to be registered for GST

• Reverse charge applies to offshore acquisitions made by a registered entity in Australia if the

supply is not connected with Australia and if the recipient of the supply does not make the

acquisition solely for a creditable purpose. Effective 1 July 2017, offshore intangibles supplied

to Australian non-registered consumers (e.g., digital supplies and services) may be subject to

GST with the offshore supplier liable to remit this GST.

• Taxable importations of goods into Australia, regardless of the status of the importer.

Importations of low value goods (e.g., AUD1,000 or less) are subject to GST with the nonresi

dent suppliers, operators of online marketplaces (i.e., electronic distribution platforms) and/or

re-deliverers to consumers in Australia liable to remit that GST to the Commissioner of Taxa-

tion.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for GST in that jurisdiction

Au s t r A li A 93

where it has customers that are not taxable persons. In Australia the place of effective use or

enjoyment of a supply is only taken into account in relation to the consumption outside Australia

of supplies of things other than goods or real property. A supply can be GST-free when made to

a recipient who is outside Australia when the thing supplied is done, and the effective use or

enjoyment takes place outside Australia, other than a supply of work physically performed on

goods in Australia when the thing supplied is done, or a supply directly connected with real

property in Australia. A supply is also taken to be made to a recipient who is not in Australia if

it is a supply made under an agreement entered into, whether directly or indirectly, with an Aus-

tralian resident, and the supply is provided, or the agreement requires it to be provided, to anoth-

er entity outside Australia.

Transfer of a going concern.

Normally the sale of the assets of a GST-registered or GST-registrable

business will be subject to GST at the appropriate rate. However, a transfer of a business as a

going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is

the sale of a business or part of a business capable of separate operation, including assets. Where

the sale meets the conditions, the supply is treated as outside the scope of GST. In Australia, a

TOGC is treated as outside the scope of GST where the following conditions are met:

• The supply must occur under an arrangement

• The supplier supplies to the recipient all the things necessary for the continued operation of an

enterprise

• The supplier carries on, or will carry on, the enterprise until the day of supply (whether or not

part of a larger enterprise carried on by the supplier)

• The supply is for consideration

• The recipient is registered or required to be registered

• The supplier and the recipient have agreed in writing that the supply is of a going concern

Transactions between related parties.

In Australia, a transaction between related parties, it will

ordinarily be subject to the normal GST rules where a taxable supply is made. However, where

a supply occurs between related parties that are defined as associates under Australian income

tax rules, special associate rules will apply.

Where a taxable supply to an associate is made without consideration, and the associate is not

registered or required to be registered, or if registered, the associate does not acquire the thing

supplied solely for a creditable purpose, GST should be applied at a rate of 10% of the GST-

exclusive market value of the supply.

Where a taxable supply is made to an associate for consideration that is less than the GST-

inclusive market value of the supply, and the associate is not registered or required to be regis

tered, or if registered, does not acquire the thing supplied solely for a creditable purpose, GST

should be applied at 10% of the GST-exclusive market value of the supply.

There is no distinction between the supply of goods or services under the associate rules.

C. Who is liable

The GST registration threshold is AUD75,000 (AUD150,000 for nonprofit bodies). The thresh-

old applies, retrospectively and prospectively, based on either of the following:

• Current GST turnover, which is the value of all supplies made or likely to be made in the cur

rent month plus the preceding 11 months

• Projected GST turnover, which is the value of all supplies made or likely to be made in the

current month plus the next 11 months

To calculate turnover for the above purposes, turnover from input-taxed (exempt) supplies, sup

plies that are not connected with Australia and certain other types of supplies are excluded.

94 Au s t r A li A

Sales of residential property. Purchasers of new residential premises (or subdivisions) must pay

the GST on the purchase price directly to the Australian Tax Office (ATO) as part of the settle

ment. Suppliers are required to provide the purchaser with a notification in writing before mak-

ing the supply, providing the supplier’s Australian Business Number (ABN) and the amount

required to be withheld. Purchasers are required to provide the ATO with a notification through

the submission of a form, which is completed and lodged online to the ATO prior to settlement.

Once this form has been lodged, the ATO will provide the purchaser with a payment reference

number and lodgement reference number. The final GST liability is to be resolved as part of the

Business Activity Statement (BAS) cycle, whereby the supplier will be entitled to a credit for the

amount of payment made to the ATO in the BAS for the tax period to which the supply is attrib

uted.

Withholding by purchasers applies to supplies of new residential premises or subdivisions for

which consideration (other than a deposit) is first provided on or after 1 July 2018.

Exemption from registration.

The GST law in Australia does not contain any provision for exemp-

tion from registration.

Voluntary registration and small businesses.

An entity with a turnover below the registration thresh-

old may apply to register for GST voluntarily if the entity is carrying on an enterprise.

Group registration.

Subject to certain requirements, two or more entities that are closely related

may form a GST group. The effect of GST grouping is to treat the group members as a single

entity for certain purposes. In general, all GST liabilities and input tax credit entitlements for

group members are attributed to a representative member of the group, and the group submits a

single GST return (incorporated as part of the BAS; see Section I). The representative member

of the group must be an Australian resident. However, nonresidents may be included in a GST

group as members. Transactions between group members are not considered taxable for GST

purposes and consequently are effectively ignored.

Grouping is permitted for companies, partnerships and trusts. For companies to be included in a

GST group, they must be connected by a 90% (or greater) share ownership relationship in terms

of voting power, right to receive dividends and right to receive capital distributions. However, all

eligible companies are not required to be included in a GST group. The rules for the grouping of

trusts and partnerships with companies are complex.

An independent branch of a company may be registered separately as a GST branch, with its own

GST number. Certain requirements must be met relating to the nature of the activities and

accounting systems of proposed GST branches. In addition, a branch of a registered entity may

not be registered as a GST branch if the entity is a member of a GST group.

There is no minimum time period required for the duration of a GST group.

Members of a GST group will be jointly and severally liable for GST debts and penalties of the

GST group. The individual liability of a GST group member, including the representative mem

ber, can be reasonably allocated if the group members enter an Indirect Tax Sharing Agreement.

This amount can be a fixed contribution amount or based on a method of allocation.

Fixed establishment.

In Australia there is no legal definition of fixed establishment for GST pur-

poses. However, an entity may be required to register for GST if it is carrying on an enterprise

in Australia, whereby the enterprise is carried on by one or more individuals in Australia, and any

of the following applies:

• The enterprise is carried on through a fixed place

• The enterprise has been carried on through one or more places in Australia for more than

183 days in a 12-month period

• The entity intends to carry on the enterprise through one or more places in Australia for more

than 183 days in a 12-month period

Au s t r A li A 95

It does matter whether the entity has exclusive use of a place, or the entity owns, leases or has

any other claim or interest in relation to the place.

Non-established businesses.

GST applies to taxable supplies and to taxable importations made by

nonresidents. In general, a nonresident entity is not required to appoint a tax or fiscal representa

tive in Australia for GST purposes. However, GST payable on any taxable supply or taxable

importation made by a nonresident through a resident agent is payable by the agent. The non

resident is still required to be registered for GST but need not submit GST returns if all supplies

or acquisitions are made through the agent.

As an alternative to registration, some nonresidents may agree with the recipient of the supply

for the recipient to account for the GST liability under the voluntary reverse-charge procedure.

Certain business-to-business (B2B) transactions (other than supplies of goods or real property)

between nonresident suppliers and Australian-based business recipients will no longer be “con

nected” with Australia. Subject to certain conditions and transitional rules being satisfied, GST

will not apply to these supplies and consequently a nonresident supplier that may have previ

ously been required to be registered for GST in Australia could deregister.

These rules do not apply where the nonresident supplier is carrying on an enterprise in Australia.

The concept of an entity carrying on an enterprise is broadly consistent with Australia’s current

tax treaty approach for determining a permanent establishment and incorporates the “183-day”

and “fixed-place” rules.

Nonresident entities may register for GST in a “limited” capacity to reduce their compliance

burden if they have made one or more inbound intangible consumer supplies (effectively B2C

supplies). This limited GST registration allows nonresidents to collect and remit GST on a quar

terly basis without the ability to claim any input tax credits for GST included within associated

expenses. Nonresident suppliers of low value goods to Australian consumers can also elect to

obtain a limited registration.

Tax representatives.

Tax representatives are not required in Australia.

Reverse charge.

GST on a taxable supply is payable by the recipient and not by the supplier if all

the following conditions are met:

• The supplier is a nonresident.

• The supplier does not make the supply through an enterprise that it carries on in Australia.

• The recipient is registered (or is required to be registered) for GST.

• The supplier and recipient agree that the GST is payable by the recipient.

The voluntary reverse charge does not apply if either of the following circumstances exists:

• The compulsory reverse charge applies.

• The supply is made by the nonresident through a resident agent.

A compulsory reverse charge applies in the following circumstances:

There is a supply of anything other than goods or real property (e.g., digital products, services,

rights) that is either (a) not connected with Australia or (b) connected with Australia because it

is a supply made through an enterprise carried on outside of Australia and it is a supply of a right

or option to acquire something that would be connected with Australia.

• The recipient of the supply is registered (or required to be registered).

• The supply is for consideration.

• The recipient acquires the supply solely or partly for the purpose of a business enterprise car

ried on by it in Australia.

• The acquisition is not solely for a creditable purpose (that is, it is not eligible for full input tax

credits), and the supply is not input taxed or GST-free.

96 Au s t r A li A

Where a supply of low-value goods, or a supply of anything other than goods or real property

was not subject to GST because the supplier incorrectly believed the recipient was not an Aus-

tralian consumer, a compulsory reverse charge applies where the acquisition is not solely acquired

for a creditable purpose and the supply is not input taxed or GST-free.

The compulsory reverse charge applies primarily to businesses that make input-taxed (exempt)

supplies (for example, financial institutions) and to acquisitions made for a partly private or

domestic purpose. The reverse charge does not apply to private consumers who are not registered

or required to be registered for GST.

Domestic reverse charge.

There is a mandatory reverse charge to taxable supplies of valuable

metals (goods consisting wholly or partly of gold, silver, platinum or any other substance speci

fied in the regulations for the purposes of the definition of a “precious metal”).

Subject to certain exceptions, the mandatory reverse charge occurs where:

• The market value of the goods does not exceed the valuable metal threshold.

• The recipient is registered or required to be registered.

If the mandatory reverse charge does not apply, suppliers and recipients may also agree in writing

to voluntarily reverse charge taxable supplies containing valuable metal.

Digital economy.

The supply by nonresident suppliers of intangibles, including anything other

than goods or real property (e.g., digital products, services, rights), to an Australian non-regis

tered consumer will be taken to have the necessary connection with Australia and may be subject

to GST unless otherwise exempted (including the supplier meeting the GST registration thresh

old). The onus is on the supplier to determine that its customer is not an Australian consumer. A

supplier must have sufficient evidence that would enable a person who is independent of the

transaction to reasonably conclude that its customer is not an Australian consumer (e.g., cus

tomer residency and their GST registration status and purpose of acquisition).

The supply of low value imported goods of AUD1,000 or less to an Australian non-registered

consumer will be taken to have necessary connection with Australia and may be subject to GST

unless otherwise exempted (including the supplier meeting the GST registration threshold). Non-

resident suppliers and/or re-deliverers to consumers in Australia are liable to remit that GST to

the Commissioner of Taxation.

Online marketplaces and platforms. In some circumstances, the responsibility for the GST liabil-

ity that arises under the amendments may be shifted to the operator of an electronic distribution

platform rather than the supplier of the intangible supply.

The legislation treats supplies of digital currency alike to supplies of money. GST is generally

not payable on supplies and purchases of digital currency.

Registration procedures.

To register for GST in Australia, an entity needs to first apply for an

ABN. To apply for an ABN or apply to have an ABN previously held reissued, the taxable person

can apply online through the Australian Business Register or through its registered tax agent or

BAS agent. Nonresidents have additional requirements for providing identity evidence for ABN

registrations, including certified copies of original proof of identity documents for the business

and associated individuals of the business, usually directors. Documents need to be translated

into English before being submitted with the application, and this can be done by an authorized

translator, and it must be certified that the translation is a true and correct copy of the original.

Once an entity has an ABN, it can register for GST. An entity can register for GST via the ATO

online services for business, by phone to the ATO or through its registered tax agent or BAS

agent.

Au s t r A li A 97

Nonresidents may also register for GST. The types of GST registration available to nonresidents

are:

• Simplified GST registration, which is a two-step process where an entity first gets an AUS ID

and then registers for Simplified GST.

• Standard GST registration with an ABN where an entity applies for an ABN and GST.

• Standard claim only (GST-only), which can be applied for online. Documents showing that the

business is registered with an equivalent corporate, market and/or financial regulator in the

entity’s country of origin and a letter issued by a revenue authority of a comparable taxing

regime stating that the entity exists in their records and carry on an enterprise are also required.

Deregistration.

An entity that ceases to carry on an enterprise must cancel its GST registration.

The entity must notify the Commissioner of Taxation that it is no longer entitled to be registered

within 21 days after ceasing operations. An entity that is no longer required to be registered may

apply to cancel its registration. However, the Commissioner of Taxation is not required to cancel

the registration if a business has been registered for less than 12 months.

Changes to GST registration details.

It is a legal requirement to notify the Registrar of the Aus-

tralian Business Register (ABR) within 28 days of any changes in a taxable person’s registered

business details. These include, but are not limited to, changes to postal, email or business

address, associates, main business activity, key personnel (such as directors or public officer) or

authorized contacts. A taxable person can update its details online through the Australian

Business Register or Business Portal, by phone, by lodging a form, or through its registered tax

agent or BAS agent.

D. Rates

The terms “taxable supplies” and “taxable importations” refer to supplies of goods, real prop-

erty, and services and importations that are liable to GST and give rise to a right to claim input

tax credits for GST included in acquisitions related to the supply.

The GST rates are:

• Standard rate: 10%

• Zero-rate: 0%

The standard rate of GST applies to all supplies of goods and services unless a specific measure

provides for the zero rate or an exemption.

“GST-free supplies” are supplies not liable for GST but that nevertheless do give rise to a right

to claim input tax credits for GST included in acquisitions related to the supply.

Examples of goods and services taxable at 0% (i.e., GST-free)

• Basic foodstuffs

• Water, sewerage and drainage services

• Exports of goods and services performed for nonresidents of Australia who are not in Australia

when the supply is made

• Health, education, religious and related supplies

• Childcare

• Supplies of going concerns

• International transport and mail

The term “input-taxed supplies” refers to supplies not liable for GST (i.e., exempt) that do not

give rise to a right to claim input tax credits for GST included in acquisitions related to the

supply.

98 Au s t r A li A

Examples of exempt supplies of goods and services (i.e., input-taxed)

• Financial supplies

• Rental of residential premises

• Sales (or long-term leases) of residential premises (except for new residential premises)

• Supplies of some precious metals

• Supplies in the course of fundraising events conducted by charitable institutions

• Supplies made through school “tuck shops” and cafeterias

Option to tax for exempt supplies.

The option to tax exempt supplies is not available in Australia.

E. Time of supply

Australia does not have time of supply rules. Instead, it has attribution rules with respect to the

timing of when GST is payable, or an input tax credit is claimable. The time when GST is payable

on a supply depends on whether the taxable person accounts for GST on a cash basis or on an

accrual basis.

Deposits and prepayments.

If a prepayment or a deposit is treated as part payment of the consid-

eration for a supply, GST is payable in the period when the deposit is paid. For entities that use

the accrual basis of accounting, the deposit triggers a liability to account for GST on the full

value of the supply. For entities that use cash accounting, GST is payable on the amount of the

deposit.

Security deposits are not considered to constitute payment of the consideration for a supply until

the deposit is applied as partial payment toward the consideration for the supply. GST is payable

on a security deposit that is forfeited.

Continuous supplies of services.

If a supply is made continuously over a period of time for con-

sideration that is either paid progressively or periodically, the supply is treated as if each compo-

nent of the progressive or periodic supply is a separate supply.

Goods sent on approval for sale or return.

Australia does not have time of supply rules. In these

circumstances, the general attribution rules should apply such that the supplier has a GST liabil

ity on the earlier of the invoice being issued or the receipt of any consideration.

Reverse-charge services.

Australia does not have time of supply rules. For reverse-charge sup-

plies, the general attribution rules should apply such that the supplier has a GST liability on the

earlier of the invoice being issued or the receipt of any consideration. Where reverse charge is

applied on supplies between associates for no consideration, GST is payable on the supply and

the input tax credit on the acquisition is attributable in the tax period in which the thing supplied

starts to be done.

Leased assets.

Australia does not have time of supply rules. Refer to the subsection above on

Continuous supplies of services for how to treat the supply of leased assets.

Imported goods.

GST is payable for imported goods at the time of importation. For an importer

registered under the GST-deferral scheme, GST is payable on the due date for the importer’s next

BAS (see Section I).

F. Recovery of GST by registered entities

A registered entity may claim input tax credits for the GST included in the consideration for

goods and services acquired within Australia, GST paid on importations of goods and GST paid

under reverse-charge arrangements to the extent that the acquisition is a creditable acquisition.

Input tax credits are generally recovered by being offset against GST payable on taxable supplies.

Au s t r A li A 99

A valid tax invoice or customs document must generally be retained to support claims for input

tax credits.

The time limit for a taxable person to reclaim input tax in Australia is four years. The input tax

credit claim must be made within four years after the day on which the GST return would have

been due for the earliest tax period in which the entity would have been able to claim the input

tax credit (setting aside any requirement to hold a tax invoice).

Nonresident entities registered for GST in a limited capacity do not have the ability to claim any

input tax credits for GST incurred on Australian acquisitions.

Nondeductible input tax.

Nondeductible purchases are also known as “Non-creditable acquisi-

tions” in Australia. In addition, input tax credits are blocked or reduced for some items of busi-

ness expenditure.

However, acquisitions related to making financial supplies remain creditable if the entity does

not exceed the financial acquisitions threshold. An entity exceeds the financial acquisitions

threshold if, in the current month and the preceding 11 months, or in the current month and the

next 11 months, the GST on acquisitions related to financial supplies (“financial acquisitions”)

exceeds, or will exceed, either the lesser of AUD150,000 or 10% of the total input tax credits an

entity incurs. In calculating the amount of GST on financial acquisitions, financial acquisitions

related to borrowings and importations are excluded. Acquisitions related to borrowings (that are

not used to make input-taxed supplies) and importations remain creditable. An entity that

exceeds the financial acquisitions threshold may be entitled to reduced input tax credits (at a rate

of 75% or 55%) in specific circumstances.

The following lists provide some examples of items of expenditure for which input tax deduc

tions are not available (non-creditable acquisitions) and examples of items for which input tax

deductions are available if the expenditure is related to the entity’s taxable business use (credit

able acquisitions).

Examples of items for which input tax is nondeductible

• Acquisitions used for nonbusiness purposes

• Entertainment acquisitions that are ineligible for income tax deductions

• Acquisitions related to input-taxed supplies (however, acquisitions related to making financial

supplies that either do not exceed the financial acquisitions threshold or relate to borrowings

not used to make input-taxed supplies, remain creditable)

Examples of items for which input tax is deductible

(if related to a taxable business use)

• Advertising

• Purchase, lease and hire of a car, van or truck

• Maintenance and fuel for a car, van or truck

• Parking

• Mobile phones (GST may be payable on a recharge of costs to employees)

Partial exemption.

A creditable acquisition is an acquisition of goods or services used by a reg-

istered entity in its business enterprise. However, input tax credits are generally not available for

GST included in acquisitions that are used for making input-taxed (exempt) supplies, subject to

whether an entity exceeds the financial acquisitions threshold.

In general, the amount of the input tax credit available for a creditable acquisition is the amount

of GST payable on the supply. However, the amount of the input tax credit is reduced if the

100 Au s t r A li A

acquisition is only partly creditable. An acquisition is partly creditable if either of the following

conditions applies:

• The acquisition is made only partly for a creditable purpose (for example, it partly relates to

input-taxed supplies).

• The taxable person provides, or is liable to provide, part of the consideration for the acquisition.

The amount of the input tax credit for a partly creditable acquisition is based both on the extent

to which the acquisition is made for a creditable purpose and on the amount of the total consid

eration that is provided, or liable to be provided, by the taxable person.

The ATO require that the extent to which an acquisition is made for a creditable purpose is deter

mined based on the planned use of the acquisition “on a reasonable basis.”

Approval from the ATO is not required to use the partial exemption standard method or special

methods in Australia.

Direct allocation methods are preferred if possible. However, indirect allocation methods (i.e.,

special methods) are acceptable if it is not feasible to use a direct method. Examples of common

indirect methods include the following:

• A pro rata calculation based on the cost of acquisitions used to make taxable supplies compared

with the total cost of all acquisitions.

• A pro rata calculation based on the total value of taxable supplies made compared with the total

value of all supplies made.

Subsequent input tax credit adjustments may be required in later tax periods, depending on the

actual use of the acquisition compared with its expected use.

Capital goods.

The GST Act does not define the term “capital goods.” Generally, capital goods

refer to those goods that make up the profit yielding subject of an enterprise. Where acquisitions

of capital goods are made partly for a “creditable purpose,” an input tax credit can be claimed to

the extent to which the acquisition is made for a creditable purpose.

Generally, the time limit for claiming input tax credits is four years.

The calculation for claiming input tax credits on acquisitions is:

• (Full input tax credit) x (Extent of creditable purpose) x (Extent of consideration)

Refunds.

If the amount of input tax credits in a period exceeds the GST payable in the same per-

iod, the excess amount is applied against any other outstanding tax debts and any surplus is

refunded. Any refunds of GST must be paid into an Australian bank account.

Pre-registration costs.

Input tax incurred on pre-registration costs in Australia is not recoverable.

Bad debts.

An entity can recover the GST it has remitted in respect of unpaid invoices if either:

• The debt is written off as bad

• The debt has been overdue for 12 months or more

If an entity makes a bona fide commercial decision that the debt is unlikely to be recovered, the

Commissioner of Taxation will accept that the debt is bad for the purposes of GST. There must

be some written record that evidences the decision to write off the debt.

Noneconomic activities.

Input tax incurred in relation to noneconomic activities is not recover-

able in Australia.

G. Recovery of GST by non-established businesses

Input tax incurred by non-established businesses that are not registered for GST in Australia is

not recoverable.

Au s t r A li A 101

Only entities that are registered for GST may claim refunds of GST incurred on Australian acqui-

sitions. In general, entities (including nonresidents) that make acquisitions in Australia for the

purposes of their enterprises may register for GST if necessary, although they are not required to

be making supplies in Australia to have the entitlement to a refund. However, the nonresident

entities electing “limited registration” are unable to recover any GST incurred on Australian

acquisitions.

H. Invoicing

GST invoices.

A registered person must generally provide a tax invoice for all taxable supplies

made if requested to do so by the recipient of a supply. A tax invoice is not required for supplies

with a GST-inclusive amount of AUD82.50 or less.

A tax invoice is generally necessary to support claims for input tax credits. Those nonresidents

making supplies to Australian consumers and have “limited registration” for GST are not required

to issue tax invoices.

Credit notes.

An adjustment note (or credit or debit note) may be issued to reduce or increase the

amount of GST payable on a supply if the amount of GST originally charged is incorrect (for

example, as a result of an error or because of an agreed adjustment to the price). The adjustment

note should be clearly marked either as an adjustment note or as a tax invoice (provided the

amount of any credit is shown as a negative amount), and it must provide detailed particulars of

the adjustment made.

Electronic invoicing.

Electronic invoicing is allowed in Australia, but not mandatory. For electron-

ic invoices, recipients need to be able to reproduce the tax invoice when requested by the Com-

missioner of Taxation in support of any input tax credit claims.

Simplified GST invoices.

There are no simplified GST invoices in Australia. However, for supplies

of AUD1,000 or more, the tax invoice also needs to show the buyer’s identity or ABN.

Self-billing.

Self-billing is allowed in Australia. There are three classes of invoices that may be

issued by a recipient of a taxable supply, rather than the supplier. These invoices are known as

Recipient Created Tax Invoices (RCTI). The three broad classes are:

1. Tax invoices for taxable supplies of agricultural products made to registered recipients

2. Tax invoices for taxable supplies made to registered government-related entities

3. Tax invoices for taxable supplies made to registered recipients that have a GST turnover

(including input taxed supplies) of at least AUD20 million annually or are members of a group

of companies, partnerships or trusts, or a joint venture operator, in which one or more mem

bers of that group or participants in that joint venture have such a GST turnover.

Proof of exports.

Exports of goods are GST-free. To qualify as GST-free, goods must generally

be exported within 60 days. Exports must also be supported by evidence that indicates the goods

have left Australia within the allowable time limit. A supplier must have documents that would

enable a person who is independent of the transaction to reasonably conclude that a supply of

goods was made, and that the supplier exported them within the specified time limits.

Foreign currency invoices.

If a tax invoice or adjustment note is issued in a foreign currency, the

GST must be shown in Australian dollars (AUD) or the applicable exchange rate used must be

shown. Registered persons may use the exchange rate issued by the Reserve Bank of Australia

applicable at 4 p.m. on the day of the invoice or on the previous day, or any other rate that is

acceptable to the Australian tax authorities.

Supplies to nontaxable persons.

There are no special invoicing rules for supplies to nontaxable

persons in Australia. As such, full GST invoices are required.

102 Au s t r A li A

Records.

In Australia, examples of what records must be held for GST purposes include records

that explain all GST transactions, including any supply, acquisition or entitlement. In Australia,

GST books and records can be kept outside the country. There are no requirements for the

records to be kept locally in Australia; however, the records must be in English or readily acces

sible and convertible into English and must enable a business’s liabilities and entitlements to GST

and input tax credits to be readily ascertained.

Record retention period. Records of indirect tax transactions need to be retained for five years

after the completion of the GST transaction to which they relate.

Electronic archiving. Electronic archiving is allowed in Australia. Records relating to GST trans-

actions can be stored electronically. Electronic records are subject to the same record-keeping

requirements as paper records.

I. Returns and payment

Periodic returns.

GST liabilities are reported using a BAS. Registered persons whose annual

turnover equals or exceeds AUD20 million must complete a BAS each month, which must be

filed electronically. Monthly returns are due by the 21st day of the month following the end of

the return period.

Registered persons whose annual turnover for GST purposes does not exceed AUD20 million

must submit a BAS each quarter or they may opt to submit monthly. These registered persons

may also choose to report some information annually. Quarterly returns and payments are gener

ally due by the 28th day of the month following the end of the relevant return period but may be

made by 28 February for the December quarter.

Registered persons whose turnover for GST purposes does not exceed AUD2 million may opt to

file an annual BAS in quarterly installments.

Persons whose turnover for GST purposes does not exceed AUD75,000 and who have elected to

report GST and pay (or claim a refund) annually or who elect to pay GST by installments may

apply to file BASs annually. The annual GST return and payment will be due at the same time

as the entity’s income tax return. Where an entity is not required to lodge an income tax return,

it must lodge its annual GST return with payment by 28 February. An entity must assess its eli

gibility to report and pay GST annually on 31 July each financial year. Where an entity is no

longer eligible to report and pay GST annually, it must advise the ATO who will change the

entity’s GST reporting cycle to monthly or quarterly with effect from 1 July of that same finan

cial year.

Entities that register for a “limited” registration must submit a BAS each quarter but will not have

the ability to claim any input tax credits on the BAS. Therefore, these returns only include GST

liabilities.

Periodic payments.

Registered persons whose annual turnover equals or exceeds AUD20 million

must pay any net GST liability. Payments are due by the 21st day of the month following the end

of the period.

Registered persons whose turnover for GST purposes does not exceed AUD2 million may opt to

pay GST in quarterly installments.

Persons whose turnover for GST purposes does not exceed AUD75,000 and who voluntarily opt

to register for GST, may apply to pay GST annually.

GST liabilities must be paid in Australian dollars.

Au s t r A li A 103

Electronic filing.

Electronic filing is mandatory in Australia for certain taxable persons. Taxable

persons whose annual turnover equals or exceeds AUD20 million must file their BAS electroni

cally. For other taxable persons, electronic filing is optional.

Payments on account.

As outlined above, generally an entity will be required to report and pay

GST on a monthly or quarterly basis. However, if an entity meets certain eligibility requirements

that allow it to elect to pay GST by installments, it will pay a quarterly amount calculated by the

ATO and report its actual GST information on an annual GST return. The ATO will calculate the

installment amount based on the net GST amounts the entity most recently reported, generally

for the prior year, depending on how long it has been registered for GST.

Special schemes.

Cash accounting. Entities may choose to account on a cash basis only under

limited circumstances, which involve, among other conditions, consideration as to whether an

entity satisfies certain income tax definitions.

For entities that use cash accounting, GST is payable with respect to a taxable supply in the tax

period in which the consideration is received. If only part of the consideration is received in a

particular tax period, GST is payable only on that part.

Accrual basis. For businesses that account for GST on an accrual basis, GST is payable with

respect to a taxable supply for the tax period in which the invoice is issued or when any of the

consideration is received for the supply, whichever is earlier.

Small business concessions. A small business may be eligible for GST and excise concessions.

The turnover threshold for these concessions is AUD10 million. These include:

• Accounting for GST on a cash basis (explained above)

• Paying GST by installments, which are calculated by the ATO and may be varied by the small

business each quarter if it chooses. A small business must contact the ATO to access this con

cession

• Annual apportionment of GST input tax credits, whereby if an item is purchased that is used

partly for private purposes, the small business can choose to claim the full GST credits for these

items on its BAS and make a single adjustment to account for the private use percentage after

the end of its income year

• Excise concessions, where an eligible small business can apply to defer settlement of its excise

duty and excise equivalent customs duty from a weekly to a monthly reporting cycle. To access

this concession, an application must be made to the ATO in writing

Not-for-profit organization concessions. GST concessions are available to not-for-profit organi-

zations. Additional GST concessions are available to:

• Australian Charity and not-for-profits Commission (ACNC) registered charities that are

endorsed to access GST charity concessions

• Gift deductible entities

• Government schools

Food retailers. Simplified accounting methods (SAMs) are available for food retailers that buy

and sell a mixture of products, where some are taxable and some are GST-free, and whose rele

vant turnover is not more than AUD2 million.

Secondhand goods. An entity can claim GST credits for its purchase of secondhand goods even

if the price it paid did not include GST. That is, this can be done for secondhand goods that an

entity purchases for resale from sellers who do not charge GST in the price of the goods. An

entity can calculate its GST credits using either a direct approach or a global accounting method,

depending on whether it sells the secondhand goods as a single item or divides them into separate

parts.

104 Au s t r A li A

Annual returns.

Annual returns are not required in Australia.

Supplementary filings.

No supplementary filings are required in Australia. However, entities can

revise previously lodged BASs to correct errors or omissions.

Correcting errors in previous returns.

The two types of GST errors a taxable person can make are

a credit error or a debit error. A credit error is when a taxable person makes an error calculating

its net GST amount, resulting in reporting/paying too much GST. A taxable person can correct a

credit error on a later BAS if it is within the credit error time limit (four years and one day later

than the day it lodged the original BAS). Credit errors are not subject to value limits.

A debit error occurs when a taxable person makes an error calculating the net amount, resulting

in reporting/paying too little GST. A taxable person can correct a debit error on a later BAS given

the debit error is within the debit error time limit (based on current GST turnover), the net sum

of the debit errors is within the debit error value limit (based on current GST turnover) and the

debit error is not a result of recklessness or intentional disregard of a GST law.

A taxable person can make a voluntary disclosure to the tax authorities in relation to any false or

misleading information, mistakes or omissions it has made in the BASs. When making a volun

tary disclosure, the taxable person is not required to admit liability; however, the taxable person

is still required to pay the tax owed and interest and penalties the tax authorities apply.

In the instance the taxable person can correct the error on a later BAS, it must keep a record of

the reporting period the error occurred in, the BAS it was corrected on and other relevant infor

mation to explain the correction/error.

If a taxable person is not eligible to correct the GST error on a later BAS, it may need to complete

a revised BAS. This can be done online or by paper.

Digital tax administration.

There are no transactional reporting requirements in Australia.

J. Penalties

Penalties for late registration.

Penalties may be imposed if an entity fails to apply to register for

GST when required by the GST Act, or if it is registered, to apply to cancel a GST registration

as required.

Failure to comply with its registration obligations results in an entity being liable to an adminis

trative penalty of 20 penalty units, with the current value of a penalty unit being AUD275. The

ATO will give written notice to the entity of the entity’s liability to pay the penalty and of the

reasons why the entity is liable to pay the penalty. At the time of preparing this chapter, a recent

budget announcement increased the value of a penalty unit from AUD222 to AUD275 from 1

January 2023, with inflation adjustments from 1 July 2023 (not yet announced).

These penalties may be remitted in specific circumstances. The particular facts of each case will

determine whether or not the ATO exercises the discretion to remit.

Penalties for late payment and filings.

A late lodgment penalty may be imposed for the late filing

of a BAS. The penalty applies for each 28-day period, or part thereof, that the BAS remains

overdue, up to a maximum of five periods.

The amount of the penalty is one penalty unit for each period (a penalty unit is currently

AUD275) for every 28 days (or part thereof) that the BAS is late, up to a maximum of 5 penalty

units. However, this may be increased depending on the size of the entity’s business:

• For a medium entity the penalty is multiplied by two. A “medium entity” is a medium with

holder for PAYG withholding purposes or has assessable income or current GST turnover of

more than AUD1 million and less than AUD20 million.

Au s t r A li A 105

• For a large entity the penalty is multiplied by five. A “large entity” is a large withholder for

PAYG withholding purposes or has assessable income or current GST turnover of AUD20 mil

lion or more.

• For “significant global entities” (e.g., an entity or consolidated group with annual global turn

over equal to or greater than AUD1 billion), failure to lodge penalties are increased by a factor

of up to 500 (i.e., for BASs lodged more than 112 days after the due date, the penalty is

AUD687,500).

Where an entity receives a penalty notice for failing to lodge a return or statement on time, it can

apply to the ATO to have the penalty remitted in full or in part if there are extenuating circum

stances. Registered tax agents can also request remission on behalf of their clients.

General interest charges (GIC) may also be imposed on late payments of GST. The rate changes

quarterly. It is around the range of 8% to 11% per year, compounded daily.

It is a legal requirement to notify the Registrar of the ABR within 28 days of any changes in a

taxable person’s registered business details. Taxable persons can be liable to penalties if they fail

to meet this obligation.

Penalties for errors.

A GST error is a mistake made in working out the GST net amount on the

BAS that would result in reporting or paying too much GST (credit error) or reporting or paying

too little GST (debit error).

If an entity makes a GST error when reporting GST on a BAS, it can correct that error on a later

BAS if it meets certain conditions, including:

• For credit errors, a “credit error time limit”

• For debit errors, a “debit error time limit” and a “debit error value limit”

If an entity corrects a GST error on a later BAS, it should keep a note to record the reporting

period when the error was made and the BAS it was corrected on. It must also keep records and

other relevant information to explain the correction.

There are no specific penalties associated with the late notification or failure to notify the tax

authorities of changes to a taxable person’s GST registration details. For further details, see the

subsection Changes to GST registration details above.

Penalties for false or misleading statements. An entity will be liable for a penalty if it makes a

false or misleading statement that results in it having a shortfall amount. The shortfall amount is

the difference between the correct tax liability or credit entitlement and the liability or entitle

ment worked out using the information it provided.

The base penalty is a percentage of the shortfall amount. The percentage used is determined by

the behavior that led to the shortfall amount:

• Failure to take reasonable care: The base penalty is 25% of the shortfall amount. Generally, an

entity will fail to take reasonable care if it has not done what a reasonable person in the same

circumstances would have done.

• Recklessness: The base penalty is 50% of the shortfall amount. An entity is reckless if a reason

able person in its circumstances would have been aware that there was a real risk of a shortfall

amount arising and it disregarded, or showed indifference to, that risk.

• Intentional disregard: The base penalty is 75% of the shortfall amount. An entity intentionally

disregards the law if it is fully aware of a clear tax obligation, and it disregards the obligation

with the intention of bringing about certain results (underpaying tax or overclaiming an entitle

ment).

The penalty percentages are doubled for this penalty if an entity is a Significant Global Entity

(SGE).

106 Au s t r A li A

The base penalty amount can be increased or reduced if there are aggravating or mitigating cir-

cumstances or remitted where it is fair and reasonable to do so.

The penalty will not be imposed if either of the following apply:

• The entity took reasonable care in making the statement (it may still be subject to another

penalty provision, such as taking a position that is not reasonably arguable).

• The entity’s statement accords with ATO advice, published statements or general administrative

practices in relation to a tax law.

Under the safe harbor provisions, an entity may not be penalized if the incorrect statement was

made by an entity’s agent when it provided them with the relevant, correct information.

An entity is liable for a penalty if it makes a false or misleading statement (for example, in an

objection, private ruling request or during an audit) that does not result in it having a shortfall

amount.

The base penalty is calculated as a multiple of a penalty unit. The multiple used is determined

by the behavior that led to the false or misleading statement:

• Failure to take reasonable care – the base penalty is 20 penalty units.

• Recklessness – the base penalty is 40 penalty units.

• Intentional disregard – the base penalty is 60 penalty units. A penalty multiplier will apply to

double this penalty if an entity is an SGE.

The base penalty amount can be increased or reduced if there are aggravating or mitigating cir

cumstances or remitted where it is fair and reasonable to do so.

The penalty will not be applied if:

• The entity took reasonable care in making the statement.

• The entity’s statement accords with ATO advice, published statements or general administrative

practices in relation to a tax law.

Penalties for fraud.

Those who disregard the law, make fraudulent claims and deliberately avoid

their GST obligations will face serious consequences, including interest, penalties and, where

appropriate, prosecution or referral to the Commonwealth Director of Public Prosecutions. This

includes taxable persons who:

• Deliberately do not register for GST when they are required to

• Intentionally fail to report, or consistently underreport, their tax obligations

• Collude with others to evade or avoid tax obligations

• Intentionally fail to meet their tax obligations

• Try to obtain a refund that they are not entitled to persistently and repeatedly exploit bank

ruptcy

Personal liability for company officers.

As of 1 April 2020, directors can be held personally liable

for unpaid GST in certain instances. The personal liability can be avoided if the company pays

the debt to the tax authorities. If not, the tax authority collects the debts by issuing a director

penalty notice to recover proceeds owed, which is payable by directors of the company. The direc

tor penalty can be remitted if the director complies with the obligation before the notice is issued

or within 21 days of the day the notice is issued.

Statute of limitations.

The statute of limitations in Australia is four years. This applies to federal

taxes and is generally four years. A four-year period of review applies where the ATO may amend

an assessment for GST amounts on the BAS. The period of review starts on the day on which the

ATO first gives notice of the assessment. In most cases, this will be the same day the registered

entity lodges its BAS. The period of review ends four years from the day after the notice of assess-

ment is given.

Au s t r A li A 107

After the period of review ends, an amendment will only be made by the ATO in limited circum-

stances:

• To give effect to an application already received

• Where an assessment has been disputed

• Where there is fraud or evasion

A taxable person can make a voluntary disclosure to the ATO in relation to any false or mislead

ing information, mistakes or omissions it has made in the BAS within the period of four years

since a BAS was lodged. When making a voluntary disclosure, the taxable person is not required

to admit liability; however, the taxable person is still required to pay the tax owed and interest

and penalties the ATO applies.

108

Austria

ey.com/GlobalTaxGuides

Vienna GMT +1

Wagramer Strasse 19

1220 Vienna

Austria

Indirect tax contacts

Ingrid Rattinger +43 (1) 21170-1251

ingrid.rat[email protected].com

Theresa Arlt +43 (1) 21170-1102

theres[email protected]y.com

Miriam Hofer +43 (1) 21170-1225

miriam.hof[email protected]y.com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Umsatzsteuer (USt)

Date introduced 1 January 1973

Trading bloc membership European Union (EU)

Administered by Federal Ministry of Finance (http://www.bmf.gv.at)

VAT rates

Standard 19%, 20%

Reduced 10%, 13%

Other Zero-rated (0%) and exempt

VAT number format ATU 1 2 3 4 5 6 7 8

VAT return periods Monthly (turnover in preceding year greater than EUR100,000)

Quarterly (turnover in preceding year below EUR100,000)

Annually (all businesses)

Thresholds

Registration

Established EUR35,000 (from 1 January 2020)

Non-established None

Distance selling EUR10,000

Intra-Community EUR11,000

acquisitions

Electronically supplied EUR10,000|

services

Recovery of VAT by

non-established businesses Yes

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods or services made in Austria by a taxable person

Au s t r i A 109

• The intra-Community acquisition of goods from another European Union (EU) Member State

by a taxable person (see the chapter on the EU)

• Reverse-charge services received by a taxable person in Austria (that is, services for which the

VAT liability shifts to the recipient of the service)

• Self supplies of goods and services used for nonbusiness purposes and supplies of goods with

out consideration

• The importation of goods from outside the EU, regardless of the status of the importer

Quick Fixes.

Pending introduction of a “definitive” system for the VAT treatment of intra-

Community supplies of goods to taxable persons, the EU has adopted Quick Fixes for intra-

Community trade in goods.

For an overview of the Quick Fixes rules, see the chapter on the EU.

For documentary requirements see Section H. Invoicing, subsection Proof of exports and intra-

community supplies.

The Quick Fixes were implemented in Austria, based on EU Directives 2018/1910 and

2018/1912, and came into effect on 1 January 2020. This led to changes in the regulations for

intra-EU chain transactions, consignment stock and prerequisites for intra-Community supplies.

Intra-EU Chain transactions:

• As in the past, the intra-Community goods transport can only be attributed to one supply in the

chain and only this supply can be treated as exempt intra-Community supply. As from 1 January

2020, the party “intermediary” was introduced, which is a supplier within the chain (except the

first supplier) who transports or dispatches the goods. Basically, the intra-Community supply

is assigned to the supply to the party who arranges for the transport of the goods. This is dif

ferent if the transport is arranged by an intermediary supplier and that intermediary provides to

their supplier a VAT identification number issued by the Member State in which the transport

starts. In this case, the intermediary instead of their supplier is deemed to perform the intra-

Community supply. Further, specific rules to determine the place of supply within a chain

transaction were established. Supplies in the chain taking place before the intra-Community

supply, as well as the intra-Community supply itself, are taxable in the country of dispatch,

supplies taking place after the intra-Community supply are taxable in the country of desti-

nation. In deviation to the EU provisions, chain transactions with connection to third countries

are comprised as well.

EU triangular transactions:

• In case of a cross-border EU chain transaction ending in Austria, the simplification for trian

gular transactions applies if the following prerequisites are fulfilled:

– The party effecting the intra-Community acquisition (party B) does neither operate its busi

ness in Austria, nor has a fixed establishment in Austria and does not use its Austrian VAT

ID number or its VAT ID number of the country from where the transport starts

– The intra-Community acquisition is affected for the purpose of performing a subsequent

supply in Austria by party B to party B’s customer

– Party B’s customer is a taxable person, or a public body registered for VAT in Austria

– The VAT liability for the supply of party B shifts to party B’s customer

Austrian VAT law has set very strict formal requirements for the invoice issued by party B (e.g.,

shift of VAT liability must be explicitly mentioned on the invoice, as well as the fact that a trian

gular transaction is given). As from 1 January 2023, the simplification for triangular transactions

is also applicable within a chain transaction with more than three parties, provided that the

abovementioned prerequisites are fulfilled.

Simplified treatment for call-off stock:

• The transfer of goods from an EU country to a warehouse in Austria no longer qualifies as a

deemed intra-Community supply and a deemed acquisition in case the following prerequisites

are met:

110 Au s t r i A

– Goods are transported/dispatched by a supplier to Austria to be delivered to another taxable

person at a later point in time and who is entitled to purchase the goods according to a con

tract in place (intended recipient of the goods)

– The supplier is not established in Austria

– The supplier knows the identity and the VAT-ID number of the intended recipient of the

goods at the beginning of the transport/dispatch process and they declare this planned supply

in their EC Sales list

– The supplier registers the transaction (i.e., transport of the goods to the stock) in the call-off

stock-register

The recipient must withdraw the goods from the warehouse within 12 months and this leads to

an intra-Community supply and the respective acquisition.

If a supplier does not comply with all the conditions for call-off stock, they must in principle still

the 12-months deadline, sales to other customers, movement to another Member State, damage

or loss of the goods (if exceeding a 5% tolerance).

Prerequisites for intra-Community supplies:

• The use of a valid VAT ID that the customer communicated to the supplier is a material require

ment for applying the zero VAT rate to intra-Community supplies. Otherwise, it will not be

possible to apply the zero VAT rate as of 1 January 2020. In case the acquirer provides the

supplier with the VAT number at a later stage, it is still possible to correct the invoice under

certain circumstances. Furthermore, as a condition for applying the zero VAT rate, the taxable

person must file a correct EC Sales List. The VAT exemption is not lost in case the supplier acts

in good faith, which means that defaults concerning the EC Sales list are justified and correct-

ed sufficiently toward the respective tax authorities. Harmonized proof of intra-Community

supplies:

• Art 45a EU Council Implementing Regulation (EU) 282/2011, which is directly applicable in

Austria, foresees a consistent proof of dispatch of goods to another EU Member State for the

application of the VAT exemption for intra-Community supplies. According to this provision,

there is a rebuttable presumption of transport to another EU Member State if the supplier can

provide at least two noncontradictory evidential documents prepared by parties independent

from one another and independent from supplier and customer. This may include signed CMR

documents, together with a copy of payment for transport issued by the bank. In case of cus

tomer pick-up, further requirements are applicable. In addition, it is still possible to follow the

Austrian national provisions for proving dispatch of goods to another EU Member State.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, EU Member

States can apply use and enjoyment rules that allow a service that is “used and enjoyed” in the

EU to be taxed or prevent a service that is “used and enjoyed” outside the EU from being taxed.

If a service is taxed in the EU under the use and enjoyment provisions, a non-EU supplier of the

service may be required to register for VAT in every Member State where it has customers that

are not taxable persons.

For the information regarding the rules relating to VAT registration, see

the chapters on the respective countries of the EU.

In Austria, the following services are subject

to the “use and enjoyment” provisions:

• Place of supply shifts from Austria to non-EU country

– Renting out means of transportation in certain cases, when they are used in the non-EU

country

– Provision of personnel working in a non-EU country

• Place of supply shifts from non-EU country to Austria

– Telecommunication services, radio and television broadcasting services

– Renting out of goods, except of means of transport

Au s t r i A 111

– Sport betting and certain gambling transactions

– Certain services (e.g., processing of data, certain advisory services) to a public legal entity

that is not seen as entrepreneur

Transfer of a going concern.

Transfer of going concern rules do not apply in Austria. As such, VAT

applies to all sales of a business or part of a business capable of separate operation including

assets. Austria has not implemented the transfer of a going concern (TOGC) rules. Only transac

tions covered by the Austrian Umgründungssteuergesetz (law regarding restructuring of legal

entities), e.g., certain mergers, demergers or contributions in kind, the transfer/restructuring are

outside the scope of Austrian VAT. Other transactions in course of the transfer of a going concern

are taxable under the general VAT rules in Austria.

Transactions between related parties.

For transactions (services and supplies of goods) where the

remuneration is not the open market value due to nonbusiness reasons (i.e., related parties, group

structure, family relations, shareholders) or for the use of the personnel of the business, the open

market value represents the tax base in the following cases:

• If the payment was lower than the open market value and the recipient of the supply/service is

not (fully) entitled to input tax deduction

• If the payment was lower than the open market value and the supplier is not (fully) entitled to

input tax deduction and specific VAT-exempt services are at hand

• If the payment was higher than the open market value and the supplier is not (fully) entitled to

input tax deduction

Open market value shall mean the full amount that, to obtain the goods or services in question

at that time, a customer at the same marketing stage at which the supply of goods or services take

place would have to pay under conditions of fair competition to a supplier at arm’s length within

the territory of the Member State in which the supply is subject to tax.

C. Who is liable

A taxable person is any entity or individual that makes taxable supplies of goods or services,

intra-Community acquisitions or distance sales, in the course of a business, in Austria.

Special rules apply to VAT registration for foreign (or non-established) taxable persons.

Exemption from registration.

If a business that is established in Austria has annual turnover of

EUR35,000 or less and does not have to pay VAT for the calendar year, it does not need to reg

ister for a tax number or file a VAT return.

Voluntary registration and small businesses.

If an Austrian taxable person’s annual turnover does

not exceed EUR35,000, it qualifies as a “small business,” and its Austrian supplies are exempt

from VAT (with no input tax credit;

see Section F). However, the small business may opt to vol-

untarily register for VAT, charge VAT on its supplies and recover input tax on its purchases. The

option is binding for five years.

The turnover of EUR35,000 represents the actual turnover of the respective current year without

VAT (net amount). Most exempt supplies, as well as the sale of investment goods do not have to

be considered for calculating the threshold. In case the small business does not opt for VAT, no

VAT needs to be paid in the current year. For details on the registration process, see the subsec

tion Registration procedure below.

Group registration.

In Austria, group registration applies to entities that are closely bound by

financial, economic and organizational ties. A group consists of a controlling entity and one or

more entities that it controls. The controlling entity may be any taxable person, but the controlled

entities must all be corporate bodies. A mere holding company may be used to establish financial

112 Au s t r i A

ties but can itself neither be a controlling nor a controlled entity. A controlled entity may also be

a partnership where either all partners, besides the controlling entity, are financially integrated

into the controlling entity or it can be proven that the controlling entity is able to enforce its will

if the remaining conditions for VAT grouping are fulfilled. The effects of VAT grouping are

restricted to the parts of the business that are located in Austria.

To form or join a VAT group, the group members must satisfy the following conditions:

• Financial integration: the controlling group member must own at least 75% of the shares of the

controlled companies. If the share ownership is between 50% and 75%, the companies may be

considered to satisfy the financial integration test if the other conditions are strongly met.

• Economic integration: the controlled company’s activities support or complement the activities

of the controlling entity, and they have a continuous business relationship.

• Organizational integration: the management of the controlled company is fully dependent on

the will of the controlling company.

All controlled entities that fulfill the above criteria must be included in the VAT group.

The effect of group registration is to treat the members as a single taxable person. Only the con

trolling entity is registered at the VAT office. The group submits a single VAT return including

all the members’ taxable transactions. Transactions between the controlling entity and a con

trolled company are treated as transactions within a single legal entity and, consequently, they are

not taxable.

The VAT group comes into effect automatically as soon as all prerequisites are met. The same

goes for the omission of prerequisites, i.e., the end of the group. There is no option to form or

dissolve a VAT group. As such, there is no minimum time period required for the duration of a

VAT group.

All members of a VAT group in Austria are jointly and severally liable for VAT debts and penal

ties. A single VAT return is filed for the VAT group under the registration of the controlling

entity, and as such, in principle, the controlling entity is responsible for declaration and payment

of VAT for the entire VAT group. However, each member of the VAT group is liable for VAT debts

and penalties resulting from the activities of the member itself.

Holding companies. A holding company can be included in a VAT group if the prerequisites

outlined above are met.

Cost-sharing exemption. The VAT cost-sharing exemption (in accordance with VAT Directive

2006/112/EEC Article 132(1)(f)) has been implemented in Austria for certain businesses in the

medical and financial sector. This provides an option to exempt support services that the cost-

sharing group supplies to its members, provided certain conditions are met (in accordance with

specific requirements laid out in Austrian VAT law).

This exemption is implemented in Austrian VAT law for entities that mainly perform banking,

insurance and pension funds transactions under certain conditions. As this is not in line with

recent ECJ judicature, this exemption might be abolished in the future.

Fixed establishment.

There is no legal definition in Austrian VAT law for a fixed establishment.

As such, the definition according to the ECJ and the Council Implementing Regulation (EU)

282/2011 is used instead. Therefore, a fixed establishment is an establishment characterized by

a sufficient degree of permanence and a suitable structure in terms of human and technical

resources to enable it to provide or receive services.

Non-established businesses.

A “non-established business” is a business that does not have a fixed

establishment in Austria. No VAT registration threshold applies to taxable supplies made in Aus-

tria by a foreign or non-established business.

Au s t r i A 113

If a non-established business makes no supplies or exclusively makes supplies in Austria subject

to the reverse charge and does not receive services subject to the reverse charge, it does not need

to register for VAT.

A non-established business must register for VAT in Austria if it makes any of the following sup

plies:

• Supplies of goods located in Austria at the time of supply

• Intra-Community acquisitions (see the chapter on the EU)

• Distance sales (exception for micro-entrepreneurs with less than EUR10,000 accumulated

turnover per year of intra-Community distance sales and electronically supplied services as of

1 July 2021)

• Supplies of services that are not covered by the reverse charge (for example, services supplied

to private persons – see the subsection

Digital economy below)

If the customer is a taxable person (regardless of where it is established) or a public body, it is

required to withhold the Austrian VAT due on the supply. The customer must pay the withheld

VAT on behalf of the supplier to the supplier’s tax account at the Austrian general tax office. If

the customer does not comply with this requirement, the customer may be held liable for the VAT

due on the supply. Renting out of premises; fees for usage of federal roads; and entrance fees for

cultural, artistic, scientific, tutoring, sporting, entertaining and similar events are not covered by

this withholding requirement.

A non-established business is not required to register for VAT if all its supplies in Austria fall

under the reverse-charge system (under which the customer accounts for the VAT due). If the

reverse charge applies to supplies made by a non-established business, the business may recover

VAT incurred in Austria under the EU 13th Directive or Directive 2008/9 refund provisions (see

Section G), provided the business does not receive services in Austria that are subject to the

reverse-charge system.

Under Prescript 2003/584 for chain transactions, the supply of goods to the last customer in

Austria made by a non-established business is exempt from VAT.

If goods come from a non-EU Member State to Austria in the course of a chain transaction and

if the last party in the chain owes the VAT payable on their importation, it is the last party who

is entitled to deduct the import VAT and not the person that disposed of the goods at the time of

import. This mechanism applies if the following conditions are met:

• The supply to the last party in the chain is made by a non-established business that is not reg

istered for VAT purposes in Austria.

• The final customer has the right to deduct the full amount of input tax.

• No VAT is shown on the invoice.

Any input tax in connection with this type of supply is not deductible. In addition, no more than

three parties may be involved in the chain transaction.

Tax representatives.

A business established in a country outside the EU must appoint a tax rep-

resentative to register for VAT in Austria unless the customer is required to withhold Austrian

VAT on the supplier’s behalf. The tax representative must be resident in Austria.

A business established in another EU Member State is not required to appoint a tax representa

tive in order to register for VAT.

For non-EU businesses, the Austrian tax authorities require a postal address in Austria to which

correspondence may be sent. For EU businesses, it is not mandatory, but it is recommended that

an Austrian postal address be provided.

114 Au s t r i A

As of 1 January 2023, a fiscal representative no longer has to be appointed if the special regula-

tion pursuant to Art. 369a 369k of Directive 2006/112/EC is used in another Member State and

a fiscal representative obligation exists there.

Reverse charge.

The reverse-charge system applies to all supplies of services, except for road

tolls and entrance fees for trade fairs, conventions and seminars in Austria that are organized by

non-Austrian companies (i.e., neither operating their business in Austria nor having a fixed

establishment in Austria involved in the supply). It also applies to “work performance contracts”

undertaken by a supplier neither operating its business in Austria nor having a fixed establish

ment in Austria that intervenes in the supply. Under the reverse-charge mechanism, the recipient

(i.e., a taxable person or public body) of a supply is liable for the VAT due. From 20 July 2022,

the renting out of premises is no longer covered by the reverse charge according to the Austrian

VAT Act, so non-Austrian lessors are required to register for VAT in Austria. Supplies of ser

vices are all taxable transactions that are not supplies of goods. For purposes of the reverse-

charge system, “work performance contracts” are supplies involving the installation of goods that

are fixed to the customer’s premises. The reverse-charge system also applies in the circumstanc-

es mentioned above if the customer is a non-established business (that is, the Austrian VAT liabil

ity may also shift from a non-established supplier to a non-established customer).

If a foreign business exclusively makes supplies in Austria subject to the reverse charge and does

not receive services subject to the reverse charge, it may not register for VAT. If the reverse-

charge mechanism applies, invoices must be issued without VAT. The invoice must include a

reference to the applicable reverse charge and the VAT identification numbers of the supplier and

the customer.

Domestic reverse charge.

A domestic reverse-charge mechanism applies in the following cases:

• If construction or building work is performed by a subcontractor to a general contractor, the

liability to pay the VAT shifts from the supplier (subcontractor) to the customer (general con

tractor). To determine whether to apply the reverse-charge mechanism, the customer must pro-

vide the supplier with a written notification that the VAT liability in such case will shift to the

recipient of the construction service. If the construction work is performed for a building

contractor or another business that typically performs construction or building works the VAT

liability shifts automatically to the customer, without any notification.

• The domestic reverse charge for construction or building works also applies to charges for

building cleaning services if the services are performed for a building contractor or other busi

ness that typically performs construction or building works or if the building cleaning services

are performed by a subcontractor for a general contractor.

• The reverse charge applies to the supply of goods provided as security by one taxable person

to another in execution of that security, the supply of goods following the cession of the reser

vation of ownership to an assignee and the exercise of this right by the assignee and the supply

of immovable property in the course of the judicial sale.

• The reverse charge applies to supplies of used material, used material that cannot be reused in

the same state, scrap, industrial and nonindustrial waste, recyclable waste, part processed waste

and certain goods and services, as listed in Annex VI of Directive 2006/112/EC.

• The reverse charge applies to supplies of greenhouse gas emission certificates.

• The reverse charge applies to the supply of mobile radio units (for example, mobile phones)

and integrated circuits, provided that the net consideration is at least EUR5,000. For purposes

of this rule, the amount per invoice is decisive. The liability to pay VAT also shifts to the

recipient if the supplier is an Austrian business. To avoid problems in defining relevant prod

ucts, the definition of “mobile radio units” and “integrated circuits” is in accordance with the

combined nomenclature of the customs tariff.

The reverse charge furthermore applies for:

• Supplies of video game consoles, laptops and tablet computers, where the amount of consider

ation shown on the invoice is at least EUR5,000

Au s t r i A 115

• Supplies of gas and electrical power to entrepreneurs whose primary business regarding the

procurement of these items relates to the resale thereof and whose own use of these items is of

secondary importance

• Transfer of gas and electricity certificates

• Certain supplies of metal

• Taxable supplies of investment gold

Digital economy.

Specific VAT rules apply to cross-border supplies of goods and services sold via

the internet (e-commerce) in all EU Member States with effect from 1 July 2021. These new rules

apply to all direct sales to nontaxable persons (in practice these are mostly private individuals),

but we refer to these rules as e-commerce VAT rules because most of these transactions are con

ducted via the internet. In general, the place of supply is in the country of consumption, i.e.,

where the goods are shipped to or where the buyer of the goods or services resides, subject to

any “use and enjoyment” provisions that may override this rule (see Section B,

Effective use and

enjoyment

subsection above). Therefore:

• For supplies of services made by a nonresident supplier to a business customer (B2B), the busi

ness customer is responsible for accounting for the VAT due, using the reverse charge.

• For supplies of goods made by a nonresident supplier to a business customer (B2B), where the

goods are transported from another EU Member State, the business purchasing the goods is

responsible for accounting for the VAT due, as an intra-Community acquisition. If the goods

come from outside the EU, the purchaser may have to report an importation of goods.

• For supplies of goods or services made by a nonresident supplier to a final consumer (B2C),

the supplier is generally responsible for charging and accounting for the VAT due at the rate

applicable in the customer’s country (unless the supplier’s sales fall beneath the distance selling

threshold of EUR10,000 with effect from 1 July 2021). This VAT can be reported using a single

VAT registration, using a “One-Stop-Shop” mechanism.

For more details about intra-EU distance sales, see the chapter on the EU.

Effective 1 July 2021, an e-commerce supplier may have a choice of how to account for VAT on

its B2C supplies.

Local VAT registration. A nonresident supplier may choose to register for VAT in each Member

State and account for VAT on all supplies made and recover input tax in accordance with local

rules (see the Non-established businesses subsection above). Non-EU businesses may be required

to appoint a fiscal representative for accounting for the VAT due on these transactions.

In Austria, there are no additional specific local rules that apply.

One-Stop Shop. Effective 1 July 2021, a supplier can choose to account for the VAT due under

the EU One-Stop Shop (OSS), which can be used for intra-EU cross-border supplies of goods

and all cross-border supplies of services made to final consumers in the EU. Unlike the previous

Mini One-Stop-Shop (MOSS) scheme that applied until 30 June 2021, the OSS is not limited to

cross-border supplies of electronic services, telecommunication services and broadcasting ser

vices.

The OSS is an electronic portal that allows businesses to:

• Register for VAT electronically in a single Member State for all intra-EU distance sales of

goods and for B2C supplies of services

• Declare and pay VAT due on all supplies of goods and services in a single electronic quarterly

return

The OSS can be used by businesses established in the EU and outside the EU. If a supplier or a

deemed supplier decides to register for the OSS, it must declare and pay VAT for all supplies that

fall under the OSS.

116 Au s t r i A

In Austria, the application for the use of the EU-OSS must be made online via the online portal

of the Austrian tax authorities (FinanzOnline). Regarding the non-EU-OSS, the application

request must be made online (https://noneumossevat.bmf.gv.at/).

For more details about the operation of the OSS, see the chapter on the EU.

Import One-Stop Shop.

Effective 1 July 2021, the Import One-Stop Shop (IOSS) scheme applies

for B2C distance sales of goods from outside the EU.

Effective 1 July 2021, VAT is due on all commercial goods imported into the EU regardless of

their value. The actual supply is subject to VAT in the country where the goods are imported (the

country of destination). The IOSS facilitates the declaration and payment of VAT due on the sale

of low-value goods (i.e., consignments valued at less than EUR150 per consignment). It allows

suppliers selling low-value goods dispatched or transported from a non-EU country to customers

in the EU to collect, declare and pay the VAT due. If the IOSS is used, the importation into the

EU is exempt from VAT.

In Austria, there are no additional specific local rules that apply.

For more details about the IOSS, see the chapter on the EU.

Use of the IOSS special scheme is not mandatory. If VAT is not collected via the IOSS scheme,

the importation of goods into the EU is subject to import VAT in the country of final destination,

and the Member State can decide freely who is liable to pay the import VAT, which could be the

customer or the seller (or an electronic interface).

Postal Services and couriers scheme. If the IOSS is not used and the customer is liable for the

import VAT due on the supply (and importation) of consignments with a small intrinsic value

(i.e., less than EUR150), the VAT can be collected using the special scheme for postal services

and couriers.

In Austria, there are no additional specific local rules that apply.

For more details about the special scheme for postal services and couriers, see the chapter on the

EU.

Online marketplaces and platforms.

Under the new EU VAT e-commerce rules, effective 1 July

2021, taxable persons that “facilitate” certain B2C sales of goods are deemed to have purchased

and then supplied those goods themselves. This means that the single supply from the “underly

ing” supplier to the final consumer is split into two deemed supplies:

• A supply from the supplier to the facilitator (deemed B2B supply)

• A supply from the facilitator to the final customer (deemed B2C supply). Any intermediation

service provided by the facilitator is disregarded for VAT purposes

This provision does not cover all sales facilitated via the facilitator. It only covers distance sales

of goods imported from non-EU jurisdictions in consignments with an intrinsic value not exceed

ing EUR150. The jurisdiction of residence of the supplier using the facilitator is irrelevant. The

supply to the facilitating platform is VAT exempt and the supplies made by that platform follow

the e-commerce VAT rules as described above. In addition, the provision also covers sales with-

in the EU, if the supplier is not established within the EU. This applies to both local shipments

within one Member State, as well as intra-Community shipments. In both cases, the final cus

tomer must be a nontaxable person.

In Austria, the application process for VAT registration for online marketplaces and platforms is

the same as those for the OSS (see the

One-Stop Shop subsection above).

In Austria, the facilitator (platform) is required to keep records of the supplies made via the plat-

form in a grade of detail that enables the tax authorities to verify if the VAT due was calculated

Au s t r i A 117

correctly. Records must generally be retained for 10 years. Records must be delivered

electronically to the responsible authorities upon request.

In cases where the facilitators (platforms) are not seen as a taxable person, they are obliged to

keep records of such transactions for 10 years as well. Further, in case the revenues to be record

ed exceed EUR1 million per year, the records must be submitted electronically to the tax author-

ities by 31 January of the following year.

The facilitator (platform) is liable for VAT for certain supplies it facilitates, provided that a viola

tion of the obligation to exercise diligence is at hand, the facilitator is not the taxable person itself

and the annual sales (including those supplies for which the VAT is due for the facilitator itself)

exceed EUR1 million. Under certain circumstances also other entrepreneurs involved in those

supplies may be held liable for VAT.

Independent of this Austrian platform reporting obligation for VAT purposes, as of 1 January

2023, operators of digital platforms are additionally subject to reporting obligations under the

“DAC7” regime (based on EU Directive 2021/514) if the relevant preconditions are fulfilled

(e.g., the platform is accessible by users and allowing sellers to connect with users for the pur

pose of directly or indirectly carrying out so-called relevant activities (rental of immovable

property, personal services, sale of goods, rental of means of transport) to those users).

For more details about the rules for online marketplaces, see the chapter on the EU.

Vouchers.

The sale of vouchers used for a general range of goods or services before 31 December

2018 is not treated as a VAT liable turnover.

Vouchers sold after 1 January 2019 are categorized as follows:

• Single-purpose vouchers (SPV): place of supply and tax liability concerning respective vouch

er can be determined with certainty upon issue of voucher. In this case, it is known upon issu-

ance of the voucher what VAT amount is due in which Member State. The sale of a SPV is

generally treated as VAT-liable turnover, whereas redeeming the voucher later on is not subject

to VAT. The tax is owed by the taxable person obliged by the voucher. Not only the issuance

itself, but also any transfer of a SPV by a third party who acts in their own name (e.g., in the

course of marketing operations) represents a taxable event.

• Multipurpose vouchers (MPV): any voucher that is not a SPV. Sale of a MPV is not subject to

VAT. VAT is owed for redeeming the voucher later on.

Registration procedures.

Resident companies must complete the following documents and have

them signed by the managing directors of the respective entity:

• Questionnaire

• Specimen signature document

• Power of attorney

The forms must in general be filled out in German (the questionnaire is also available in Eng-

lish) and filed with the Finanzamt Oesterreich (or in specific cases the Finanzamt fuer Grossbe-

triebe) via regular mail together with the following:

• Excerpt from the register of companies

• Copy of the articles of association

• Opening balance sheet

• Proof the business will make supplies or is doing so already, such as copies outgoing invoices

• Copy of each managing director’s passport

All documents must be filed via regular mail. It generally takes from four to six weeks until the

registration is completed by the Austrian tax authorities.

To register a foreign company without seat or permanent establishment in Austria, the following

documents have to be completed and signed by the managing directors of the respective entity:

118 Au s t r i A

• Questionnaire

• Specimen signature document

• Power of attorney

The forms must in general be filled out in German (the questionnaire is also available in English)

and filed with the Finanzamt Oesterreich via regular mail together with the following:

• Excerpt from the register of companies

• Copy of the articles of association

• Confirmation by the local tax authorities that the company is registered for tax purposes in their

country, in original and not older than one year

This process also takes approximately four to six weeks for the tax authorities to complete.

Deregistration.

With regard to deregistration, no specific form has to be submitted to the Austrian

tax authorities. A general application for deregistration can be sent to the Austrian tax authorities

anytime during the year. However, all transactions have to be settled and all VAT returns have to

be filed in order to proceed with the deregistration process. Basically, the annual VAT return

should comprise the entire year, but as soon as all transactions are settled, the annual VAT return

can be submitted earlier. Usually a tax clearance certification (issued by the tax authorities) is

required. It is possible that a tax audit will be performed before issuing this certificate.

Changes to VAT registration details.

Taxable persons must notify the Austrian tax authorities

about changes in their VAT registration details. Changes can be communicated via the online

platform (FinanzOnline) of the tax authorities or via ordinary mail. Changes that may impact the

granting of the Austrian VAT ID number (i.e., being VAT registered in Austria) must be com

municated to the tax authorities within one calendar month.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

VAT.

The VAT rates are:

• Standard rate: 19% (for the regions of Jungholz and Mittelberg), 20% (rest of Austria)

• Reduced rates: 10%, 13%

• Zero-rate: 0%

The standard VAT rate applies to all supplies of goods or services, unless a specific provision

allows a reduced rate, the zero rate or an exemption.

Some supplies are classified as “exempt-with-credit” (i.e., zero-rated). This means that VAT is

chargeable at 0%, and the supplier may recover related input tax.

Due to COVID-19, a reduced VAT rate of 5% was implemented for gastronomy, cultural sectors,

books and for accommodation (for the hotel sector) from 1 July 2020 to 31 December 2021.

However, the reduced VAT rate of 5% for the publishing sector (newspapers and other periodical

prints and their electronic publications) was not extended beyond 31 December 2020. From

1 January 2021, there is a temporary zero rate for COVID-19 vaccines and in-vitro diagnostics

and the supply of services directly connected with those goods, valid until 30 June 2023, i.e.,

transactions performed after 31 December 2020 and before 1 July 2023. Also, the VAT rate was

reduced to 0% for supplies and intra-Community acquisitions of protective masks beginning 22

January 2021 and is effective until 30 June 2023.

Examples of goods and services taxable at 0%

(i.e., exempt-with-credit)

• Exports of goods and related services to non-EU countries

Au s t r i A 119

• Intra-Community supplies of goods and related services to taxable persons established in the

• Turnovers supporting ocean shipping and aviation

• Cross-border transportation of goods under certain conditions

• International passenger transport by rail (

with effect from 1 January 2023)

Examples of goods and services taxable at 10%

• Most foodstuffs

• Books (including e-books as of 1 January 2020)

• Hotel accommodation

• Restaurant meals

• Domestic passenger transport (except flights)

• Residential apartment rental

• Supplies made by private hospitals and charitable organizations

• Pharmaceuticals

• Repairs of bikes, shoes, clothes and leather goods

• Feminine monthly hygiene products

Examples of goods and services taxable at 13%

• Entrance fees for sporting events

• Entrance fees for cultural events

• Domestic flights

• Animal feed

• Seeds

• Supplies made by artists

• Certain wine sales made by the producer

The term “exempt supplies” is used for supplies of goods and services that are not liable to VAT

and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Supplies by businesses with annual turnover not exceeding EUR35,000

• Certain postal services provided by universal postal services suppliers

• Most finance services

• Insurance

• Sales and rental of immovable property for commercial uses with some exceptions (The land

lord may opt for taxation of the rent, with the restriction that the tenant must provide services

that are eligible for the input tax deduction. This restriction is only applicable on tenancies

beginning on or after 1 September 2012. If the landlord constructed the building prior to

1 September 2012 or if construction by a providing entrepreneur started prior to 1 September

2012, the restriction is not applicable.)

• Medical services

Option to tax for exempt supplies.

It is permitted to opt for regular taxation for some exempt sup-

plies, such as the sale of immovable property, certain rentals of immovable property for com-

mercial use, certain services in relation to the credit card business and interest relating to

installment purchases as well as supplies performed by small businesses.

E. Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” In general, the

“time of supply” is the end of the calendar month in which goods are supplied or a service is

performed. The time of supply may be postponed by one month by issuing the invoice for the

supply after the end of the month in which the supply took place.

120 Au s t r i A

Deposits and prepayments.

The time of supply for a deposit or prepayment is the end of the cal-

endar month in which the prepayment is received.

Continuous supplies of services.

In specific cases it is possible to determine the tax point accord-

ing to the payments or invoices issued.

Goods sent on approval or for sale or return.

The time of supply for goods sent on approval or for

sale or return is the date on which the customer adopts the goods. If the goods are sent on sale

or return terms, the time of supply is the date on which the goods are sent. If the goods are

returned, the supply is canceled.

Reverse-charge services.

There are no special time of supply rules in Austria for supplies of

reverse-charge services. As such, the general time of supply rules apply (as outlined above),

which is the end of the calendar month in which the service is performed. However, for reverse-

charge services, the time of supply cannot be postponed by one month by issuing the invoice for

the supply after the end of the month in which the supply took place. Under Article 44 of EU

Directive 2006/112 (general business-to-business rule), this postponement does not apply to

services subject to reverse charge. Reverse-charge invoices under Article 196 of the EU Directive

must be issued within 15 days of the month following the supply.

Leased assets.

There are no special time of supply rules in Austria for supply of leased assets. As

such, the general time of supply rules apply (as outlined above).

Imported goods.

The time of supply for imported goods is either the date of importation or when

the goods leave a duty suspension regime.

Intra-Community acquisitions.

For intra-Community acquisitions of goods, the time of supply is

the date on which the invoice is issued, or at the latest, the 15th day of the month following the

arrival of the goods. Invoices for the intra-Community supply of goods must be issued within 15

days of the month following the supply.

Intra-Community supplies of goods.

The time of supply for intra-Community supplies is the end

of the calendar month in which goods are supplied or services performed. The time of supply

may be postponed by one month by issuing the invoice for the supply after the end of the month

in which the supply took place. However, invoices must be issued by the 15th day of the month

following the supply.

Distance sales.

The time of supply for distance sales is the end of the calendar month in which

payment is received.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods and services supplied

to it for business purposes. Input tax can also be deducted if the business purpose is finally not

performed, provided that the expenses were caused merely by the intended business purpose.

Input tax is generally recovered by being deducted from output tax, which is VAT charged on

supplies made.

Input tax includes VAT charged on goods and services supplied within Austria, VAT paid on

imports of goods and VAT self-assessed on intra-Community acquisitions of goods and reverse-

charge services.

A valid VAT invoice or customs document is required for an input tax deduction.

There is no set time limit for a taxable person to reclaim input tax in Austria. Taxable persons

must recover input tax in the course of the monthly/quarterly VAT returns and the annual VAT

returns in the correct period. In case input tax from previous periods has not been claimed in the

Au s t r i A 121

initial annual VAT return of the respective period, it would have to be checked on a case-by-case

basis whether a correction of the annual VAT return is still possible from a procedural perspec

tive.

Nondeductible input tax.

Input tax may not be recovered on purchases of goods and services that

are not used for business purposes (for example, goods acquired for private use by entrepre

neurs). In Austria, input tax may be claimed in full for business assets that are used primarily for

private purposes (minimum 10% business use), but the taxable person must account for output

tax with respect to the private use of the assets. In addition, input tax may not be recovered for

some items of business expenditure.

The following lists provide some examples of items of expenditure for which input tax is not

deductible and examples of items for which input tax is deductible.

Examples of items for which input tax is nondeductible

• Expenditure on the purchase, lease, hire or maintenance of cars or motorcycles (except certain

vehicles used for business purposes, such as vehicles without CO2 emission)

• Fuel expenses for a car or motorcycle (except certain vehicles used for business purposes, such

as vehicles without CO2 emission)

• Private expenditure

• Business gifts disallowed for direct tax purposes

• Parking expenses for a car or motorcycles (except certain vehicles used for business purposes,

such as vehicles without CO2 emission)

Examples of items for which input tax is deductible

(if related to a taxable business use)

• Accommodation

• Mobile phone costs

• Books

• Small business gifts, if allowed for direct tax purposes (but gifts are subject to output tax if they

exceed a value of EUR40)

• Purchase, lease, hire, maintenance and fuel for vans and trucks and certain other vehicles used

for business purposes, such as cars or motorcycles without CO2 emission

• Entertainment of business partners (restaurant expenses), if predominantly for marketing pur

poses

• Taxis

• Business travel

Partial exemption.

Input tax directly related to the making of exempt supplies without credit is

not recoverable. If an Austrian taxable person makes both exempt supplies without credit and

taxable supplies, it may not recover input tax in full. This situation is referred to as “partial

exemption.”

The general partial exemption calculation is performed in the following two stages:

• The first stage identifies the input tax that may be directly allocated to exempt and to taxable

supplies. Supplies that are exempt with credit are treated as taxable supplies for these purposes.

Input tax directly allocated to exempt supplies without credit is not deductible, while input tax

directly allocated to taxable supplies is deductible.

• The second stage prorates the remaining input tax that relates to both taxable and exempt sup

plies without credit and cannot be directly allocated, in order to allocate a portion to taxable

supplies. For example, this treatment applies to the input tax related to general business over

head. In Austria, the pro rata calculation is based on the value of taxable supplies compared to

the total value of supplies made. The pro rata recovery percentage is normally taken to two

decimal places.

122 Au s t r i A

An alternative method is a simple pro rata calculation. A partially exempt taxable person may

choose to use the pro rata method alone, provided it does not result in the recovery of an amount

of input tax more than 5% higher than would be recoverable under the direct allocation method.

Approval from the tax authorities is not required to use the partial exemption standard method in

Austria.

The use of special methods is allowed in Austria, provided that an accurate allocation of input

tax from an economical perspective is documented. Note that any special method calculations

may be challenged by the Austrian tax authorities during an audit.

Capital goods.

Capital goods are items of capital expenditure that are used in a business over

several years. Input tax is deducted in the VAT year in which the goods are acquired. The amount

of input tax recovered depends on the taxable person’s partial exemption recovery position in the

VAT year of acquisition. However, the amount of input tax recovered for capital goods must be

adjusted over time if the taxable person’s partial exemption recovery percentage changes during

the adjustment period.

In Austria, the capital goods adjustment applies to the following assets for the number of years

indicated, if the amount by which input tax would be corrected exceeds EUR60 per annum and

per asset:

• Land, buildings, additions to buildings; basic alterations and major repairs to buildings (adjust

ment period of 10 years)

• Immovable property used in capital assets for first time after 31 March 2012 (adjustment per-

iod of 20 years)

• Other fixed assets (adjustment period of five years)

The adjustment is applied each year following the acquisition, to a fraction of the total input tax

(1/10 or 1/20, respectively, for land and buildings and 1/5 for other movable capital assets). The

adjustment may result in either an increase or a decrease of deductible input tax, depending on

whether the ratio of taxable supplies made by the business has increased or decreased compared

with the year in which the capital goods were acquired.

In Austria, the capital goods scheme also applies to current assets and all kind of services if the

criteria for deducting input tax changes. For example, the type of business carried on changes

from fully taxable to exempt. In this respect there is no adjustment period; it is decisive whether

the purchased current assets or services are used for a different purpose than initially intended

and thus, the criteria for input tax changes or not.

Refunds.

If the amount of input tax recoverable in a monthly period exceeds the amount of output

tax payable in that period, the taxable person has an input tax credit. The credit may be claimed

as a refund by submitting the periodic VAT return and by sending a repayment claim letter (or

filing a repayment claim via the electronic filing system) to the relevant tax office.

Pre-registration costs.

VAT incurred on pre-registration costs can be deducted when the costs

directly relate to subsequent taxable business activities. Input tax deduction is made based on the

general rules for pre-registration costs that represent advance services relating to planned/

intended business operations. Regarding time restraints, the general statutes of limitation apply

(5 years and a maximum 10 years under certain circumstances).

Bad debts.

If a customer is unable to pay a supplier for supplies on which the supplier has paid

VAT, the supplier can claim bad debt relief, but the supplier must have exhausted all customary

procedures for collecting the debt.

Noneconomic activities.

Input tax incurred on purchases that are used for noneconomic activities

is not recoverable in Austria.

Au s t r i A 123

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Austria is

recoverable. Austria refunds VAT incurred by businesses that are neither established in Austria

nor registered for VAT there. Non-established businesses may claim Austrian VAT refunds to the

same extent as VAT-registered businesses.

EU businesses.

For businesses established in the EU, refunds are made under the terms of EU

Directive 2008/9. The VAT refund procedure under the EU Directive 2008/9 may be used only if

the business did not perform any taxable supplies in Austria during the refund period (excluding

supplies covered by the reverse charge).

For full details, see the chapter on the EU.

Find below specific rules for Austria:

• The tax authority may demand additional information, such as original ingoing invoices, in the

course of the refund procedure.

• Claims must be submitted in German and must be accompanied by the appropriate documenta

tion.

Non-EU businesses.

For businesses established outside the EU, refunds are made under the terms

of the EU 13th Directive.

For full details, see the chapter on the EU.

Austria does not generally exclude any non-EU country from the refund scheme. However, as

from 15 January 2021, non-EU businesses are not eligible for a refund of VAT on fuel. The VAT

refund procedure under the EU 13th VAT Directive may be used only if the business did not

perform any taxable supplies in Austria during the refund period (excluding supplies covered by

the reverse charge).

The deadline for non-EU claimants is 30 June of the year following the year in which the input

tax was incurred.

A non-EU company claimant must submit the following documents:

• The official form issued by the Austrian authorities (U5). The relevant invoices must be listed

on the reverse of the form. Photocopied forms are accepted, provided the signature is original.

• The original invoices, which must be attached to the claim form.

• If the claimant appoints a fiscal representative, an original Power of Attorney appointing the

representative.

• A certificate of the taxable status of the business, which must be obtained from the competent

tax authority in the country in which the business is established.

The appointment of a fiscal representative in Austria for a VAT refund claim is not required.

However, claimants from non-EU countries must provide an address in Austria to which the

Austrian tax authorities may send correspondence.

The minimum claim period is three months. The maximum period is one year. The minimum

claim for a period of less than a year is EUR400. For an annual claim, the minimum amount is

EUR50.

Applications for refunds of Austrian VAT may be sent to the following address:

Finanzamt Oesterreich

Dienststelle Graz-Stadt

Conrad-von-Hoetzendorfstr. 14-18

A-8010 Graz

Austria

Late payment interest.

For EU non-established businesses claiming a VAT refund, late payment

interest must be paid by the tax authorities in case of late refund payments. The interest is

124 Au s t r i A

generally 2% and applies if the refund has not been made within 4 months and 10 working days

after the receipt of the VAT refund claim unless the tax authorities ask for more information. In

the latter case, the time for the refund is prolonged.

For non-EU non-established businesses, no interest is paid by the tax authorities in case of late

refund payments. However, due to a recent case law, interest may be applied for, and a case-by-

case analysis is recommended.

H. Invoicing

VAT invoices.

An Austrian taxable person must generally provide a VAT invoice for all taxable

supplies, including exports and intra-Community supplies. VAT invoices are not automatically

required for retail transactions with private customers, unless requested by the customer (see the

subsection

Supplies to nontaxable persons below for more details).

Taxable businesses (specific exemptions can apply) are generally required to issue receipts to all

customers for cash transactions at the time of the payment. The term “cash transactions” includes

payments in cash, by bank cards, credit cards, debit cards, comparable electronic payments (e.g.,

payments via mobile phone), vouchers, tokens, etc. This obligation exists regardless of the turn

over and is equally applicable to VAT exempt supplies.

Furthermore, an electronic cash register is mandatory for “business operations” (according to

Austrian Income Tax Law) with a net annual turnover of EUR15,000 if their “cash transactions”

exceed EUR7,500. The cash register has to be protected against manipulation by a tamper proof

technical security device with electronic signature creation.

A VAT invoice is necessary for input tax deduction or a refund under the EU 13th Directive or

Directive 2008/9 refund schemes (

see the chapter on the EU).

Credit notes

. A VAT credit note may be used to cancel or amend a previous VAT invoice. A cred-

it note must be cross-referenced to the original VAT invoice and must indicate why the original

invoice needs correction.

Credit notes issued by self-billing recipients of a supply must explicitly refer to the status of a

self-billing invoice (e.g., “Gutschrift”) on the invoicing document.

Electronic invoicing.

Electronic invoicing is mandatory in Austria for certain taxable persons. This

applies for business-to-government (B2G) supplies, in line with EU Directive 2014/55/EU (

see

the chapter on the EU

). This is with effect from 1 January 2014. For other taxable persons, elec-

tronic invoicing is allowed in Austria but not mandatory, in line with EU Directive 2010/45/EU

(

see the chapter on the EU). For electronic invoicing it is necessary that the recipient agrees with

this type of invoicing, the consent is not bound to any form.

Simplified VAT invoices.

A less detailed tax invoice can be issued for supplies with values not

exceeding EUR400.

Self-billing.

Self-billing is allowed in Austria. This is subject to the following conditions:

• The taxable person supplying goods or services must be entitled to issue invoices.

• There must be an agreement on self-billing the supplied goods or services between the taxable

person and its customer (no special formal requirements).

• Self-billing invoices must meet the general requirements for invoices and must explicitly refer

to their own status. They can either use the Austrian term (Gutschrift) or the respective term

used in any other language version of the EU Directive 2010/45/EU (e.g., self-billing).

• The self-billing invoice must be delivered to the taxable person supplying the goods or services.

Au s t r i A 125

Proof of exports and intra-Community supplies.

Austrian VAT is not chargeable on supplies of

exported goods or on the intra-Community supply of goods (see the chapter on the EU). How-

ever, to qualify as VAT-free, exports and intra-Community supplies must be supported by evi

dence proving that the goods have left Austria. With regard to intra-Community supplies, refer

to the above subsection

Quick Fixes.

Acceptable proof includes the following documentation:

• For an export, the export document, officially validated by customs, showing the supplier as the

exporter, freight documents or the export advice according to Article 796e of the Commission

Regulation 1875/2006 is required.

• For an intra-Community supply, a range of commercial documentation is needed, including an

invoice indicating the supplier’s and customer’s EU VAT identification numbers and a statement

that the transaction is an intra-Community supply that is exempt from VAT and freight docu

ments (for example, proof of receipt of the goods by the customer). If the customer picks up

the goods at the place of the supplier with the customer’s own means of transport, additional

documentation is required (for example, proof of identity of the person collecting the goods,

power of attorney signed by the customer that this person is entitled to collect the goods and

the original signed confirmation of the customer that the goods will be transported to another

EU Member State).

In Austria, the supplier must maintain records of all transactions, including full details as to why

a VAT exemption applies (for example, because the supply is an export or an intra-Community

supply). No special documentation applies in Austria for evidencing the application of the Quick

Fixes. Normal intra-Community documentation rules apply.

Foreign currency invoices.

If a VAT invoice is issued in a foreign currency, the foreign currency

used must be clearly indicated. All VAT and customs duty amounts must be converted to the

domestic currency, which is the euro (EUR), either by using the current exchange rate (proof

from bank required) or the exchange rates issued monthly by the Austrian Ministry of Finance.

If an invoice is issued in a foreign currency, the tax amount must be additionally stated in euros.

In addition to the average rate published on the Austrian Ministry of Finance homepage, the most

recent exchange rate published by the ECB can alternatively be used or the exchange rate proven

using bank notifications or a stock exchange list. The same exchange rates apply to the deduction

of input tax by the recipient.

Supplies to nontaxable persons.

VAT invoices are not mandatory for retail transactions with pri-

vate customers, unless requested by the customer.

In case of work performance supplies/services related to immovable property, distance selling

and electronic platforms involved in the supply, invoices must be issued.

Further, taxable businesses are generally required to issue receipts to all customers for cash trans-

actions at the time of the payment (specific exemptions can apply).

Distance selling. For intra-Community distance sales made B2C, a full VAT invoice must be

issued. However, if the supplier operates the OSS regime, no full VAT invoice is required unless

requested.

Records.

Generally, any taxable person is obliged to keep all relevant records to determine the tax

and the basis of its calculation on an ongoing basis. In Austria, examples of what records must

be held for VAT purposes include:

• Supplies of goods and services

• Remuneration separated by rate of taxation

• Day of supply separated by taxable and exempt from taxation

• Self-supplies

• Input tax

126 Au s t r i A

• Import of goods

• Prepayments

• Payments for turnovers that are subject to reverse charge (these must be recorded separately)

In Austria, VAT books and records can be kept outside the country. Taxable persons are, how

ever, required to be able to produce any records the Austrian tax authorities require in a readable

form and within a reasonable period of time at a mutually agreed place.

Record retention period. Generally, records must be kept for a duration of seven years. The reten-

tion period is longer if the business is subject to an administrative procedure. Special rules apply

to real estate, application of a one-stop shop and electronic platforms.

Electronic archiving. Electronic archiving is allowed in Austria. Records can be stored on elec-

tronic devices if the complete, chronological, identical and true reproduction is guaranteed at any

time. The Austrian tax authorities may request that supporting devices to make such electroni

cally stored records readable are provided and that a permanent reproduction that is readable

without a supporting device is provided. Such permanent reproductions shall be provided on

electronic devices. The records must be stored seven years or longer if they are relevant for pend

ing proceedings regarding tax. Longer periods apply for real estate.

I. Returns and payment

Periodic returns.

VAT returns are submitted monthly if taxable turnover exceeded EUR100,000

in the preceding year. If a business begins operations, it must submit monthly returns if its turn

over will exceed EUR100,000 in the first year. If turnover is less than EUR100,000, VAT returns

may be submitted quarterly. In addition, all taxable persons must submit an annual VAT return.

If the taxable turnover in the preceding calendar year did not exceed EUR35,000 and if the pay

ment is made on time, the VAT return form itself does not need to be submitted, unless the VAT

authorities demand it. However, the monthly VAT return form must be submitted if a company

that is in a repayment position wants to claim the repayment.

Both monthly and quarterly VAT returns must be submitted by the 15th day of the second month

following the return period. If the day of submission due is a Saturday, Sunday or public holiday,

the due date shifts automatically to the next working day.

Periodic payments.

For both monthly and quarterly VAT returns, full payment must be made by

the 15th day of the second month following the return period. If the day of payment due is a

Saturday, Sunday or public holiday, the due date shifts automatically to the next working day.

Payment must be made to the bank account of the respective tax office responsible for VAT. In

case a credit balance exists on the tax account and is not used otherwise, it can be offset against

the debit of the respective VAT return and no (or less) payment would be required in this case. In

general, payment must be made via electronic bank transfer to the bank account of the tax office

– using the feature “Finanzamtszahlung” if it is offered in the electronic banking system of the

bank of the respective taxable person. Alternatively, or via the feature “eps” (“e-paymentstan

dard”) in the online portal of the Austrian tax authorities (FinanzOnline). Only where a transfer

via electronic banking is not possible for the taxable person, other methods are acceptable, e.g.,

payment slip.

Electronic filing.

Electronic filing is mandatory in Austria for all taxable persons. VAT returns

must be filed electronically via FinanzOnline (the online portal of the Austrian tax authorities).

Companies can either apply for access codes to FinanzOnline to submit the VAT returns them

selves or assign a tax representative in Austria to submit returns on their behalf.

Au s t r i A 127

VAT returns and EU Sales Lists must be filed electronically if the taxable person has the neces-

sary technical means available to do so.

Payments on account.

Payments on account are not required in Austria.

Special schemes.

Cash accounting. Austria operates a cash accounting scheme for certain busi-

nesses.

Activities of free professions and activities of professionally recognized corporations and legally

recognized associations that supply services typical of the free professions, and other businesses

without bookkeeping obligations or transactions below a certain threshold, must account for VAT

on the basis of the consideration received. Upon application, businesses can opt out from the cash

accounting. If the free professions account for VAT on the basis of the consideration received,

they must do so in respect of all supplies affected by them, even if the particular supply is not

related to the activity typical of the free profession.

If a threshold of EUR2 million turnover is not exceeded, input tax can only be deducted if the

payment was made (in addition to a correct invoice). In cases in which the VAT is paid with a

transfer of funds from one tax account to another tax account, the payment of the invoice amount

is not required for input tax deduction, provided the business’s revenues do not exceed

EUR2 million.

Farmers and forestry. Businesses with supplies that are performed in the course of a farming or

forestry business below the threshold of EUR400,000 and who are not legally obliged to keep

records, have the option to calculate the VAT as a lump sum. However, the scheme is optional,

and the normal VAT rules can be used instead.

Art dealers and secondhand goods, including cars. Businesses that deal in art and secondhand

goods (including cars) can opt into this scheme, where in specific cases, VAT is calculated from

the difference of the sales price to the purchase price (i.e., margin taxation). However, the scheme

is optional and the normal VAT rules can be used instead.

Tour operators (travel services). There is a margin taxation in place to calculate VAT with regard

to certain travel services. From 1 January 2022, the procurement of such services for both B2C

and B2B recipients is covered by the tour operator margin scheme.

Consolidation with a lump sum. According to Austrian income tax law, there is a scheme for

consolidation with a lump sum available. Input tax consolidation with a lump sum is also avail

able.

Annual returns.

In Austria, it is required to submit an annual VAT return in addition to the month-

ly VAT returns. The due date for submission of the annual VAT return is generally 30 June of the

following year if the annual return is filed electronically. This due date may be postponed if the

business is represented by a tax representative. However, the tax authorities can request submis

sion at any time after 30 June of the following year.

Supplementary filings.

Intrastat. An Austrian taxable person that trades with other EU countries

must complete statistical reports, known as Intrastat, if the value of its intra-Community sales or

purchases exceeds certain thresholds. Separate reports are required for intra-Community acquisi

tions (Intrastat Arrivals) and intra-Community supplies (Intrastat Dispatches).

Distance sellers registered for VAT purposes in Austria selling goods to customers in Austria

must file Intrastat Arrival returns if the respective threshold is exceeded.

The threshold for submitting Intrastat statistical reports is EUR1.1 million in annual value of

intra-Community dispatches or acquisitions.

128 Au s t r i A

From the 2022 reporting year, the Intrastat declaration has to be submitted electronically using

the RTIC reporting tool. The returns must be completed in EUR. The Intrastat return period is

monthly after the threshold has been exceeded (that is, it is also necessary to file nil returns). The

submission deadline is the 10th business day of the month following the return period.

EU Sales Lists. Under Article 44 of EU Directive 2006/112 (general business-to-business rule),

if an Austrian taxable person makes intra-Community supplies of goods or performs intra-Com-

munity services for which the place of supply is located in another EU Member State, it must

submit an EU Sales List (ESL) to the Austrian VAT authorities. An ESL is not required for any

period in which intra-Community supplies are not made.

For businesses submitting VAT returns quarterly, ESLs are submitted monthly or quarterly. The

due date is the last day of the month following the end of the ESL period.

Correcting errors in previous returns.

A correction of the monthly/quarterly VAT return can be

made electronically once; further corrections must be filed via ordinary mail (paper). Corrections

of the annual VAT return must be filed via ordinary mail (in case the administrative decision was

not issued yet) or in the course of an appeal against the administrative decision of the respective

annual return. EC Sales Lists can be corrected electronically. Depending on the circumstances of

the error, it must be considered for each single case whether a voluntarily self-disclosure should

be filed to avoid consequences based on Fiscal Criminal Law.

Digital tax administration.

There are no transactional reporting requirements in Austria.

J. Penalties

Penalties for late registration.

There is no specific penalty in Austria for the late registration of

VAT. However, the tax authorities may impose the penalties outlined in the subsections below.

The VAT law allows the VAT authorities to impose a penalty of EUR5,000 if the deadline for VAT

registration is intentionally not observed. Further fiscal criminal law consequences might arise,

depending on the facts and circumstances.

Penalties for late payment and filings.

A penalty equal to 2% of the VAT due applies to the late

payment of VAT. If the VAT payment has not been made three months after the due date, an

additional second penalty is assessed, equal to 1% of the VAT due. If the amount remains unpaid

three months after the date that the second penalty was imposed, a third penalty is assessed, equal

to 1% of the VAT due.

At the discretion of the VAT authorities, they may impose a penalty of up to 10% of the VAT due

for the late submission of a VAT return.

If a taxable person continually fails to pay VAT, the VAT authorities may consider the late pay

ment to be tax fraud, which is subject to much greater penalties.

The VAT law allows the VAT authorities to impose a penalty of EUR5,000 if the deadline is

intentionally not observed. Further fiscal criminal law consequences need to be checked on a

case-to-case basis.

In case of noncompliance with the obligations to issue receipts and/or to have a cash register, a

business could expose itself to fiscal criminal investigations, which could lead to pecuniary

penalties or financial criminal proceedings.

For Intrastat penalties may be incurred if Intrastat declarations are persistently late, missing or

inaccurate.

For ESLs, late submissions may lead to a penalty of up to 1% of the amount of intra-Communi

ty supplies, determined at the discretion of the tax authorities. However, the penalty may not

exceed EUR2,200 per ESL.

Au s t r i A 129

The failure to submit ESLs may be considered an offense against the law and may lead to a

penalty of up to EUR5,000.

In 2022, interest on VAT credits and debits was implemented in the Austrian Fiscal Federal Code.

The interest rate amounts to 2% per annum above the base interest rate. VAT interest not reaching

an amount of EUR50 will not be assessed. Whether interest can be claimed or imposed needs to

be checked on a case-to-case basis. Generally, the following applies:

• Interest may be claimed

– For credits reported in a periodic VAT return from the 91st day after submission of the return

till the credit is booked on the taxable person’s tax account with the Austrian tax authorities

or until the credit is assessed via administrative assessment

– For credits resulting from an annual VAT return from the 91st day after submission of the

return until the credit is assessed via administrative assessment

• Interest may be imposed

– For debits in a belatedly submitted periodic VAT return from the 91st day after the due date

until submission of the return

– For debits assessed via administrative decision from the 91st day after the VAT payment was

due until the administrative decision is issued

– Debits assessed based on an annual VAT return from 1 October of the following year until

the administrative decision is issued. The new interest rule in such a case is applicable start

ing with annual VAT returns 2022

Penalties for errors.

There are no specific penalties in Austria for errors. The general regulations

according to Austrian Fiscal Criminal Law might be applicable. However, these regulations are

quite complex and must be analyzed on a case-by-case basis. Tax advisors might also be subject

to Austrian Fiscal Criminal Law.

The late notification or failure to notify the tax authorities of changes to a taxable person’s VAT

registration details may be seen as a financial offense that could be punished with a fine up to

EUR5,000. For further details, see the subsection

Changes to VAT registration details above.

Penalties for fraud.

There are no specific penalties in Austria for fraud. The general regulations

according to Austrian Fiscal Criminal Law might be applicable. However, these regulations are

quite complex and have to be analyzed on a case-by-case basis. Tax advisors might also be sub

ject to Austrian Fiscal Criminal Law.

Personal liability for company officers.

In case Austrian Fiscal Criminal Law applies, also indi-

vidual persons (e.g., directors, employees) can be held liable. However, these regulations are

quite complex and must be analyzed on a case-by-case basis.

Statute of limitations.

The statute of limitations in Austria is five years. Any official act of the

Austrian tax authorities referring to the VAT of a respective year and performed within the five-

year limitation period, if it is clearly recognizable from outside (e.g., VAT audit, assessment of

VAT (

Umsatzsteuerbescheid) or input tax refund claim), extends the statute of limitation by one

year (“prolongation year”). If such actions are taken during the “prolongation year,” an extension

for one more year is added each time. The absolute statute of limitation is 10 years.

The rules for the statute of limitation also apply to years that already have been audited by the

tax authorities. The statute of limitation might be longer in case of fiscal criminal offense.

130

Azerbaijan

ey.com/GlobalTaxGuides

Baku GMT +4

Port Baku Towers Business Centre

South Tower, 9th floor

153 Neftchilar Avenue

Baku AZ1010

Azerbaijan

Indirect tax contacts

Arzu Hajiyeva +994 (12) 490-7020

arzu.hajiyeva@az.ey.com

Sabina Khalilova +994 (12) 490-7020

sabina.khalilov[email protected].com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Əlavə Dəyər Vergisi (ƏDV)

Date introduced 1 January 1992

Trading bloc membership None

Administered by State Tax Service, under the Ministry of Economy

(http://www.taxes.gov.az)

Rates

Standard 18%

Others Zero-rated (0%) and exempt

VAT number format Tax identification number (TIN) with 10 digits

VAT return periods Monthly

Thresholds

Registration Taxable turnover exceeding AZN200,000 for a period

of 12 consecutive months

Recovery of VAT by

non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods, works and services performed in Azerbaijan

• The importation of goods

The transfer of goods is deemed to occur at the place where they are made available. If the con

ditions for the supply involve lifting and transporting the goods, the transfer is deemed to occur

where the lifting or transportation of the goods begins. However, if the supplier is to install the

goods, the transfer is considered to occur at the place where the goods are installed.

Az e r bAi jA n 131

The following are the rules for determining the place where works are performed, or services are

rendered:

• The place where immovable property is located if the works (services) are directly connected

with that property, such as construction, assembly, repair, reconstruction works, agency and

expert services with respect to real property and similar works (services)

• The place where works (services) are actually rendered if they are connected with movable

property

• The place where services are actually rendered if they are rendered in the areas of culture, arts,

physical fitness or sports, or in similar areas

• The place where the transportation occurs if the works (services) are connected with such trans-

portation

• The place where the purchaser of works or services is located or registered, established, or, if

the services are directly associated with the permanent establishment of the purchaser, where

the permanent establishment is located

The place of location, registration or establishment of the recipient of the following services:

• Transfer or assignment, as well as granting rights of use on patents, licenses, trademarks, copy

rights and other similar rights

• Rendering of consulting, legal, accounting, engineering, advertisement, data processing and

other similar services

• Services involving the providing of personnel (when employees work at the place where the

recipient of these services operates)

• Rental of movable property (except for vehicles belonging to transportation enterprises)

• Services rendered by an agent engaging a person to provide taxable services on behalf of a

principal

• Provision of telecommunication services (receipt, distribution, transmission of signals, docu

ments, pictures, sounds or any type of information through telegraph, radio, optical or other

electromagnetic systems, including granting or acquisition of such transmission, receipt or

distribution rights)

• Radio and television broadcasting, and provision of postal services

• Provision of services through computers, the internet and other electronic networks, email and

other similar applications, or granting rights for the use of such networks or services

• Provision of works and services by vendors (suppliers) of e-commerce, as well as conducting

lotteries and other competitions organized electronically

The place of works or services that cannot be determined based on the above tests is deemed to

be the place where the person performing a work or rendering a service conducts the activity.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for VAT in every jurisdiction

where it has customers that are not taxable persons. In Azerbaijan, no services are subject to the

“use and enjoyment” provisions.

Transfer of a going concern.

Normally the sale of the assets of a VAT-registered or VAT-registrable

business will be subject to VAT at the appropriate rate. However, a transfer of a business as a

going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is

the sale of a business or part of a business capable of separate operation, including assets. Where

the sale meets the conditions, the supply is treated as outside the scope of VAT. In Azerbaijan, a

TOGC is treated as outside the scope of VAT where both parties providing and purchasing the

enterprise inform the tax authority in writing on application of respective Article of Tax Code of

Azerbaijan not later than within 10 days from the provision of enterprise.

132 Az e r bAi jA n

Transactions between related parties.

In Azerbaijan, there are no specific rules that indicate the

value for VAT purposes for transactions between related parties. However, the general tax code

of Azerbaijan envisages market price application for barter transactions, including between

related parties.

C. Who is liable

Persons who are registering in Azerbaijan for tax purposes are either registered as a simplified

taxpayer or VAT payer (i.e., a taxable person). A simplified taxpayer is liable to pay a certain

percentage of income tax from its total turnover and should not charge VAT on top of their

invoices, whereas registered VAT payers should do so. VAT-registered taxpayers are liable for

ordinary corporate income tax and VAT. The basic rule for determination of whether the person

should be registered for VAT purposes is the total turnover during the year.

Persons that are engaged in an entrepreneurial activity and that have taxable turnover during a

period of 12 consecutive months exceeding AZN200,000 must register with the tax authorities

as a taxpayer within 10 days following the end of the 12-month period.

A taxpayer is any individual entrepreneur or legal entity that makes taxable supplies of goods

(works or services) or that conveys goods across the customs border of Azerbaijan in an amount

exceeding AZN200,000. Moreover, if a taxpayer performs one single transaction in an amount

exceeding AZN200,000, then the taxpayer is liable for VAT registration with the tax authorities

before the transaction is performed.

Exemption from registration.

In general, exemption from registration is not envisaged under the

tax code. As outlined above, any persons that are engaged in an entrepreneurial activity with its

taxable turnover exceeding AZN200,000 within a period of 12 consecutive months is obliged to

that is subject to VAT, it is obligated to cancel its VAT registration.

Voluntary registration and small businesses.

A person engaged in entrepreneurial activity who is

not subject to mandatory registration and who is not obligated to be a payer of simplified tax as

envisaged under the tax code may voluntarily register with the state tax authorities as a taxpayer.

See the section above for more information on simplified tax.

Group registration.

Group VAT registration is not allowed in Azerbaijan.

Fixed establishment.

In Azerbaijan there is no legal definition of a fixed establishment for VAT

purposes. However, permanent establishment rules may apply for VAT as well. The permanent

establishment of non-established business or individual in Azerbaijan is the place in which such

individual or business themselves or via their authorized representatives fully or partially conduct

their entrepreneurial activities in Azerbaijan for the cumulative period of not less than 90 days

within any 12 months.

Non-established businesses.

The provision of services in Azerbaijan by a foreign legal entity that

does not have a permanent establishment in Azerbaijan (a non-established business) and that is

not registered for VAT in Azerbaijan to a person registered or to be registered for VAT purposes

in Azerbaijan (tax agent) is subject to VAT based on the reverse-charge mechanism (business-to-

business supply (B2B)). In such a case, the tax agent must calculate and pay VAT from the

amount to be paid to the non-established business. The tax agent should be able to recover the

reverse-charge VAT paid on services/works purchased from nonresident suppliers if it is regis

tered as a taxpayer and if the nature of the transaction is recoverable for VAT purposes.

If a non-established business supplies services to a person not registered or not required to be

registered for VAT purposes in Azerbaijan (business-to-consumer (B2C)), it would be required

to calculate and pay reverse-charge VAT on the amount to be paid to the non-established business

within seven days and before the 20th of the following month. The respective transactions do not

Az e r bAi jA n 133

create any obligation for the taxpayer, i.e., recipient of the services, to be registered for VAT

purposes. The amount payable to a nonresident for the provision of works and services rendered

in an e-commerce manner by persons who are not registered with the tax authorities shall be also

subject to reverse-charge VAT. However, the respective reverse-charge VAT will be calculated and

paid to the state budget by branches of the local or foreign bank in Azerbaijan processing pay

ments to a nonresident, at the expense of the customer funds. Note that the respective withhold-

ing of reverse-charge VAT by banks occurs if the buyer who is not registered with the tax

authorities received works and services by way of e-commerce, organized electronically outside

the Republic of Azerbaijan.

Tax representatives.

Tax representatives are not required in Azerbaijan.

Reverse charge.

Whenever a domestic taxpayer purchases services from a non-established busi-

ness, which, in accordance with the rules on the determination of location of taxable transactions

is provided in Azerbaijan, the reverse-charge mechanism applies. In this case, the purchaser

should self-assess VAT at 18% and report/remit the amount to the budget during the month when

payment for the received services is made. See the subsection

Non-established businesses above

for more detail.

A special reverse charge applies to the provision of e-commerce services supplied by nonresident

businesses that are purchased online and via bank cards, by non-VAT-registered customers based

in Azerbaijan. It is the responsibility of the bank coordinating the transaction (via the bank card

purchase) to charge the customer the VAT and account for the VAT to the tax authorities in

Azerbaijan, on the behalf of the nonresident supplier.

Domestic reverse charge.

There are no domestic reverse charges in Azerbaijan.

Digital economy.

Special rules have recently been developed and introduced in the law in respect

of e-commerce. “E-commerce” is defined as the provision of works/services and goods by means

of a global information network (including e-books, music, audio-video, images and graphics,

games, software solutions, online advertisements and similar).

As noted above, the place of supply of the e-commerce services should be considered the place

where the customer is located. Therefore, VAT should be charged whenever services are pur

chased via e-commerce by customers in the territory of Azerbaijan.

Nonresident providers of electronically supplied services for B2C supplies are not required to

account for the VAT by way a of a special reverse charge. This is where the bank coordinating

the transaction will charge the customer VAT and account for VAT to the tax authorities (see the

subsection Reverse charge above).Nonresident providers of electronically supplied services for

B2B supplies are not required to register and account for VAT on supplies in Azerbaijan. Instead

the tax agent is subject to VAT based on the reverse-charge mechanism (see the Non-established

businesses subsection above).

There are no other specific e-commerce rules for imported goods in Azerbaijan.

Online marketplaces and platforms. No special rules exist for online marketplaces and platforms

in Azerbaijan.

Registration procedures.

To register for VAT purposes in Azerbaijan, a taxpayer should file a

specific application form for VAT registration either online or in paper format. No other docu-

mentation is required for this purpose. The registration process should be completed within five

days upon the submission of the application.

134 Az e r bAi jA n

Deregistration.

If a taxpayer ceases its activity in connection with VAT, then the taxpayer shall be

obliged to place an application to terminate its VAT registration. The termination shall enter into

force from the date VAT-related activities ceased.

Changes to VAT registration details.

The taxpayer is obliged to inform the tax authorities about

any changes in registration details (including change of a company name, legal address, type of

business, shareholders, etc.). Such changes should be registered within 40 days via submission

of application.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

VAT, including the zero rate.

The VAT rates are:

• Standard rate: 18%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods or services unless a specific measure

provides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

• Goods and services intended for the official use of the diplomatic and consular representative

offices of international agencies and foreign states accredited in the Republic of Azerbaijan, as

well as for the personal use of the diplomatic, administrative and technical personnel of these

representative offices (including family members living with them), who are not citizens of the

Republic of Azerbaijan

• Exportation of consulting, legal, accounting, engineering, advertisement and other services

• Importation of goods, supply of goods, performance of works and provision of services to

recipients under grants, with the proceeds of grants received from abroad

• International or transit transportation of cargo or passengers; provision of works or services that

are directly connected with international or transit flights, except for international postal ser

vices

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT

and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Provision of financial services

• Contribution of property to an enterprise’s charter fund (capital) in the form of participation

share, except for imported property (if the contribution of property in the form of a participa

tion share is not directly connected to the acquisition of other property in exchange)

• Sale or purchase of all types of mass media products and the publishing of mass media products

(except for advertising activities)

• Transportation of passengers by subway

• Production of textbooks for schools, literature for children and state publications funded by the

state budget

• Provision of paid educational services (except for the provision of services in connection with

other activities)

If it is stipulated that specific production needs cannot be met by local resources for a specific

period, the relevant executive authority shall be entitled to grant a VAT exemption for imported

goods and equipment to meet those needs.

Option to tax for exempt supplies.

The option to tax exempt supplies is not available in Azerbaijan.

Az e r bAi jA n 135

E. Time of supply

The tax point of a taxable transaction is the date of payment of a principal amount (net of VAT).

If more than one payment is made under the same transaction, each payment is considered a

separate transaction for VAT purposes.

The date of payment for VAT purposes is defined as the following:

• Date when cash or cashless payment is received

• Date of offset

• In case of accounts receivable – claim expiration date

• In case of in-kind payment or barter transactions – date when the asset is made available

• In case of gratuitous transfer – date when transfer takes place

• In case the taxpayer is engaged in taxable operations and also provides a loan to the same cus

tomer:

– VAT should be recognized on the date loan is made available – if loan is granted after the

date of transaction

– On the date of transaction – if loan is granted before the date of transaction

Deposits and prepayments.

Azerbaijani tax law does not differ in the treatment of deposits and

prepayments for VAT purposes.

For advance payments, the taxable transaction is considered to occur at the time of payment. If

two or more payments are made with respect to a taxable activity, each payment is deemed to be

a separate transaction, up to the limits of the payment amounts.

As per refundable deposit/prepayment, it will not have any VAT effect for the recipient of goods/

services who initially paid such amount to the supplier. Yet, the supplier would be obliged to

adjust its taxable turnover accordingly. This is because when it is refunded to the customer, the

amount should be refunded with VAT if it was accounted for VAT on the original payment.

Moreover, where the prepayment or deposit was paid with VAT, the customer has no right to

offset/recover the VAT until the performance of the services or the delivery of goods.

Continuous supplies of services.

If services are rendered on a regular or continuous basis, the time

of rendering services is when an electronic invoice is issued for any part of the operation. If pay

ment has been made first, the time of rendering services is when payment is made for any part

of the operation. There are currently no longstop dates in relation to the continuous supply of

services.

Goods sent on approval for sale or return.

There are no specific rules under the local legislation

for goods sent on approval for sale or return. The VAT liability arises only when the actual sale

of goods/services occurs.

Reverse-charge services.

For reverse-charge services, the recipient of the services shall submit to

the tax authority a VAT declaration in the format established by the relevant executive authority

and make the respective payment no later than the 20th of the month following the month of

payment made to the nonresident business.

There are no reverse-charge VAT implications for the separate sale of goods (i.e., when goods are

not part of the service).

Leased assets.

Financial lease of assets, which implies transfer of ownership, is not subject to

VAT both for local and foreign operations. Regarding operational leases, there are no special time

of supply rules. Therefore, the general rules described above should apply.

Imported goods.

For taxable importations, the time of a taxable operation is when the use or con-

sumption of the imported goods begins.

136 Az e r bAi jA n

F. Recovery of VAT by taxable persons

If VAT is paid through an electronic transfer (no payments in cash) to a VAT deposit account

directly from a deposit account or bank account of a taxpayer, in accordance with the electronic

invoices, the electronic invoices serve as the basis for a VAT credit. The VAT credit should be

allowed only in case the principal amount for the supplies of goods or the provision of services

is paid. This means that input tax can only be claimed by using an electronic invoice when the

invoice amount has been paid, and then once these requirements are met the input tax can be

claimed in the next VAT return or carried forward.

There is no set time limit for a taxpayer to reclaim input tax in Azerbaijan. This means that effec-

tively the input tax (VAT credit) may be carried forward indefinitely until its complete recovery.

In addition, import documents issued by customs authorities that substantiate the amount of

import VAT paid, regardless of the form of payment, serve as grounds for a VAT credit.

Nondeductible input tax.

In general, no credit of input tax paid is allowed with respect to enter-

tainment and food expenses (except for expenses for healthful and dietary meals, milk and other

similar products and for food expenses for ship personnel in sea transport within norms set by

the relevant executive authority) or for expenses connected with the accommodation of employ

ees and other expenses of a social nature.

VAT paid that is not recoverable may be deductible for profit tax purposes in cases where the

nature of the transaction is deductible. Moreover, if the taxpayer qualifies for only a partial

exemption (see the subsection below), the unrecoverable input tax can be deductible for-profit

tax purposes in case the nature of the transaction is also deductible.

Examples of items for which input tax is nondeductible

• Entertainment expenses

• Meal expenses

• Accommodation expenses

• Other expenses of a social nature

• Expenses not related to commercial activities

Examples of items for which input tax is deductible

(if related to a taxable business use)

• Advertising expenses

• Rental expenses

• Telecommunication expenses

• Purchase of goods/materials

• Other expenses related to commercial activity

Partial exemption.

If a taxable person conducts both taxable operations and exempt operations

(i.e., mixed supplies) in the same reporting period, the VAT credit is determined on the basis of

the proportion between the taxable and total turnover. However, in case the taxable person keeps

separate accounting records (and supporting documents) for the respective taxable and exempt

supplies made, the input tax incurred on the taxable and exempt supplies may be able to be clear-

ly identified and separated. Then the amount of input tax incurred that directly relates to the tax

able operations can be claimed in full.

In addition, any supplies made by the taxable person to which VAT is charged at the zero-rate are

also considered as a taxable supply. This means that zero-rated supplies must be included in total

taxable supplies for the partial exemption calculation. And any input tax incurred that directly

relates to the zero-rated taxable supplies can also be recovered in full.

Az e r bAi jA n 137

Approval from the tax authorities is not required to use the partial exemption standard method in

Azerbaijan. Special methods are not allowed in Azerbaijan.

Capital goods.

There are no specific rules in relation to the capital goods input tax recovery under

Azerbaijani tax legislation. Input tax incurred on capital goods can be recovered in accordance

with general rules.

Refunds.

An excess of a VAT credit amount over the output tax amount charged during the

accounting period is refunded no later than four months after the after taxpayer’s application for

a refund.

Pre-registration costs.

Input tax incurred on pre-registration costs in Azerbaijan is not recover-

able.

Bad debts.

Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad

debts) cannot be recovered in Azerbaijan.

Noneconomic activities.

Input tax incurred on purchases that are used for noneconomic activities

is not recoverable in Azerbaijan.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Azerbaijan is

not recoverable.

H. Invoicing

VAT invoices.

In general, persons registered for VAT and conducting taxable transactions must

issue electronic invoices to the persons to whom they provide goods or services. A taxpayer must

prepare and issue to a purchaser of goods or services an electronic invoice within five days after

the delivery of goods or provision of services.

Credit notes.

The VAT turnover should be adjusted by a taxpayer in the period in which the

credit note is issued. There is no special form for VAT credit notes. In case the amount of the

transaction is credited, there should be an adjustment to the previously submitted electronic

invoice.

Electronic invoices.

Electronic invoicing is mandatory in Azerbaijan for all taxable persons. The

electronic invoice as described by the tax authority is the only electronic invoice format allowed.

Simplified VAT invoices.

Simplified VAT invoicing is not allowed in Azerbaijan. As such, full VAT

invoices are required.

Self-billing.

Self-billing is not allowed in Azerbaijan.

Proof of exports.

The invoice, delivery note and agreement serve as proof of export.

Foreign currency invoices.

For tax purposes, the payment to the supplier must be recalculated in

the domestic currency, which is the Azerbaijani manat (AZN), at the exchange rate established

by the Central Bank of the Azerbaijan Republic for the date when the taxable event took place.

Supplies to nontaxable person.

In the case of a supply of goods or provision of services from a

VAT registered business to private consumers (that are not taxpayers), for retail supplies only, a

cash receipt or electronic delivery note may be issued instead of a full electronic invoice.

Records.

There are no specific rules in relation to the record-keeping requirements for VAT pur-

poses, except for the record retention period requirement set forth below. In Azerbaijan, exam-

ples of what records must be held for VAT purposes include any documentation supporting

taxable transactions, including agreements, invoices, acceptance acts, electronic invoices, etc.

138 Az e r bAi jA n

Azerbaijan, VAT books and records can be kept outside the country. This is as long as the records

can be made readily available for the tax authorities upon their request.

Record retention period.

In accordance with the requirements set under the Azerbaijani Tax Code,

accounting documentation, including information in electronic and (or) paper form, must be kept

in full readability for at least five years.

Electronic archiving.

Electronic archiving is allowed in Azerbaijan. Paper archiving is also allowed.

I. Returns and payments

Periodic returns.

Each taxpayer must file a VAT return on a monthly basis. The return must be

filed by the 20th day of the month following the accounting month.

VAT on imports must be calculated and collected by customs authorities at the time of importa

tion.

Periodic payments.

The payment of VAT must be made by the same day as the return submission

deadline. This is by the 20th day of the month following the accounting month.

Electronic filing.

Electronic filing is allowed in Azerbaijan, but not mandatory. Generally, both

electronic and hard copy filing are possible. In case of e-submission, taxpayers must use an e-sig-

nature or ASAN-signature for the submission of tax returns via a specific online tax system. All

tax returns submitted through this system are electronically archived and are easily retrievable

from the system.

Payments on account.

Payments on account are not required in Azerbaijan.

Special schemes.

No special schemes are available in Azerbaijan.

Annual returns.

Annual returns are not required in Azerbaijan.

Supplementary filings.

No supplementary filings are required in Azerbaijan.

Correcting errors in previous returns.

In case errors or omissions are identified under VAT returns

of previous periods, taxpayers may prepare adjusted reports with corrected figures and submit

them to the tax office. However, submission of adjusted reports is not possible if the concerned

period is under on-site tax audit or has been finalized.

Digital tax administration.

There are no transactional reporting requirements in Azerbaijan.

J. Penalties

Penalties for late registration.

If a taxpayer that is required to be VAT registered does not register

for VAT purposes and carries out taxable activities, the taxpayer is subject to a financial sanction

equaling 50% of the VAT amount payable to the state budget for the entire period during which

the taxpayer carried out activities without VAT registration.

Penalties for late payment and filings.

Late submission of a VAT return is subject to a financial

sanction in an amount of AZN40.

If the VAT amount indicated on a VAT return is understated or VAT payable to the state budget

is evaded by failure to submit the VAT return, the taxpayer is subject to a fine equal to 50% of

that understated or evaded tax. An additional amount may be calculated by the tax authorities as

part of an audit.

Failure to notify the tax authorities about any changes in a taxpayer’s VAT registration details may

result in administrative sanctions of AZN2,500-3,000 for the company and/or AZN1,000-2,000

for the company officers.

Az e r bAi jA n 139

Penalties for errors.

The penalty for the understatement of a VAT liability is 50% as outlined

above. In addition, penalties are applied for the absence of electronic invoices confirming sales

and purchase of goods. The penalty for the first violation during the calendar year is 10%; for

the second – 20%; for the third and further – 40%.

There are no specific penalties associated with the late notification or failure to notify of chang

es to a taxable person’s VAT registration details. For further details, see the subsection Changes

to VAT registration details

above.

Penalties for fraud.

There are no specific penalties in Azerbaijan for fraud. Other penalties out-

lined above should apply.

Personal liability for company officers.

Company officers cannot be held personally liable for errors

and omissions in VAT declarations and reporting in Azerbaijan.

Statute of limitations.

The statute of limitations in Azerbaijan is three years. The tax authorities

can calculate, recalculate taxes, penalties and financial sanctions of the taxpayer for the period

of latest three years effective from the last closed out period under the respective VAT return.

A taxpayer has a five-year period to amend any refunds or calculations for sums of taxes, penal

ties and financial sanctions due. This should be performed within five years after termination of

last taxable reporting period.

Corrected filings or filings not submitted in a timely manner can be furnished by the taxpayer

before the date of decision on implementation of on-site tax inspection. Where the taxpayer has

overpaid taxes, interest shall be paid to the taxpayer at the rate of 0.1% of relevant amounts

beginning from the date that an application on the refund of the excess amount is placed up to

the date that such amount is refunded. The taxpayer is eligible to receive interest only in the cases

if the tax authorities fail to return funds during timelines set under local legislation. The reason

for overpayment or overcharge is not basis for application of interest.

At the same time, the legal entity registered as taxpayer has the opportunity to perform voluntary

correction of VAT returns.

140

Bahamas

ey.com/GlobalTaxGuides

Nassau GMT -5

EY Street address:

Mail address: Caves Corporate Centre

P.O. Box N-3231 West Bay Street & Blake Road

Nassau Nassau

Bahamas Bahamas

Indirect tax contacts

Bill Bailey +1 441 294 5319

(resident in Bermuda) bill.bailey@bm.ey.com

Robert Moncrieff +1 441 294 5696

(resident in Bermuda) robert.moncrief[email protected]y.com

Brinique Rahming +1 242 396 3050

brinique.s.rahming@bs.ey.com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Value-added tax (VAT)

Date introduced 1 January 2015

Trading bloc membership Caribbean Community and Common Market (CARICOM)

Administered by Department of Inland Revenue (DIR)

VAT rates

Standard 10%

Reduced 2.5%, 4%, 6%, 8%, 9%, 10%

Other Zero-rated (0%) and exempt

VAT number format Tax identification number (TIN) – 123456789

VAT return periods Monthly and quarterly

Thresholds

Registration BSD100,000 annual turnover (exceptions apply)

Recovery of VAT by

non-established businesses No

B. Scope of the tax

VAT applies to the taxable supply of goods and services, including imported goods and services.

VAT is applicable on the supply of goods and services at the standard rate of 10%, except in cases

where the supply of goods and services is deemed to be either zero-rated or tax-exempt or applies

to real estate transaction where reduced rates may apply.

In the Bahamas, a taxable person is defined as a person that carries on a taxable activity who is

registered or required to register for VAT as per the VAT Act. The term taxable activity refers to

activity in the form of a business being carried on in the Bahamas continuously and for consid

eration which involves or is intended to involve the supply of taxable supplies.

bA h A m A s 141

Insurance proceeds. For taxable persons that receive payment in the form of reimbursement,

recovery or indemnification under a contract for taxable insurance services, in respect of loss of

or damage to goods or services acquired for the use in the course of furtherance of a taxable

activity carried on by the registrant, the following applies: (a) the registrant is deemed to have

made a taxable supply; (b) the payment is deemed to be the consideration for that supply; and (c)

the payments received by the VAT registrant are deemed to be VAT inclusive.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for VAT in every jurisdiction

where it has customers that are not taxable persons. In the Bahamas, no services are subject to

the “use and enjoyment” provisions.

Transfer of a going concern.

The sale of the assets of a VAT-registered or VAT-registrable business

was previously subject to VAT at the standard rate. However, a transfer of a business as a going

concern (TOGC) is now only subject to stamp duty. A TOGC is the sale of a business or part of

a business capable of separate operation, including assets. As of 1 July 2022, transactions relating

to the disposition of a business were removed from the VAT Act and returned to the Stamp Act.

When a business is sold or ownership otherwise is transferred to another unrelated party, such a

transfer is subject to stamp duty at a rate of 6%. The tax is applied to the assets of the business

with the exception of cash, deposit accounts and real property. Where such transfers of a business

occur that include the transfer of real property, there is VAT levied on the real property at the

following rates:

• 2.5% for real estate valued under BSD100,000

• 4% where the value exceeds BSD100,000 but does not exceed BSD300,000

• 6% where the value exceeds BSD300,000 but does not exceed BSD500,000

• 8% where the value exceeds BSD500,000, but does not exceed BSD700,000

• 9% where the value exceeds BSD700,000 but does not exceed BSD1,000,000

• 10% where the value exceeds BSD1,000,000

VAT payments due and owing relative to the stand-alone transfer of real property or the disposi

tion of a business that includes the transfer of real property are payable to the VAT Comptroller

of the VAT Department within 90 days of the completion of the transaction. Relative to the VAT

amounts due and owing for real estate transfers as part of the disposition of a business, the liabil

ity for payment of said amounts is shared between the parties, jointly and severally.

Transactions between related parties.

In the Bahamas, for a transaction between related parties

the value for VAT purposes is calculated at an arm’s-length value. This is unless the collective

group of related parties have been approved as a VAT group by the VAT Comptroller. Related-

party transactions between members of an approved VAT group are not deemed as arm’s length

and are not deemed as the provision of taxable supplies.

C. Who is liable?

VAT applies to goods or services supplied by a taxable person undertaking, by way of business,

a “taxable activity.” In most cases, the taxable supplies must also exceed the annual threshold of

BSD100,000 in value. However, there are certain instances where the mandatory registration for

VAT is required irrespective of the threshold; these include:

• Where a person or business is domiciled within or outside the Bahamas to the extent that they

provide, direct or through an agent, telecommunication service or electronic commerce to per

sons for the use, enjoyment, benefit or advantage within the Bahamas

• A hotel, condos, residential accommodations that forms a pool or other collective rental

agreements

142 bA h A m A s

• A marketplace for vacation home rental

• A non-Bahamian homeowner, who supplies a vacation rental and does not utilize a marketplace

for the supply of the rental

Exemption from registration.

Exemption from registration applies to charitable organizations or a

port licensee under certain circumstance in which. prior to making the claim for a refund, must

apply for registration. It is possible for certain zero-rated suppliers, mainly in the financial ser

vices industry to be exempted from VAT registration. Businesses are required to apply to “opt

out” of registering for VAT and this is assessed on a case-by-case basis. Where an exemption is

granted, a business cannot recover VAT on costs, as it will not be registered for VAT.

Voluntary registration and small businesses.

For businesses that make taxable supplies or taxable

importations in the course of conducting taxable activity that do not meet the VAT registration

threshold but wish to legally charge and collect VAT, there is a voluntary registration mechanism.

Taxable persons that register voluntarily have the same obligations as taxable persons that were

required by law to register including but not limited to periodic reporting and remittance of VAT

liabilities to the tax authorities.

Group registration.

Businesses that operate as a group or are managed as a group can apply for

VAT group registration. Where the group registration is approved, the group will use the taxable

person identification number (TIN) of the taxable person selected as the controller of the group.

Members of the group are all jointly and severally liable for the liabilities of the group, which

include VAT debts and penalties as well as other related taxes levied by the government of the

Bahamas.

The a minimum time period required for the duration of a VAT group is 24 months.

Fixed establishment.

In the Bahamas there is no legal definition of a fixed establishment for VAT

purposes.

Non-established businesses.

If a company undertakes a taxable or other business activity such as

employing persons that work in the Bahamas or deriving income from activities undertaken in

the Bahamas, the company is deemed to be a resident/non-established business in the Bahamas.

Non-established businesses are subject to mandatory registration if they make domestic sales of

goods and if they specifically sell digital services to consumers (i.e., telecommunication ser

vices/electronic commerce business). Such non-established businesses are required to apply for

VAT registration regardless of the taxable turnover threshold.

Tax representatives.

Businesses can appoint a third-party representative, such as an accountant or

business advisor, to submit a VAT registration form on behalf of the taxable person. It is also

possible to delegate responsibility to manage certain aspects of the taxable person’s account.

Reverse charge.

Under the reverse-charge mechanism (known as “self-account” under the Baha-

mas VAT law), persons that import services, which would ordinarily be subject to VAT if supplied

by a local business, generally must account for and pay VAT due. However, the place of supply

rules would need to be examined. The VAT Act provides that in the case of imported services,

both parties, the importer and the recipient, are jointly and severally liable for VAT arising on the

transaction.

Domestic reverse charge.

There are no domestic reverse charges in the Bahamas.

Digital economy.

No special provisions apply to the digital economy. In practice, a non-estab-

lished business providing digital (i.e., e-commerce) services would generally be required to reg-

ister for VAT and charge VAT on their supplies where the services are physically performed or

bA h A m A s 143

where the benefit is experienced in the Bahamas. While the business license registration require-

ments for nonresident

entities providing digital services are less than the registration require-

ments for a resident entity, the VAT registration requirements for these entities are the same as

resident entities providing similar taxable supplies.

No special additional e-commerce rules exist for supplies of imported goods.

Online marketplaces and platforms. The VAT law outlines guidelines for professional services,

which includes similar services of electronic commerce and the supply of internet access. A

person must apply for registration where such person, in the course or furtherance of a taxable

activity carried on by them, makes taxable supplies or taxable importations and is domiciled

within or outside the Bahamas to the extent such person provides, through an agent, telecom

munication services or electronic commerce to persons for use, enjoyment, benefit or advantage

within the Bahamas, regardless of the registration threshold.

Registration procedures.

There are three types of VAT registration that apply in the Bahamas:

• Mandatory, where businesses or operations meet or exceed the VAT registration threshold

• Voluntary, where businesses do not meet the VAT registration threshold but wish to charge and

collect VAT

• Forced registration, where businesses meet the registration threshold but fails to register

A person or business liable for VAT must apply to the VAT authorities for registration within 14

days of meeting the requirements. Registration is completed strictly online using the Department

of Inland Revenue’s Online Tax Administration System (OTAS) portal. Failure to apply for reg

istration can result in forcible registration by the comptroller and penalties. If applying sepa-

rately for a business license application, the non-exhaustive list of items required to apply to be

deemed a VAT registrant include, but are not limited to, a valid business license issued by the

Department of Inland Revenue, NIB number, taxable person contacts (name, address, phone num-

ber, email address), listing of directors/partners/shareholders, and the business representative

authorization and contact details (name, address, phone number, email address). However, note

that additional information and/or approvals may be required based on the review of the applica

tion by the Department of Inland Revenue (DIR).

Deregistration.

One can apply to cancel the VAT registration where a number of conditions are

met. Typically, a company will need to wait two years from the date of registering for VAT before

applying to cancel the VAT registration. The conditions do not apply in circumstances where the

business effectively ceases to exist.

Changes to VAT registration details.

To make corrections to any registration details, the taxable

person is required to submit a contact update request through the OTAS portal providing the

updated information in the appropriate boxes of the form and any documentation in support of

the request. A representative of the DIR would then review the request and advise of next steps

to approve the request or indicate the reason of the tax authority’s denial of the request. All cor

rections are to be submitted through DIR’s OTAS portal.

There are no specific time limits to notify such changes.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

VAT, including the zero rate.

The VAT rates are:

• Standard rate: 10%

• Reduced rates: 2.5%, 4%, 6%, 8%, 9%, 10%

• Zero-rate: 0%

144 bA h A m A s

The standard rate of VAT applies to all supplies of goods or services, unless a specific measure

provides for a reduced rate, the zero rate or an exemption. The standard rate was reduced from

12% to 10% as of 1 January 2022.

Examples of goods and services taxable at 0%

• Services that relate to land and property situated outside of the Bahamas

• Goods physically removed from the Bahamas or outside the Bahamas at the time of supply

• Certain professional, financial and insurance services where the benefit is obtained outside the

Bahamas

• Transfer of a business by one registrant to another where certain conditions are met

• Services of a foreign-going vessel providing international commercial services, where the sup

ply is made directly and not through an agent or other person.

Examples of goods and services taxable at 6%

• When a business is sold or ownership otherwise is transferred to another unrelated party, such

a transfer is subject to VAT at a rate of 6%. The tax is applied to the assets of the business with

the exception of cash, deposit accounts and real property.

Examples of goods and services taxable at 6.5%

• Flat-rate scheme provides that VAT is charged and collected on supplies at the standard rate.

However, rather than calculating the input tax each VAT period, the taxable person applies the

flat rate of 6.5% to net sales and pays this amount to the comptroller.

Examples of goods and services taxable at reduced rates

• Transfers of real property to a company or other entity are subject to 10% VAT

• Transfers of real property to an individual are subject to VAT at the following rates:

– 2.5% where the value does not exceed BSD100,000

– 4% where the value exceeds BSD100,000 but does not exceed BSD300,000

– 6% where the value exceeds BSD300,000 but does not exceed BSD500,000

– 8% where the value exceeds BSD500,000, but does not exceed BSD700,000

– 9% where the value exceeds BSD700,000 but does not exceed BSD1,000,000

– 10% where the value exceeds BSD1,000,000

The term “exempt supplies” refers to supplies of goods and services that are not liable for VAT

and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Services directly and not through an agent or other person to a person resident outside the

Bahamas who is not a taxable person (only applicable to certain circumstances)

• Certain insurance services

• Medical services where provided by a public health care facility to a public patient

• Rental of accommodation

Option to tax for exempt supplies.

The option to tax exempt supplies is not available in the Baha-

mas.

E. Time of supply

The time of supply is the date when a sale is considered to take place for VAT purposes. The time

of supply is the earliest of:

• The date an invoice is issued

• Receipt of payment

• The date goods are delivered or made available to the recipient

• The date the performance of service is completed

Deposits and prepayments.

Where a deposit or prepayment is received, regulations provide that a

tax point is created, and VAT (in the form of output tax) will become due on the amount of the

bA h A m A s 145

deposit or prepayment. The amount of VAT due is typically calculated using the VAT fraction.

The VAT fraction is calculated in accordance with the formula (R/(1+R)) where R is the rate of

VAT expressed as a percentage applicable to the price of the taxable supply.

If the deposit is held in an escrow account, i.e., one the taxable person does not have access to,

this is not considered a payment. The output tax does not need to be declared until the amount is

released.

Where the deposit is nonrefundable, and the customer does not buy the goods or services on

which the deposit was paid, this is considered a payment subject to VAT at the applicable rate.

Finally, if the deposit is intended to be refunded, the legislation does not require the taxable

person to treat the payment as consideration and therefore, there is no need to declare VAT on the

payment. However, if at some later time, it is determined that the taxable person is entitled to

keep the deposit, then this is a supply and VAT must be declared.

Continuous supplies of services.

Where there is a continuous contract for services and payment is

required at certain stages, a VAT invoice should be issued when each payment is due. The invoice

should detail the charge for that particular stage and the amount of VAT charged.

Goods sent on approval or for sale or return.

The tax point occurs when the title to the goods is

transferred. Therefore, if a supplier transfers inventory to a customer with the agreement that the

title is retained by the supplier until the customer sells or uses the inventory, a tax point is not

created, and any unused inventory can be returned to the supplier and will not be subject to VAT.

Reverse-charge services.

There is no special time of supply rule in the Bahamas for reverse-

charge services. As such, the normal time of supply rules apply.

Leased assets.

The time of supply for the supply leased assets (providing for periodic payments)

is when a payment becomes due or when payment is received, whichever comes earlier.

Imported goods.

Import VAT may apply to goods entering the Bahamas. The importer of a taxable

importation must, on entry of the goods, submit an import declaration to the comptroller of

customs and pay the VAT due.

F. Recovery of VAT by taxable persons

Generally, input tax can be reclaimed when the VAT was paid on purchases that relate to supplies

liable to VAT at the standard rate or the zero rate, i.e., taxable supplies.

There is no set time limit for a taxable person to reclaim input tax in the Bahamas. This means

that effectively the OTAS portal automatically applies the input tax (VAT credit) to the next tax

period where there is a VAT liability and may be carried forward indefinitely until its complete

recovery.

Nondeductible input tax.

Input tax credit is unrecoverable if the VAT was paid on goods or ser-

vices that are not used, or intended to be used, in the course or furtherance of a taxable activity.

Where goods have a business and personal use, the taxable person must apportion the VAT to the

business and nonbusiness uses, claiming input credit only for the business portion.

Examples of items for which input tax is nondeductible

• Fees or subscriptions for membership of any club, association or society of sporting, social or

recreational nature.

• Petroleum and similar products that are used for nonbusiness purposes.

• A passenger vehicle where the claimant does not carry on the taxable activity of providing

transportation services. Even where the claimant does carry on this taxable activity, no input

tax credit is allowed if the vehicle was not acquired for the purposes of this taxable activity.

146 bA h A m A s

Examples of items for which input tax is deductible

(if related to a taxable business use)

• Entertainment expenses incurred wholly for an employee(s) as part of a reward for services

provided

• VAT paid on utility bills related to the business

Partial exemption.

A partial recovery calculation is required where costs incurred relate to both

taxable and exempt supplies. Regulations provide a standard method of apportionment to calcu

late the amount of input tax the taxable person is entitled to claim.

The standard method of appointment is calculated as follows:

A x B/C

• A is the total amount of the input tax payable in respect of supplies and imports received during

the period, less the sum of the input tax attributable to supplies or imports acquired or made,

which are directly allocable to the making of taxable supplies and in respect of deductions that

are disallowed under the VAT Act.

• B is the total amount of taxable supplies made by the taxable person during the period

• C is the total amount of all supplies made by the taxable person during the period.

A taxable person may, where the fraction B/C is more than 0.90, deduct the total amount of the

input tax on the supplies/imports acquired or made during the period.

A taxable person may not, where the fraction B/C is less than 0.10, claim input tax deduction on

taxable supplies made during the period.

The above does not apply to a financial institution making both taxable and exempt supplies

during a period.

The Comptroller may use an alternative basis to determine the amount of input tax permitted.

This is determined on a case-by-case basis.

Approval from the tax authorities is not required to use the partial exemption standard method in

the Bahamas. Special methods are not allowed in the Bahamas.

Capital goods.

In the Bahamas there are no special input tax recovery rules for capital goods. The

normal rules outlined above apply.

Refunds.

A refund may be due when the VAT paid on a taxable person’s purchases (input tax) is

greater than the VAT charged on a taxable person’s sales (output tax). You may also carry forward

the excess and use it to offset any VAT due in the following tax period. Refund applications vary

depending on the filing intervals of the taxable person’s VAT returns. All claims for a refund must

exceed BSD500.

Pre-registration costs.

If goods or services were purchased during the 24 months before registra-

tion, and those are used to make supplies subject to VAT after registration, it is possible to reclaim

input tax paid on those pre-registration purchases.

Bad debts.

A VAT registrant is entitled to claim an input tax deduction for sales made with respect

to a taxable supply written off as a bad debt, i.e., when the amount owed is written off in account

ing records, the taxable person can make an adjustment by claiming as input tax the amount

previously declared as output tax.

Noneconomic activities.

VAT paid on purchases of goods or services that are used or intended to

be used for nonbusiness purposes are not recoverable.

bA h A m A s 147

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in the Bahamas

is not recoverable.

H. Invoicing

VAT invoices.

For all taxable supplies, the supplier must provide the buyer, if they are VAT regis-

tered, a VAT invoice within 60 calendar days of the supply. In order for a VAT invoice to be valid,

it must show certain information as outlined in VAT law.

Credit notes.

A tax credit note is required to be issued by a registered supplier to a purchaser

when a VAT invoice previously issued charged VAT in excess of the tax properly chargeable. The

credit note must be in the form and contain the information as specified in VAT law.

Electronic invoicing.

Electronic invoicing is allowed in the Bahamas, but not mandatory. VAT

invoices can be issued either by paper or electronically. A VAT invoice must show the required

information as outlined in VAT law and there are no specific requirements for electronic invoic

ing in the Bahamas.

Simplified VAT invoices.

Simplified VAT billing is allowed for retail sales in the Bahamas. For

retail sales, a taxable person can issue a VAT sales receipt, whereby items subject to VAT (or not

subject to VAT) can be identified on the receipt with a symbol such as an asterisk, provided the

total amount of VAT is clearly shown on the receipt. The method of identification must be

clearly displayed so that customers can determine what is subject to VAT and at what rate before

they pay for the goods. The unit price of each item on a sales receipt may be VAT inclusive or

exclusive.

Self-billing.

Self-billing is not allowed in the Bahamas.

Proof of exports.

When goods or services are transported or transferred from within the Bahamas

to a country or place outside the Bahamas where the use, benefit or advantage of the goods or

services is obtained or enjoyed outside of the Bahamas, the zero-rate applies. Zero rating maybe

applicable to exports out of the Bahamas, if the VAT registrant meets the following conditions:

• The registered supplier, i.e., the entity registered for VAT, has entered the goods for export in

accordance with the Customs Management Act, and the goods are, in fact, exported by the

registered supplier.

• The comptroller is satisfied that the goods have been exported from the Bahamas and were not

used after they were entered for export except such use as was necessary for, or incidental to,

the export of the goods.

• The taxable person must have the relevant documentation to prove it is the exporter of record.

Foreign currency invoices.

The VAT Act and Regulations do not specify which currency is to be

stated on invoices. The official currency is the Bahamian dollar (BSD) and its exchange rate is

USD 1:1. As per the VAT Act, invoices are to be denominated in money, which is defined as the

currency used or circulating in the Bahamas. In practice, within the Bahamas, it is permissible

to issue invoices in any currency. However, the ability to retain foreign currencies in the Bahamas

requires explicit permission from the Central Bank of The Bahamas.

Supplies to nontaxable persons.

If a VAT-registered supplier makes retail sales, it can issue a

simplified VAT invoice or a VAT sales receipt, whereby items subject to VAT (or not subject to

VAT) can be identified on the receipt with a symbol such as an asterisk, provided the total

amount of VAT is clearly shown on the receipt. The method of identification must be clearly

displayed so that customers can determine what is subject to VAT and at what rate, before they

pay for the goods. The unit price of each item may be VAT inclusive or exclusive.

148 bA h A m A s

Records.

Reliable accounting records in the English language must be maintained; however, there

is not a legal requirement that stipulates the records to be physically maintained within the Baha-

mas. In the Bahamas, examples of what records must be held for VAT purposes include records

of all supplies and purchases, i.e., a copy of all sales invoices, debit and credit notes, receipts and

all purchase invoices either in paper or electronic form. If a taxable person does not possess a

copy of an invoice on which VAT was paid or import documents showing the VAT amount, the

VAT is not recoverable. In the Bahamas, VAT books and records can be kept outside the country.

However, while records are not required to be physically maintained within the Bahamas, a tax

able person’s records should be readily accessible should the tax authorities request to view them.

Record retention period. Records are required to be kept for five years after the end of the tax

period of which the taxable person ceases to be a registrant and where the occurrence of the tax

able transaction to which the records relate. Notwithstanding, the statute of limitations is seven

years.

Electronic archiving. Electronic archiving is allowed in the Bahamas. Records must be kept for

all supplies and purchases. This means keeping a copy of all sales invoices, debit and credit notes,

receipts and all purchase invoices either in paper or electronic form. All sales invoices must be

sequentially numbered so if a taxable person spoils an invoice and has to issue a new one, the

taxable person must keep a copy of the spoiled invoice. If a taxable person does not hold a copy

of an invoice on which it has paid VAT or import documents showing the VAT amount, it is not

entitled to recover the VAT on these costs, so it is very important to keep such documents. The

records a taxable person keeps must be such that the comptroller can determine, with reasonable

accuracy at any time, the liability of the taxable person to pay tax.

I. Returns and payment

Periodic returns.

The timelines for filing VAT returns are as follows:

• Taxable persons with an annual turnover greater than BSD5 million are required to file a

monthly VAT return.

• Taxable persons with an annual turnover of less than BSD5 million are required to file a quar

terly VAT return.

The VAT return should show:

• The VAT charged on sales in the period (output tax)

• The VAT paid on purchases (input tax)

VAT returns are due 21 days following the previous month. Further, should the filing due date

fall on a weekend or public holiday, the VAT return is due on the following business day (which

would typically be the Monday following the weekend, provided that the Monday is not observed

as a public holiday).

Periodic payments.

Where the amount of output tax is greater than the input tax, the difference

must be paid to the comptroller. It is required to pay any VAT due to the comptroller within

21 days after the end of the VAT period so effectively the taxable person needs to file the VAT

return and pay any amount due by the 21st day of the month following the last day of a VAT

period.

VAT can be paid in the following ways:

• Using a debit or credit card via the online portal

• Via a taxable person’s online banking service

• Paying over-the-counter at the taxable person’s bank

• Presenting cash/manager’s check at any bank

All payments must include the related tax identification number (TIN) and reach the VAT

Department by the due date.

bA h A m A s 149

Electronic filing.

Electronic filing is mandatory in the Bahamas for all taxable persons. The OTAS

portal was developed to assist taxable persons to manage their VAT accounts. This system allows

registered taxable persons to file VAT returns and payments electronically. Other services avail

able online may include taxable person inquiries, payments and refunds. The OTAS portal is the

only method in which VAT reporting can be completed and submitted to the tax authority. Paper

submissions are not permitted.

Payments on account.

Payments on account are not required in the Bahamas.

Special schemes.

Flat rate scheme. Businesses can use this scheme if they make supplies of goods

or services at the standard rate of VAT. It was developed to assist with the administrative burden

for businesses and requires businesses to apply for permission from the comptroller to use the

scheme. The flat rate scheme provides that VAT is charged and collected on supplies at the stan

dard rate. However, rather than calculating the input tax each VAT period, the taxable person

applies the flat rate of 10% to net sales and pays this amount to the comptroller.

Cash accounting. Businesses are permitted to account for VAT on a cash basis in certain circum-

stances. Suppliers declare output tax on the VAT return in the same period during which custom-

ers pay. Similarly, you would only declare and reclaim input tax on the VAT return in the period

when you paid your suppliers.

Annual returns.

Annual returns are not required in the Bahamas.

Supplementary filings.

No supplementary filings are required in the Bahamas.

Correcting errors in previous returns.

To make corrections to any errors or omissions on VAT

returns, taxable persons are expected to prepare an amended VAT return for the impacted period,

if it is within the preceding year. For any corrections for a period outside of the preceding year,

the taxable person is required to submit an enquiry through the OTAS portal outlining the cor

rection being requested, the value of the correct, the impacted period and any documentation in

support of the request. A representative of the DIR would then review the request and advise of

next steps to approve the request or indicate the reason of the tax authority’s denial of the request.

All corrections are to be submitted through DIR’s OTAS portal.

Digital tax administration.

There are no transactional reporting requirements in the Bahamas.

J. Penalties

Penalties for late registration.

There is no specific penalty in the Bahamas for late registration of

VAT. However, if a taxable person fails to apply for registration, that person commits an offense

and is liable to a fixed penalty up to BSD150,000 or imprisoned for a term not exceeding 12

months or both.

The law also prescribes, the taxable person who failed to become a VAT regis-

trant will be liable for any VAT owed on taxable supplies, at the standard rate appliable for each

period plus interest accrued on the late payment at a rate of prime plus 1%.

Penalties for late payment and filings.

Regulations impose heavy penalties for noncompliance. An

offense is committed when VAT is not paid when due for two or more consecutive or noncon

secutive tax periods. One can potentially be liable on conviction in court to a fine not exceeding

BSD10,000 and imprisonment for a term not exceeding six months or both. In case of nonpay

ment or late payment of tax pursuant to a VAT return or notice of assessment, the taxable person

shall be subject to 10% of the amount of tax owed. Interest in respect of the outstanding amount

at a rate of prime plus 1%.

A registrant shall be subject to a fine in case of late filing of their VAT return. In case of the fil

ing of a late VAT return, non-filing of a VAT return or failure to file a VAT return in the pre-

scribed form, the fine imposed on the registrant shall be the greater of the sum of BSD100 or 2%

of the tax payable.

150 bA h A m A s

Penalties for errors.

Errors in the declared VAT amounts, whether input or output tax, can be

adjusted on the next VAT return provided the error does not exceed BSD500. Where the error

exceeds this amount, the taxable person should notify the comptroller. If the error is not discov

ered promptly and is not considered deliberate, the taxable person may only be charged interest

on amounts owed and the associated fine may be waived.

There are no specific penalties associated with the late notification or failure to notify of chang

es to a taxable person’s VAT registration details. For further details, see the subsection Changes

to VAT registration details above.

Penalties for fraud.

An unregistered or nontaxable person collecting, advertising or quoting VAT

in respect of a taxable supply made to another person is liable on conviction to a fine not exceed

ing BSD70,000.

A taxable person submitting statements to the comptroller or VAT officer that are falsified, omit

information or are misleading are liable on conviction to the sum of BSD150,000.

A taxable person who includes a false taxable person identification number on a document is

liable on conviction to a fine not exceeding BSD150,000.

Personal liability for company officers.

For taxable persons, directors or similar officers, pursuant

to Section 76, the fixed penalties that can be assessed on these representatives for failure to

comply with Sections 73 (duties of receivers/liquidators) and 74 (tax representatives) of the VAT

legislation, amount to a maximum of BSD100,000 and BSD30,000, respectively. Tax representa

tives can also be held liable for contraventions of Section 92 (false or misleading statements), the

fixed penalty for which is BSD150,000.

Statute of limitations.

The statute of limitations in the Bahamas is seven years. However, there

are other factors that may shorten or lengthen this period, which is determined at the discretion

of the VAT Comptroller. If not due to fraud or willful misstatement, the tax authorities must bring

forth any assessments and/or audits within five years after the date the VAT return was filed. The

VAT Act does not provide a statute of limitations for the tax authorities to bring forth any assess

ments and/or audits for instances of fraud or willful misstatement.

No time limit exists for taxable persons to voluntarily correct errors in previous VAT returns. The

OTAS portal will allow for the completion of an amended VAT return for up to 12 months prior

to the date of the submission. For any amendments to periods prior to 12 months, an enquiry will

need to be submitted through the OTAS portal requesting permission to have such an amendment

to be processed. The enquiry will need to detail the reason for the request and clearly identify the

changes to be made to the previously submitted VAT return. In the case of amended returns, the

comptroller or other representative of the Department of Inland Revenue can subsequently elect

to perform an audit of the taxable person.

151

Bahrain, Kingdom of

ey.com/GlobalTaxGuides

Manama GMT +3

Ernst & Young Middle East

Bahrain World Trade Centre

10th floor

Manama

Kingdom of Bahrain

Indirect tax contacts

Ali Faisal AlMahroos +973 1713-5119

ali.almahroos@bh.ey.com

Gavin Needham +973 1751-4888

gavin.needham@bh.ey.com

Kok Ha +973 1751-4576

kok.ha@bh.ey.com

Aliasgar Husaini +973 1751-4646

aliasgar[email protected]y.com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name

Date introduced 1 January 2019

Trading bloc membership Gulf Cooperation Council (GCC)

Administered by National Bureau for Revenue (NBR)

(https://www.nbr.gov.bh)

VAT rates

Standard 10%

Other Zero-rated (0%) and exempt

VAT number format Numeric (15 digits)

VAT return periods Monthly (if annual supplies greater than BHD3 million)

Quarterly (if annual supplies are less than BHD3 million)

Thresholds

Registration

Mandatory Greater than BHD37,500

Voluntary Greater than BHD18,750

Deregistration

Mandatory Less than BHD18,750

Voluntary Between BHD18,750 and BHD37,500

Recovery of VAT by

non-established businesses Yes, subject to certain conditions

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods and services made in Bahrain by a taxable person

152 bA h r A i n , Ki n g do m o f

• The receipt of goods and services by a taxable person in Bahrain from a non-established person

• The importation of goods from outside the GCC implementing states into Bahrain

There are no designated zones in Bahrain.

GCC countries that implemented VAT shall be treated as non-implementing states if they do not

treat Bahrain as an implementing state in their local tax legislation and they are not fully compli

ant with the provisions of the GCC VAT Agreement. The supply of goods and services from

non-implementing states shall be considered as made from outside the GCC territory and the

person’s residence in such countries shall be treated as non-GCC residents.

Intra-GCC supplies involving the shipment of goods from Bahrain to another GCC Member

State shall be considered as an export of goods until the establishment of the Electronic Services

System in all GCC Member States.

Contracts silent on VAT, that have been entered into prior to the VAT implementation date in

Bahrain but straddle such date, should in general be treated as VAT-inclusive.

An exception to the above is for contracts entered into with the government (i.e., Bahrain

Ministries, government agencies, institutions and public bodies), where VAT at the zero-rate can

be applied until the earlier of the contract expiry date, contract renewal date or 31 December

2023.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for VAT in that jurisdiction

where it has customers that are not taxable persons. In Bahrain only telecommunications and

electronic services are subject to the “use and enjoyment” provisions (B2B/B2C).

The National Bureau for Revenue (NBR) has issued a public clarification on the place of supply

rules for telecommunication services. As set out in the guidance from the NBR, with effect from

1 February 2021, the place of use and enjoyment of telecommunications services will be deter

mined as follows:

• For telecommunications services that require the customer to be physically present in a spe

cific location to use them (such as a Wi-Fi hotspot or an internet café), the place of use and

enjoyment is that specific location. There is no change to the place of supply for such services

and suppliers of such services should continue to charge Bahrain VAT where such services are

provided from a location in Bahrain.

• For all other telecommunications services, the place of use and enjoyment is the place of resi

dence of the customer. The supplier of the service should determine the place of residence of

the customer.

Where the place of residence of the customer is Bahrain, the place of supply of the services will

be Bahrain. Where the services are provided by a taxable person under Bahrain VAT law, 10%

VAT will apply .

Where a customer’s place of residence is in another country, that other country will be treated as

the place of residence for the purposes of determining the place of supply of the telecommunica

tions services.

For further details on telecommunications and electronic services, see the subsection Digital

economy below.

Transfer of a going concern.

Normally the sale of the assets of a VAT-registered or VAT-registrable

business will be subject to VAT at the appropriate rate. However, a transfer of a business as a

bA h r A i n, Ki n gd o m o f 153

going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is

the sale of a business or part of a business capable of separate operation including assets. Where

the sale meets the conditions, the supply is treated as outside the scope of VAT. In Bahrain, a

TOGC is treated as outside the scope of VAT where the following conditions are met:

• Transfer includes all or part of a business capable of being operated on an independent basis

• Transferor must be VAT registered

• Transferee must be VAT registered or become liable to be registered as a result of the TOGC

• The Ttransferee must immediately use the assets acquired to conduct the same or a similar

economic activity

• Notification to the NBR

Where assets and liabilities are transferred over a period of time, both parties will need to con

sider whether each transfer is a separate supply or forms part of the TOGC. Assets transferred

that will not be used to continue the economic activity previously carried out by the transferor

will not fall within the TOGC provisions. Where the sale of business assets from a transferor to

a transferee are immediately sold by the transferee to a taxable third party, the TOGC rules will

not apply. Any adjustment to a supply made before a qualifying TOGC should be a matter

between the transferor and the third party. If a transferee repairs or replaces the goods, it may not

claim input tax in respect of the cost of repair or replacement as the cost does not relate to taxable

supplies made by the transferee. The transferee will be liable for VAT on a deemed supply of

assets where the assets were transferred as part of a qualifying TOGC and the transferor origi

nally reclaimed input tax on the purchase of those assets.

Transactions between related parties.

In Bahrain, for a transaction between related parties, the

value for VAT purposes is calculated at the fair market value where the following conditions are

met:

• The value of the supply is less than its fair market value

• The recipient of the supply is not entitled to recover in full the VAT charged

The fair market value is the fair price tradeable in the market between two independent parties

under similar circumstances at the same date as the date of the supply and in accordance with the

following free competition conditions:

• Neither the supplier nor the customer is subject to any kind of commercial pressure

• Both the supplier and the customer independently work to achieve what is in their best interest

• The transaction is made within a reasonable period of time (i.e., no time pressure)

Where the fair market value cannot be assessed using the value of an identical supply in compe-

titive conditions, the supplier may refer to the fair market value of a similar supply. In such con-

ditions, a similar supply would be any other supply of goods or services where the characteristics

such as quantity, quality, usage, components or delivery are the same, or closely resemble the

supply.

The Bahrain VAT law defines “related persons” as “two or more persons where one has the

authority to direct and supervise the other person(s), where it holds an administrative authority

enabling them to influence the work of the other person(s) from a financial, economical, or

organizational point of view.”

The NBR can request evidence that the VAT has been calculated based on the fair market value

of the goods or services. If this is not provided with evidence within 30 days from the date of the

request, or if the NBR finds that the value used is lower than the fair market value, the NBR can

substitute the value used with the fair market value and calculate the VAT due on this basis.

C. Who is liable

A “taxable person” in Bahrain is a person who conducts an economic activity independently for

the purpose of generating income and who is registered or obliged to register for VAT in Bahrain.

154 bA h r A i n , Ki n g do m o f

Every person who has a place of residence in Bahrain and conducts an economic activity, where

the value of its taxable supplies made in the past 12 months or expected to be made in the next

12 months exceeds Bahraini dinar (BHD) 37,500 must register for, collect and remit VAT.

The

VAT registration process is outlined under the subsection

Registration procedures below.

Every non-established business that makes supplies, goods or services (and where no one else is

liable to account for the VAT due) must register for VAT in Bahrain. There is no minimum regis

tration threshold for nonresident persons.

For imports, the importer shall pay import VAT to Bahrain Customs Affairs where Bahrain is the

first point of entry for goods coming from outside the GCC implementing states (unless the

goods are zero-rated or exempt from import VAT in Bahrain). Until Bahrain recognizes one or

more GCC Member States as implementing states, all goods entering Bahrain that are cleared

through customs will be regarded as imports of goods for VAT purposes. The NBR may allow

the taxable person to defer the payment of import VAT until the filing of the VAT return.

Transport of own goods by a taxable person to another GCC implementing state may be treated

as a taxable supply, except where goods are transferred either on a temporary basis or as part of

a supply taxable in the other GCC implementing state (e.g., a supply of goods with installation).

However, at the time of preparing this chapter, Bahrain has not recognized one or more of the

other GCC Member States as an implement state for VAT purposes.

Exemption from registration.

Taxable persons whose value of taxable supplies exceeds BHD37,500

but are exclusively zero-rated, and does not receive services or goods for which they are liable to

account for standard-rated VAT under the reverse-charge mechanism, may apply to the NBR for

an exception from VAT registration. However, the NBR has the right to collect any VAT due, as

well as administrative penalties, for the period of registration when the taxable person was not

entitled to an exception from VAT registration.

Voluntary registration and small businesses.

A person who has a place of residence in Bahrain,

conducts an economic activity and is not obliged to register for VAT under the phased transi

tional deadlines, may apply for VAT registration if the value of its total taxable supplies or

expenses in the past 12 months exceeds BHD18,750, or is expected to exceed BHD18,750 in the

next 12 months.

When a person applies for a VAT registration on a voluntary basis, the effective date of registra

tion is the date of approval of the registration by the NBR. The taxable person must remain reg-

istered for at least 24 months before being able to request a voluntary deregistration.

Group registration.

Two or more persons can apply to form a VAT group if the following condi-

tions are met:

• Each applicant must be a legal person.

• Each applicant must have a place of residence in Bahrain.

• Each applicant must be conducting an economic activity in Bahrain.

• Each applicant must be registered for VAT purposes at the date of making the application to

form/join the VAT group.

• The applicant must not be a member of another VAT group in Bahrain.

• The applicants must be related, which means that:

– One of them has the authority to direct and supervise (i.e., control) the others.

– They are all directed and supervised (i.e., controlled) by the same person (the same person

could be a legal person, a natural person or a group of persons acting under a formal arrange-

ment).

bA h r A i n, Ki n gd o m o f 155

For the purposes of the above, control is considered to be established where either the same per-

son or the same group of persons (acting under a formal agreement):

• Hold, directly or indirectly, more than 50% of the voting rights attaching to the shares in each

applying entity

• Hold, directly or indirectly, more than 50% of the capital or ownership in each applying entity

• Control each applying entity by any other means than voting rights or capital

The VAT group shall, by a power of attorney, appoint one of its members as a representative of

the VAT group. The VAT group representative shall comply with all VAT obligations of the group

without prejudice to the joint liability of the members of the VAT group, including the following:

• Submit an application to form a VAT group in accordance with the form prepared for this pur

pose by the NBR

• Notify the NBR of a request to withdraw any member of the VAT group or add new members

to it

• Notify the NBR of a request to disband the VAT group for any reason, or where the conditions

to register as a VAT group no longer exist

Supplies between members of the VAT group shall be considered as outside the scope of VAT.

All the entities registered as in a VAT group will be required to file a single VAT return which

this reduces the VAT compliance workload.

All members of a VAT group in Bahrain are jointly and severally liable for VAT debts and penal

ties of the VAT group for the time that they are members of the VAT group.

The NBR may amend or deregister the VAT group in some instances, and a member must leave

the VAT group as soon as it ceases to meet the relevant conditions.

The minimum time period required for the duration of a VAT group in Bahrain is 12 months. This

means that members of the VAT group cannot voluntarily withdraw from the group before a

period of at least 12 months has passed since joining the VAT group.

Fixed establishment.

A foreign business is deemed to have a fixed establishment for VAT purpos-

es in Bahrain, where it meets the fixed establishment definition (as per the Bahrain VAT law) as

any fixed location for the business other than the place of business, where business is conducted,

and is characterized by the permanent presence of human and technical resources in a capacity

that enables the person to supply or receive goods or services.

In addition, the Bahrain VAT law defines place of residence of a person as the location of the

place of business of a person or the fixed establishment. For a natural person who does not have

a place of business or a fixed establishment, it shall be its usual place of residence. If a person

has a place of residence in more than one country, the place of residence shall be considered as

the place most closely connected with the supply. In addition, the place of business is defined as

the place where the business is legally established, or the place of its actual management where

the key decisions relating to the business operations are taken, when different from the place of

establishment.

Non-established businesses.

Every person that does not have a place of residence in Bahrain, but

is obliged to pay VAT in Bahrain, must apply to the NBR for VAT registration regardless of the

value of its supplies, as there is no minimum registration threshold for nonresident persons. A

nonresident person can register directly with the NBR or through an appointed tax representative

(which requires an approval from the NBR).

Tax representatives.

The NBR may approve persons who wish to act as tax representatives or tax

agents for the taxable persons in respect of their tax obligations in Bahrain. The NBR will grant

156 bA h r A i n , Ki n g do m o f

such approval upon meeting certain rules and conditions, as well as the payment of certain

license fees and the submission of a power of attorney. The NBR will publish a list of the

approved tax representatives and tax agents.

A tax representative or tax agent must meet the following conditions:

• They must be resident in Bahrain.

• They must be of good conduct and reputation (no sentence to a restriction of freedom in a crime

against honor).

• If an individual, it must possess of a university degree or accounting or legal qualification that

has been certified and approved by the Ministry of Education.

• If a legal person, it must have a valid and current commercial registration.

• They must pay the fee prescribed by the NBR.

The tax representative shall have joint and several liability for paying any VAT due from the tax

able person it is representing until the date when the NBR announces that the tax representative

ceases to act on behalf of that taxable person. A tax agent does not assume any of the taxable

person’s liabilities or obligations.

A taxable person who wishes to appoint a tax agent or a tax representative should do so via the

NBR portal, completing the necessary details on screen and submitting the appointment request

for approval.

Reverse charge.

For certain transactions, the liability to account for VAT in Bahrain shifts from

the supplier to the customer, under the reverse-charge mechanism. The reverse-charge mecha

nism must be applied when a taxable person in Bahrain receives a supply of goods or services

from a nonresident person and those goods or services are subject to VAT in Bahrain.

Domestic reverse charge.

Bahrain The reverse-charge mechanism applies on certain domestic

supplies. However, at the time of preparing this chapter, the domestic reverse charge has not been

introduced.

A taxable person needs to apply and obtain approval from the NBR to use the domestic reverse

charge, and certain conditions need to be met, including:

• The applicant must be a taxable person.

• The applicant must evidence that the total amount of its intra-GCC supplies and exports exceed

50% of the total value of its supplies.

• The applicant must provide reasonable grounds that it will be in a recurring net tax recoverable

position and that this will have a material impact on its financial position.

Once the NBR approves the application, the purchaser can apply the reverse-charge mechanism

on the goods and services purchased from local suppliers that are specified in the approval, pro

vided it can recover the related input tax in full. The NBR will issue a certificate to the taxable

person to evidence that the domestic reverse charge can be used, and a copy of this certificate

needs to be provided to suppliers for them not to charge VAT on supplies made.

The taxable person must notify the NBR within 30 days when it ceases to meet the conditions to

benefit from the domestic reverse-charge mechanism. The NBR will then revoke its approval.

This domestic reverse-charge mechanism allows taxable persons with significant supplies either

subject to VAT at the rate of 0% or occurring outside the territorial scope of Bahrain VAT to

mitigate the negative cash flow impact of the VAT incurred on their business expenses.

Digital economy.

Supplies of telecommunications (wired and wireless) and electronic services are

subject to Bahrain VAT to the extent that the use and enjoyment of such services take place in

Bahrain.

bA h r A i n, Ki n gd o m o f 157

Telecommunication services are defined in VAT legislation as “services relating to the transport,

transmission, conversion or reception of signals used for the dissemination of words, images,

audio or information by any kind of wire, radio and telephone services, visual telephone ser

vices, Voice over Internet Protocol (VoIP), voice mail, call waiting and other call management ser-

vices, internet access and roaming data, including related transmission services or granting the

right to use the ability to convert, transmit, receive or other similar means.”

Electronic services are defined in VAT legislation as “services provided over the internet or any

electronic platform, and that operate in an automated manner with limited human intervention

and that are impossible to complete without the use of information technology.”

Some examples (not exhaustive) of electronic services include:

• The supply of a website, web page on the internet and web hosting services

• The supply of computer and software programs, as well as their maintenance and update

• The supply of digital products and visual content, including app, screensavers, e-book and digi-

tal files

• Online supply of music, films, television series, games, magazines, newspapers or other pro

grams

• Supply of advertising space on websites and of any rights associated with such advertising

• Supply of online educational services

To determine the place of use and enjoyment of a given service, the supplier must follow the rules

detailed below:

• If the customer is not a taxable person, the place of use and enjoyment is the place where the

customer actually uses and enjoys the service. The place where the contract with the customer

is executed and the place where the customer pays for the service are not relevant. The follow

ing rules should be used to identify the place of actual use and enjoyment of a service:

– If services are received through a fixed location (e.g., fixed or public telephone services,

Wi-Fi services), the place of that fixed location will be the place of actual use and enjoyment.

– If services are received through a mobile network, the country corresponding to the country

code of the SIM card used to receive the services will be the place of actual use and enjoy

ment.

– For international roaming services, the country in which the mobile network is located that

the customer uses to receive the services will be the place of actual use and enjoyment.

• If the customer is a taxable person, the place of use and enjoyment is the place of residence of

the customer. The following rules should be used to identify the place of residence of the cus

tomer taxable person:

– The customer’s address as stated on a VAT invoice or other documents used for billing

– Details of the customer’s bank account

– The internet protocol address used to receive the services

– The country code of the SIM card used to receive the services

– Any other information of a commercial nature

From 1 February 2021, the place of use and enjoyment rules shall be determined based on amend-

ed provisions, as follows:

• For telecommunications services that require the customer to be physically present in a spe

cific location to use them (such as a Wi-Fi hotspot or an internet cafe), the place of use and

enjoyment is that specific location. There is therefore no change in the place of supply rules for

these services.

• For all other telecommunications services, the place of use and enjoyment is the place of resi

dence of the customer. The supplier of the service should determine the place of residence of

the customer by reference to the following:

– Internet protocol address used by the customer to receive the service

158 bA h r A i n , Ki n g do m o f

– Country code of the SIM card used by the customer to receive the service

– Customer’s address as stated on the VAT invoice or other documents used for billing

– Customer’s bank account details

– Other information of a commercial nature

Nonresident providers of electronically supplied services for business-to-consumer (B2C) sup

plies are required to register and account for VAT in Bahrain.

Nonresident providers of electronically supplied services for business-to-business (B2B) sup

plies are not required to register and account for VAT in Bahrain. Instead, the customer is

required to self-account for the VAT via the reverse-charge mechanism (see the

Reverse-charge

subsection above).

Where goods are located outside of Bahrain, the VAT treatment for the sale of goods by a non

resident supplier to a customer in Bahrain will depend on who is importing the goods into Bah-

rain. If the supplier is importing the goods (i.e., importer of record), the supplier would need to

pay any import VAT that is due on importation, and then make a domestic supply in Bahrain. If

the customer is the importer of record, then the supply by the nonresident supplier would be out-

side the scope of Bahrain VAT, as the customer would be liable to pay any import VAT that is due.

Online marketplaces and platforms. Online portals and interfaces; for example, websites, apps

and electronic software; are now commonly used to facilitate the supply of goods and services.

An online platform may act as a disclosed or undisclosed agent. In some cases, the platform will

be a pass-through for the supply of goods and it will obtain a commission – this arrangement is

akin to the platform acting in a disclosed agent capacity. Alternatively, there may be platforms

that purchase the goods from their suppliers and later sell these goods to customers – under this

arrangement, the platform is acting as an undisclosed agent.

Typically, such platforms directly act as the seller of the goods or services to the final customer

and a separate agreement is in place between the platform and the original supplier. Additional

conditions arise when the original supplier is a nonresident. In such cases, the platform is likely

to be perceived as an undisclosed agent, unless:

• The nonresident is expressly mentioned as the supplier of the goods or services sold on the

platform, on the contractual agreement and on the invoice or receipt issued for the sale of the

goods or services sold.

• The platform cannot charge the customer for the goods or services sold themselves and has no

rights on the terms and conditions of the supply provided.

When the platform is considered as an undisclosed agent for a nonresident supplier, the following

supplies will take place:

• The goods or services will be purchased from the nonresident supplier (VAT registration obli

gations may arise for the nonresident if the platform is not registered for VAT).

• A separate local supply by the platform to the final customer will take place for the supply of

goods or services purchased online.

Registration procedures.

VAT registration must be applied for electronically via the NBR website.

The various stages of the process are as follows:

i. Creation of a profile on the registration portal of the NBR’s website

ii. Review and approval by the NBR of the profile created, after which login details will be

provided to access the created taxable person account

bA h r A i n, Ki n gd o m o f 159

iii. Completion of the registration application form and upload of the required supporting docu-

ments

such as the financial details, identification documents, proof of business relationship

with the authorized person, proof of residence and proof of bank account ownership

iv. Confirmation from the NBR of approval of the registration application or communication

from the NBR requesting further information

v. Download of VAT certificate once approved. The certificate is an official confirmation of

the VAT registration and VAT account number, and it must be visibly displayed at the taxable

person’s premise(s).

The NBR shall process the registration application within 30 days from the date of its submis-

sion and shall notify the applicant of its decision to approve or reject the application. The length

of time it takes to obtain a VAT registration number varies, although on average it tends to be

between two to three weeks.

Deregistration.

A taxable person must apply to the NBR for deregistration from VAT in any of

the following cases:

• If the taxable person ceases to carry on an economic activity

• If the taxable person does not make taxable supplies during a consecutive 12-month period

• If the value of taxable supplies made during the preceding 12 months falls below BHD18,750

and the taxable person does not expect the value of its supplies or expenses to exceed

BHD18,750 in the upcoming 12 months

A resident taxable person also has the option to apply for deregistration if the value of its taxable

supplies during the previous 12 months falls below BHD37,500, but exceeds BHD18,750. A

nonresident person may not choose to deregister on a voluntary basis. In all cases, the deregis

tered person must maintain books, records and invoices related to its supplies for a period of five

years from the date of its deregistration for possible inspection.

Changes to VAT registration details.

If there are any changes in the information that was origi-

nally provided when registering for VAT, the taxable person should notify the NBR within 30

days from the date of the change. To make the change, the taxable person should do the follow

ing:

• Log into their NBR account and access the section “Update VAT payer details.”

• Update the relevant sections with the amended VAT registration information.

The NBR will review the amendments and may ask for the taxable person to provide additional

information. If the information is updated, the NBR will update the VAT registration certificate

and the online portal.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

VAT, including the zero rate.

The VAT rates are:

• Standard rate: 10%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods and services unless a specific measure

provides for the zero rate or an exemption.

The standard rate increased from 5% to 10% beginning 1 January 2022. There are four transi

tional rules that determine whether the 5% or 10% rate should be applied on supplies that span

160 bA h r A i n , Ki n g do m o f

1 January 2022. The key factor is whether supplies are made under contracts entered into before

24 December 2021, or contracts after that date. The transitional rules for such contracts shall be

effective until that contract expires, is amended/renewed or until 31 December 2022 (whichever

is the earliest).

For one-off supplies, the following two rules apply:

• Transitional Rule 1: Contracts for one-off supplies entered into before 24 December 2021,

where the date of supply is on or after 1 January 2022, the 5% VAT will apply unless the con

tract is changed before the supply is made.

• Transitional Rule 2: Contracts for one-off supplies entered into after 24 December 2021, where

the date of supply is on or after 1 January 2022, the 10% VAT will apply.

For continuous supplies the following two rules apply:

• Transitional Rule 3: Contracts for continuous supplies entered into before 24 December 2021,

where some or all of the supply occurs on or after 1 January 2022, the 5% VAT will apply unless

the contract is changed before the supply is made (after which 10% rate applies to subsequent

supplies made). For long-term contracts that do not change during 2022, the 10% rate becomes

effective for all supplies made from 1 January 2023.

• Transitional Rule 4: Contracts for continuous supplies entered into before 1 January 2022

where the “Transitional Rule 3” above does not apply, the 5% VAT will apply on supplies made

before 1 January 2022 and 10% VAT on the supplies made on or after 1 January 2022.

The tax authorities’ guidance outlines that the definition of when a contract is changed/amended

includes (but not limited to):

• Extending the duration of the contract so it applies to additional goods and/or services

• Including additional supplies of goods and/or services within the terms of the contract

• Increasing the consideration payable under a contract that would otherwise qualify under the

transitional rules while compensating the customer in another manner (e.g., discount on anoth

er supply, providing a cash rebate).

Other changes (e.g., the method of delivery) that do not impact the original timing, consideration

or quantum of supplies to be made will generally not be regarded as a change or amendment for

the purposes of the transitional rules.

Examples of goods and services taxable at 0%

• Export of goods to outside the GCC implementing states territory (Note: the supply of goods

to other GCC implementing states shall be treated as an export, until the full integration of the

Electronic Services System across all the GCC implementing states)

• Supply of services from a resident taxable person in Bahrain to a customer residing outside the

GCC implementing states and benefiting from such service outside the GCC implementing

states

• Re-export of goods that were temporarily imported for repairs, renovation, modification or

processing, and the service added to it

• The supply of goods to, within or under a customs duty suspension scheme

• Transportation services of passengers and goods to or from Bahrain, other services included

with such transportation services, and the related means of transport

• Local transportation sector

• Oil, oil derivatives and gas sector

• The supply or import investment grade gold, silver and platinum with purity level of not less

than 99% and can be traded on global bullion market, based on a certificate issued by the

competent authority responsible for testing precious metals and gemstones in Bahrain

• The first supply after extraction of gold, silver and platinum for trading purposes

• Supply or import of pearls and precious gemstones after obtaining the certificate issued by the

competent authority responsible for testing the pearls and gemstones to determine their nature

bA h r A i n, Ki n gd o m o f 161

• Supply of preventive and basic health care services and related goods and services (The health

care services must be qualifying medical services provided by qualified medical professionals

or qualified medical institutions to a patient during the course of its treatment.)

• Supply or import of specific medicines and medical equipment

• Supply of educational services and related goods and services to nurseries, pre-elementary,

elementary, secondary and higher education

• Supply and importation of food items listed in the GCC list of basic food items

• Construction of new buildings

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT

and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Supply of specific financial services, except in cases where the consideration payable is by the

way of an explicit fees, commission or commercial discounts

• Supply of bare land and buildings (including residential and commercial) by way of sale, lease

or license

• Imports of goods are exempt from VAT in Bahrain in the following circumstances:

– Goods for diplomatic and military use that are exempt from customs duties

– Imports of personal effects and household appliances by Bahraini citizens residing abroad

and foreigners who are coming to reside in Bahrain for the first time who are exempt from

customs duties

– Imports of returned goods that are exempt from customs duties

– Imports of personal items and gifts carried in a traveler’s personal luggage

– Goods designed for people with special needs, where the importer possesses the relevant

documentation issued and certified by the competent authorities

Option to tax for exempt supplies.

The option to tax exempt supplies is not available in Bahrain.

E. Time of supply

The time at which VAT becomes due is known as the “tax due date” or “time of supply.”

For the supply of goods, the general time of supply is the earliest of any of the following dates:

• The date when the transportation of goods commences (where the transportation of the goods

is under the supervision of the supplier)

• The date when the goods are placed at the customer’s disposal (where the goods are not trans

ported under the supervision of the supplier)

• The date when the installation or assembly of goods is completed, for transactions involving

assembly or installation

• The date the VAT invoice is issued

• The date that payment is received (to the extent of the amount received)

For the supply of services, the general time of supply is the earliest of any of the following dates:

• The date when the service is considered as completed

• The date the VAT invoice is issued

• The date that payment is received (to the extent of the amount received)

Deposits and prepayments.

A deposit for a supply designed to be paid by the customer as an

advance payment will be considered as an initial payment for the consideration of the supply and

will create a tax due date to the extent of the amount received.

It should be noted that a VAT

invoice must be issued at the latest by the 15th day of the month following the month during

which a VAT due date was triggered. However, deposits that are refundable and are not consid

ered as an advance payment for the supply are outside the scope.

162 bA h r A i n , Ki n g do m o f

Continuous supplies of services.

The time of supply for supplies that are continuous in nature (for

both supplies of services and goods) is the earliest of any of the following dates, provided that it

does not exceed a period of 12 months from the date of commencement of the supply:

• The date a VAT invoice is issued

• The due date of payment specified in the VAT invoice

• The date when the payment is received

Goods sent on approval for sale or return.

Where goods are supplied on a trial basis, the tax due

date is the earlier of:

• The date the buyer accepts the goods on a definitive basis

• The date the VAT invoice is issued

Reverse-charge services.

There are no special time of supply rules in Bahrain for reverse-charge

services. As such, the general time of supply rules apply (as outlined above).

Leased assets.

For an operating lease, the tax due date is the earlier of:

• The due date of each installment under the contract

• The date an installment is paid

For a finance lease, the tax due date is the date of the supply of goods. Where the contract con

tains a purchase option exercisable at the end of the contract, VAT becomes due on the purchase

value of the goods on that tax due date, i.e., the date of the supply of goods.

Imported goods.

Import VAT is due at the same time that the customs duties become due, as fol-

lows:

• When the goods enter the territory of Bahrain and are imported

• When the goods are released from a customs duty suspension arrangement, and the release and

importation of those goods is in Bahrain

Other supplies.

Deemed supplies. The tax due date of a deemed supply of goods or services shall

be the date when a deemed supply event is triggered, as follows:

• For goods or services provided for no consideration, the tax due date is when the goods are

made available to the third party or where the services have been completed.

• For goods the taxable person retains upon deregistration, the tax due date is the effective date

of deregistration.

• For the transfer of the taxable person’s own goods from Bahrain to another implementing state

or vice versa, the tax due date is the transfer date.

• For the change in the use of a good, the tax due date is the date that the change occurred.

Vouchers. For single-purpose vouchers, the tax due date is the date of issue of the voucher, how

ever, if it is subsequently sold, the tax due date for that sale is the date of that subsequent sale.

For multipurpose vouchers, the tax due date is the date on which the voucher is exchanged for

the goods/services.

Vending machines. The tax due date in cases where payment is made through vending machines

is the date on which funds are collected from the machine.

Compulsory supply of goods and supply of goods with a right of refund. The tax due date is the

date of supply of the goods.

Supply of goods deposited, and supply of goods pledged as collateral. Tax due date is the earlier

of:

• The bailee or creditor selling the goods

• The bailee or creditor deducting a cash amount deposited as a bond in order to definitively

acquire the goods

bA h r A i n, Ki n gd o m o f 163

Temporary measures for relevant loans. In August 2020, the NBR issued a public clarification

regarding the tax point rules for loans (including amounts advanced on credit cards) subject to a

six-month payment holiday from March to August 2020 under circulars issued by the Central

Bank of Bahrain (CBB). Under the CBB circulars, Bahraini nationals and businesses are entitled

to receive a payment holiday on interest/profit and capital arising on certain loans, including

credit advanced on credit card accounts (together “relevant loans”). Payments on these loans will

restart at the end of the six-month period. Essentially, the relevant loans will be extended for up

to six months without any additional charge being made to borrowers.

Ordinarily, the tax due date for supplies of credit is the earlier of:

• When the consideration (e.g., interest or profit) becomes due and payable by the borrower

• The date a VAT invoice is issued in respect of the supply

• The date of payment of the consideration (e.g., interest or profit) by the borrower

Where none of the above occurs within a 12-month period, a tax due date will be triggered at the

end of that 12-month period.

The NBR took the position that, by virtue of the CBB guidelines, the terms and conditions of

relevant loans have been changed so that no interest or profit is due and payable during the six-

month payment holiday. Therefore, where no VAT invoice has been issued in respect of interest

or profit on a relevant loan during the payment holiday and a debtor has not actually paid interest

or profit on such a loan, there will be no tax due date on the relevant loan during the holiday

period.

Generally, a tax due date in respect of a relevant loan will arise when interest or profit deferred

under the CBB circulars ultimately becomes due and payable by the debtor. Where, however, no

tax due date had otherwise arisen in respect of a relevant loan for a 12-month period ending dur

ing the holiday period, the tax due date will be the day after the end of the holiday period (i.e.,

1 September 2020).

F. Recovery of VAT by taxable persons

For a taxable person to deduct input tax incurred, the taxable person must meet all of the follow-

ing conditions:

• The expenses on which VAT is charged have been incurred for the purpose of the taxable per

son’s economic activity

• The recovery of input tax on the expenses is not specifically disallowed by the VAT law

• The expenses are used for making taxable supplies

• The taxable person holds the supporting original tax invoices that comply with the requirements

of the VAT law or the relevant import documentation

• Input tax must be claimed within the time limit set by the VAT law. The time limit for a taxable

person to reclaim input tax in Bahrain is five years. The time limit is within five years from the

end of the calendar year where that input tax became recoverable, provided all the conditions

to recover that input tax are met.

In Bahrain, the rules on initial entitlement to recover do not include making a payment, but there

is a requirement to adjust if

payment is not made within 12 months. The entitlement to recover

input tax assumes that the recipient of the supply intends to pay the consideration for the supply.

Where the consideration is not paid (in part or in full) within 12 months of the date of the supply

and the supplier follows the procedures to obtain bad debts relief, the recipient of the supply is

required to adjust the input tax initially recovered by an amount corresponding to the unpaid

amount of VAT. For further details, see the

Bad debts subsection below.

Nondeductible input tax.

Input tax may not be recovered in the below cases:

• If it is paid on goods and services used for purposes other than the taxable person’s economic

activity

164 bA h r A i n , Ki n g do m o f

• If it is paid on goods prohibited from trade in Bahrain

• If the VAT is paid on supplies or imports for the purposes of making exempt supplies in Bahrain

Examples of items for which input tax is nondeductible

• Entertainment expenses incurred for staff and non-staff members (e.g., accommodation, hospi-

tality, food and drinks when not provided within the course of a meeting or as normal refresh-

ments)

• Accessing events or functions, and trips for recreational purposes (e.g., concerts, shows, social

dinners, team-building events and activities when not provided as part of a business meeting)

• Goods and services used by employees free of charge and for their personal use, unless there

is an obligation to provide it under any other laws in Bahrain

• Vehicles and related services (i.e., maintenance, repair, insurance) provided to employees to the

extent of nonbusiness use

Examples of items for which input tax is deductible

(if related to taxable business use)

• Motor vehicles

• Mobile phones

Where a motor vehicle or mobile phone has been provided to an employee that may be subject

to personal use (e.g., to commute to or from work, making or receiving personal phone calls), the

input tax claimable in respect of costs must be allocated between business and personal use. This

apportionment should be carried out on a fair and reasonable basis, by reference to actual busi

ness/private usage and any company policies and procedures. Alternatively, a simplified method

of recovery may be used, as follows:

• Motor vehicles – fixed input tax recovery rate of 40% on all costs

• Mobile phones – fixed input tax recovery rate of 60% on all costs. No input tax can be claimed

in respect of mobile phone costs where the actual business usage of the phone does not exceed

50%

If a taxable person uses one of the fixed input tax recovery rates, it must be used for all assets in

the relevant category. There is no requirement to notify or inform the NBR of the use of the fixed

recovery method, however, the taxable person must use the fixed recovery rate for a period of two

years before moving to a method based on actual use.

Partial exemption.

In cases where the input tax relates to goods and services that are used for

making both taxable supplies and exempt supplies, the input tax may be deducted partially and

to the extent such input tax relates to making taxable supplies.

The default (standard) method of proportional deduction of input tax is calculated based on a

turnover method, based on a fraction where:

• The numerator is the value of taxable supplies in Bahrain made by the taxable person in the tax

period.

• The denominator is the total value of taxable supplies and exempt supplies in Bahrain made by

the taxable person in the tax period.

The value of taxable supplies or exempt supplies made by the taxable person in the fraction

include those supplies that do not take place in Bahrain, but that would have been either taxable

or exempt supplies if they had taken place in Bahrain.

The fraction outlined above, shall not include:

• Supplies of capital assets by the taxable person

• Supplies that are incidental and do not constitute the core activity of taxable person

• Supplies taking place outside of Bahrain that are supplied from an establishment of the taxable

person outside of Bahrain

• Supplies that are outside the scope of VAT

bA h r A i n, Ki n gd o m o f 165

At the end of the calendar year, the taxable person should undertake an annual adjustment of the

input tax that has been recovered throughout the year. Any adjustment (increase or decrease in

allowable recovery) should be reported in either the last tax period of the year, or the first tax

period of the subsequent year.

A taxable person should by default use the standard method to determine the amount of VAT that

is deductible. Approval from the tax authorities is not required to use the partial exemption stan

dard method in Bahrain.

A taxable person may submit an application to use an alternative (special) proportional deduction

method to the default method, in cases where that alternative method more accurately reflects the

use of goods and services supplied to that taxable person. Special methods must be approved by

the tax authority before use by the taxable person.

If the NBR approves a special apportionment method, it will also confirm the effective date for

using it and, if relevant, the time limit and conditions associated with its use. If the alternative

special method is rejected by the NBR, the taxable person must continue to apply the standard

apportionment method.

The NBR may also direct a taxable person to use a special apportionment method where the

standard method does not provide a fair and reasonable reflection of the taxable person’s eco

nomic activity.

Capital goods.

Capital assets are tangible and intangible assets that are allocated by the business

for long-term use as a business instrument or as a means of investment. A change in use of capi-

tal assets is subject to an input tax adjustment, to reflect the increase/decrease in taxable use of

the asset over its lifetime.

The adjustment period is 5 years in respect of movable tangible or intangible capital assets and

10 years in respect of immovable tangible capital assets (i.e., real estate). The first year of the

adjustment period corresponds to the tax year during which the capital asset was first used.

At the time a taxable person acquires a capital asset, input tax shall initially be deducted in accor-

dance with the intended use of the goods (i.e., taxable, exempt or residual). During the adjust

ment period, an adjustment to the deduction must be made following any year in which the

actual use of the capital asset differs from that initial intended use. Any change in the use of a

capital asset once its adjustment period has expired does not trigger the requirement to adjust the

amount of input tax recovered.

At the end of each 12-month period, a taxable person shall calculate the amount of input tax

potentially subject to adjustment and shall report the adjustment in either the last tax period of

the year, or the first tax period of the subsequent year.

In cases where there is a permanent change in the use of a capital asset due to the sale or dis

posal of the capital asset by a taxable person, the taxable person must adjust the input tax deduc-

tion for the remainder of the adjustment period. The adjustment should be reported in the last tax

period of the year during which the capital asset was sold, or the first tax period of the subsequent

year. Taxable persons are required to keep and maintain a record of their capital assets and of the

related input tax recovery position throughout the adjustment period.

Refunds.

When a taxable person submits its VAT return and it is in a VAT-receivable position, it

has the option to either request a refund of the receivable VAT or request the NBR to carry for

ward the receivable VAT to subsequent tax periods. The NBR can also offset such VAT credits

against any other payable taxes or administrative penalties such as a late payment penalty.

The VAT legislation allows certain persons to obtain a refund of Bahrain VAT they incur on their

expenses and imports of goods irrespective of whether they qualify as taxable persons or meet

166 bA h r A i n , Ki n g do m o f

the general conditions for input tax recovery. These are called “special refund schemes.” See

Section G below for further details.

Pre-registration costs.

A taxable person is entitled to deduct input tax on goods and services

received or imported by it prior to its date of VAT registration in the VAT return of the first tax

period provided that all the following conditions are met:

• The goods and services are received in the course of making taxable supplies.

• The taxable person is able to show an inventory of goods and capital assets that it had at the

effective date of registration, and provide details as to the nature, quantity, purchase date and

VAT incurred for such items.

• The goods were acquired or imported within a period of five years prior to the effective date of

registration, and they are still in the taxable person’s possession on the effective date of registra

tion.

• In case of a service, it should have been received within a period of six months prior to the

effective registration date.

• The goods and services are not of a type that are restricted from input tax deduction.

The taxable person should provide the NBR with the following documents:

• A list of the purchases for which input tax recovery is sought

• An inventory of the stock of goods and raw materials still at its disposal on the effective date

of VAT registration (nature, quantity and value, date of purchase and amount of the input tax

paid)

• Copies of the tax invoices issued by the suppliers for the goods and services acquired

• Customs declarations for imports.

Bad debts.

A taxable person may claim a VAT bad debt relief where consideration relating to a

taxable supply has not been received from the customer. The adjustment allows a recovery of

output tax that has previously been declared by the taxable person.

To claim this relief, the following conditions must be met:

• The payment of the consideration due by the customer (in part or in full) must be outstanding

for at least 12 months from the date of supply. This 12-month period does not apply where the

customer has not paid due to bankruptcy.

• The supplier must be able to prove that it has taken all necessary measures to collect the debt

(this may include initiating legal proceedings against the customer).

• The supplier has written off (partially or fully) the debt in its books.

The supplier should make an adjustment for the related amount of VAT in the tax return for the

period during which the bad debt relief is granted. It is expected that the supplier will issue a VAT

credit note. If the taxable supplier subsequently receives a payment (in part or in full) relating to

this debt, it must make another adjustment of output tax. This should be reported in the tax return

for the period during which the late payment was received.

Noneconomic activities.

Input tax incurred on purchases that are used for noneconomic activities

is not recoverable in Bahrain.

G. Recovery of VAT by non-established businesses

Refund of VAT paid by non-established businesses.

Input tax incurred by non-established busi-

nesses that are not registered for VAT in Bahrain is recoverable. Non-established businesses that

are not registered for VAT in Bahrain may claim a refund on the VAT paid on purchases made

within Bahrain, subject to meeting certain conditions and submitting a refund application form,

along with all required supporting documents, to the following email address: registration@nbr.

gov.bh.

bA h r A i n, Ki n gd o m o f 167

To claim this relief, the following conditions must be met:

• The refund applicant is not registered or obliged to register for VAT in Bahrain.

• The refund applicant is registered for VAT (or similar tax) in their country of residence.

• The country of residence of the refund applicant has a process to refund VAT to persons regis

tered for VAT in Bahrain.

• The refund applicant is entitled to claim a VAT refund if the total VAT claimed is equal to BHD

200 or more.

• The VAT refund is being claimed for supplies used to conduct their business activity.

• The refund applicant has not already submitted a refund application for the same calendar year,

as only one application shall be submitted per calendar year.

The following timings apply for the refund application:

• If the applicant is eligible, the application form and supporting documents should be submitted

to the NBR between 1 January and 31 March in the calendar year after which VAT was paid.

• NBR may request additional information from the applicant to process the application, which

must be provided within 30 days of the request.

The information to be provided on the application form, includes the following:

• Name, address, contact details, commercial identification details and business activity details/

classification code of the nonresident business

• Name of the authorized person submitting the application form

• Name of relevant tax authority in the applicants’ county of residence

• Period covered by the refund request

• Total amount of refund

• International bank account details

Refund of VAT to tourists.

Tourists to Bahrain may claim a refund of the VAT paid on purchases

made within the country. “Tourist” means any natural person (above 18 years old of age) who is

not a resident in any of the Implementing States and who is not a crew member of a flight or

aircraft leaving Bahrain. Therefore, under the current rules, all GCC nationals are eligible for the

scheme (exception being Bahraini citizens not residing outside of Bahrain).

VAT can be reclaimed at a dedicated desk located in Bahrain International Airport.

Payments may be refunded by cash or card through an integrated electronic system facilitated by

the global payment operator, Planet.

Merchants opting to register for the scheme may do so by visiting Planet’s registration portal and

providing the required details.

VAT refund eligibility criteria is as follows:

• The goods are purchased during the tourist’s stay in Bahrain

• The purchased goods fall under the list of goods eligible for VAT refunds and are acquired for

personal use

• The goods are purchased from one of the authorized merchants registered for the scheme

• The tourist leaves Bahrain within two months from the date of supply of the goods

• The minimum purchase amount is BHD100, including VAT

Export validation requirements at the airport are as follows:

• Sales receipt with the VAT refund tag affixed to the back

• Purchased goods

• Passport

• Travel ticket

168 bA h r A i n , Ki n g do m o f

List of goods eligible for VAT refunds includes all goods subject to VAT except for:

• Fully or partly consumed goods

• Motor vehicles, boats and aircraft

• Goods that are not accompanied by the tourist at the time of leaving Bahrain

H. Invoicing

VAT invoices.

A taxable person must issue a VAT invoice when it makes a supply of goods or

services, including zero-rated, exempt and deemed supplies, or when it receives full or part of the

consideration prior to the date of supply. A VAT invoice should be issued for supplies made to

both resident and nonresident persons. The taxable person must issue a VAT invoice no later than

the 15th day of the month following the month in which the time of supply takes place.

Taxable persons supplying VAT exempt financial services, remunerated by way of interest or a

margin, may choose not to issue VAT invoices for these services, provided they are able, upon

request of the NBR, to electronically extract and provide the details of their VAT exempt finan

cial services income.

Credit notes.

Where, after the issuance of the VAT invoice, the VAT amount is to be adjusted

(upward or downward) then a VAT debit or credit note should be issued. The VAT debit or

credit note shall be treated as a VAT invoice and should be issued no later than the 15th day of

the month following the month during which the adjustment was done.

Electronic invoicing.

Electronic invoicing is allowed in Bahrain, but not mandatory. The VAT leg-

islation states that approval is required from the NBR to issue tax invoices electronically.

However, it has been communicated by the NBR that a taxable person can issue electronic docu

ments without prior approval if the conditions relating to valid VAT invoices are met and the

taxable person’s computer systems are capable of accounting for VAT on such supplies. This also

applies to credit and debit notes.

At the time of preparing this chapter there are no official electronic invoicing regulations pub

lished in Bahrain. However, Bahrain plans to implement electronic invoicing, but no formal imple-

mentation timeline has been announced yet by the NBR. It is most likely that electronic invoicing

will be implemented in Bahrain in 2023. It is also expected that businesses registered for VAT and

any third parties issuing tax invoices on behalf of other taxable persons will need to comply with

the electronic invoicing requirements, once implemented. The requirements may vary depending

on factors such as nature of business, annual value of supplies, number of transactions. The NBR

may adopt a phased approach with the largest businesses or businesses in certain industries being

required to comply first.

Simplified VAT invoices.

A simplified VAT invoice may be issued where:

• The customer is not registered for VAT purposes in Bahrain

• If the customer is registered and the total consideration does not exceed BHD500 (inclusive of

VAT )

Where a taxable person makes several supplies to the same customer over a period of time not

exceeding one month, it may issue a summarized VAT invoice. The summarized VAT invoice will

be treated as a valid VAT invoice provided that all the requirements of a VAT invoice are met.

A bank statement issued by a bank can be treated as a valid VAT invoice when it contains the

following information:

• Bank name and address

• Bank VAT number

bA h r A i n, Ki n gd o m o f 169

• Customer’s name and address

• Date of issuance of the bank statement

• VAT rate applicable on each supply

• Amount of VAT in respect of each supply

Self-billing.

Self-billing is allowed in Bahrain. A VAT-registered customer may issue a VAT

invoice on behalf of the taxable supplier, subject to fulfilling the below conditions:

• There is a written agreement between the parties for the issuance of VAT invoices by the cus

tomer.

• The supplier undertakes not to issue any VAT invoices in respect of the supplies made.

• A mechanism is put in place to enable the supplier to approve each VAT invoice issued by the

customer on its behalf.

• The VAT invoice clearly shows that it is issued by the customer on behalf of the supplier.

• The customer retains a copy of each VAT invoice it issues on behalf of the supplier.

• The VAT invoice meets all the conditions and requirements stated in the law and the regulations

relating to VAT invoices.

Proof of exports.

Until the implementation of the Electronic Services System across all the GCC

countries, supplies of goods shipped from Bahrain to other GCC implementing states will be

treated as an export of goods, which should be subject to the zero-rate of VAT.

For an export to be subject to VAT at the rate of 0%, all the following conditions must be met:

• The goods must be shipped from Bahrain to a destination outside of Bahrain within 90 days of

their date of supply (the person responsible for shipping the goods can be the supplier, the

purchaser or a third party acting for the supplier or purchaser).

• The goods must not have been changed, used or sold to a third party before leaving Bahrain.

• The supplier must retain the commercial and official documents evidencing the shipment.

These include documentation issued by the Customs Authority to confirm the export, commer-

cial documentation (i.e., to identify the supplier, customer and place of delivery of the goods)

and the transportation documents to evidence delivery of the goods outside of Bahrain.

Foreign currency invoices.

Amounts shown on VAT invoices should be converted to Bahraini dinar

(BHD) in accordance with the exchange rates approved by the Central Bank of Bahrain on the

date of supply.

As part of the transitional measures, if the exchange rate approved by the Central Bank of Bah-

rain is not available, a reliable source of foreign exchange rates should be used. This alternative

exchange rate source should be used consistently until the exchange rates approved by the Cen-

tral Bank of Bahrain are available.

Supplies to nontaxable persons.

There are no specific rules currently in place for invoicing for

supplies to nontaxable persons. As such, normal VAT invoicing rules apply. However, if the con

ditions to issue simplified invoices are met, simplified invoices can be issued for supplies to

nontaxable persons (see the Simplified invoicing subsection above).

Records.

In Bahrain, the records that must be held for VAT purposes include VAT invoices and

accounting books relating to the imports and supply of goods and services in an organized man

ner.

In Bahrain, VAT books and records can be kept outside the country. The only condition is that

the taxable person must provide the NBR in a timely manner with such records, invoices and

accounting books upon its request.

Record retention period. A taxable person must keep the relevant records for a period of five

years after the end of the tax period to which they relate.

170 bA h r A i n , Ki n g do m o f

Records that relate to real estate must be kept for a period of 15 years after the end of the tax

period to which they relate.

Where a taxable person is declared bankrupt or in the event of insolvency, the taxable person’s

legal representative must retain records of such a person for a period of not less than 12 months

from the date on which those proceedings have been finalized.

Electronic archiving. Electronic archiving is allowed in Bahrain. Taxable persons must keep their

documents and records in good condition and free from any damage. The documents may be kept

electronically, subject to the following conditions:

• The records and documents can be easily accessed from the computer system when requested

by the NBR.

• The hard copies of the documentation that support these books and records can be obtained.

• The computer system has sufficient security to ensure the documents cannot be tampered with

or manipulated.

I. Returns and payment

Periodic returns.

The taxable person shall submit a VAT return via the NBR’s online portal no

later than the last day of the month following the end of the tax period. Where there are no trans

actions to be reported in a given tax period, a taxable person should still submit a nil return.

From 1 January 2021, the filing period frequency is as follows:

• Monthly filing – required if the taxable person’s annual supplies exceed BHD3 million

• Quarterly filing – required if the taxable person’s annual supplies do not exceed BHD3 million

Simplified VAT return form. The simplified VAT return can be filed by taxable persons either

monthly , quarterly or annually provided that the below criteria are meet:

• A taxable person that has less than BHD100,000 in total annual supplies;

• A taxable persons that is not part of a VAT group.

Periodic payments.

The taxable person shall pay the net VAT amount due to the NBR, along with

the submitted VAT return, by the due date. Once the VAT return is submitted, the taxable person

should receive a bill from the NBR identifying the net liability.

For resident taxable persons with local bank accounts, the payment should be made via the

Fawateer system or via the eGovernment National Portal. For payment using Fawateer, the fol

lowing payment channels are available:

• Internet banking (e-banking)

• BenefitPay app

• Visiting the bank branch and requesting Fawateer payment.

If the taxable person wishes to make payment by using a debit or credit card, it should visit the

eGovernment National Portal (www.bahrain.bh) and choose “VAT Bill Payment Service.”

At the time of making a VAT payment, the taxable person needs to provide a VAT bill number,

VAT account number and VAT payment amount as it appears on the NBR VAT invoice that is

generated. It is the taxable person’s responsibility to ensure that payments made through any

available payment channels are processed and that the payment receipt is received from the NBR

via email and SMS within the filing period.

For nonresident taxable persons who have no local bank account, the payment can be made from

a foreign bank account. The taxable person would need to directly contact the NBR to obtain the

relevant bank details (they are not published).

Electronic filing.

Electronic filing is mandatory in Bahrain for all taxable persons. All tax returns

should be submitted via the NBR’s online portal by the taxable person or by a person authorized

to do so on behalf of the taxable person (i.e., its agent or its tax representative).

bA h r A i n, Ki n gd o m o f 171

Payments on account.

Payments on account are not required in Bahrain.

Special schemes.

Profit margin scheme. The taxable person, upon obtaining an approval from the

NBR, may account for VAT on the profit margin in respect of the supply of specific goods and

under specific conditions. This regime is not mandatory, and suppliers can elect to use their

margin as the value of their supplies to compute the output tax due.

The following conditions must be met:

• The good to be sold must:

– Be a used good suitable for further use in its current state or after repair

– Be a work of art, artifact or other items of scientific, historical or archaeological interest

• The supplier must:

– Have purchased the good in Bahrain from a nontaxable person (e.g., private individual), from

a taxable person who himself sold the good under the profit margin scheme or from a taxable

person who could not recover the VAT charged on the good

– Not recover any input tax on the incidental expenses related to the acquisition of the good

– Issue and retain the correct documentation

A VAT invoice must be issued for supplies under the profit margin scheme that clearly indi-

cates that the VAT has been imposed using the profit margin scheme but must not show any

VAT amount.

Annual returns.

Annual returns are not required in Bahrain.

Supplementary filings.

No supplementary filings are required in Bahrain.

Correcting errors in previous returns.

If an adjustment is required or an error is found in the details

submitted in a VAT return, it is the responsibility of the taxable person to notify the NBR and

correct the position. Such corrections must occur within the five-year statute of limitations as

prescribed in the VAT law.

Corrections in the VAT return. Errors leading to a misreported net VAT due or refundable of less

than BHD5,000 can be completed as a correction in the VAT return immediately following the

original VAT period.

Self-amendments. For errors exceeding BHD5,000 net VAT due or refundable, or where an error

of less than BHD 5,000 is not corrected in the VAT return immediately following the original

VAT period, the taxable person is required to make a self-amendment of the VAT return in which

the error was originally reported. The self-amendment is performed via the NBR portal and will

substitute the original VAT return. Details as to the reason for the error need to be provided to

the NBR at the time that the self-amendment is made, after which the NBR has the right to

request additional information. Self-amendments may be subject to a penalty.

Digital tax administration.

There are no transactional reporting requirements in Bahrain.

J. Penalties

Penalties for late registration.

The NBR shall issue an administrative penalty assessment to the

taxable person for failure to apply for VAT registration within 60 days from the date of expiry of

the registration period, or from the date of reaching the mandatory registration threshold. The

fine imposed would not exceed BHD10,000. Criminal sanctions can be imposed for a failure to

apply beyond 60 days (see below).

Penalties for late payment and filings.

The NBR may issue an assessment to the taxable person in

cases where it does not submit the VAT return within the filing deadline. The NBR shall base the

assessment on specific facts, documentations and records.

172 bA h r A i n , Ki n g do m o f

The statute of limitations is five years. Generally, no claim for additional tax due can be made

by the NBR after five years from the end of the tax period to which the additional tax due relates

or the tax was wrongfully recovered.

The NBR shall issue an administrative penalty assessment to the taxable person in case of late

filings and errors made on VAT returns. Failure to submit VAT return or to pay the tax due

within a period no more than 60 days from the filing or payment deadline results in administra

tive penalty calculated at a rate between 5%-25% of the value of payable tax or the tax that should

have been declared.

Administrative fines are issued via NBR’s online portal.

Penalties for errors.

A fine not exceeding BHD5,000 shall be imposed on any taxable person

who:

• Prevents or obstructs the employees, or anyone working for the NBR, from performing their

duties and exercising their jurisdiction in supervising, inspecting, controlling, reviewing and

requesting documents

• Fails to notify the NBR of any changes to the data and information relating to the registration

application or the VAT return within the specified deadlines

• Refrains from displaying the tax inclusive prices of the goods and services

• Refrains from providing information or data requested by the NBR

• Fails to comply with the terms and procedures relating to the issuance of a VAT invoice

• Violating any other provision of the VAT law or the regulations

The late notification or failure to notify changes to a taxable person’s VAT registration details to

the tax authorities, may result in a fine of up to BHD5,000. For further details, see the subsection

Changes to VAT registration details above.

Penalties for fraud.

The below violations shall be regarded as tax evasion:

• Failure to apply for VAT registration, exceeding 60 days from the VAT registration deadline

• Failure to submit the VAT return or paying the due tax, exceeding 60 days from the relating

deadline

• Unlawful deduction of input tax as well as the deliberate unlawful claim of VAT refund

• Submission of forged or unreal documents, records or invoices to avoid the payment of tax in

full or in part

• Non-issuance of VAT invoices in respect of taxable supplies or imports of goods or services that

are subject to VAT

• Issuing VAT invoices in respect of nontaxable supplies, that includes a VAT amount

• Failure to maintain records, VAT invoices and accounting books and records relating to imports

or supplies of goods or services in an organized manner

Committing a tax evasion offense could result in imprisonment for a period of between three to

five years, in addition to a fine not less than the tax due and not more than three times of such

tax due. This penalty shall be doubled if the violation is repeated within three years from the date

of issuing the final decision of conviction. The fine is also doubled in case the violation is com

mitted in the name or for the benefit of a legal person. The offender or multiple offenders are

jointly liable for the payment of the tax due.

Appeal process. Once an assessment decision or a penalty decision has been issued by the NBR,

the taxable person may file an appeal against the decision to the VAT Appeals Review Committee

(the committee). An appeal should be submitted to the committee within 30 days from the date

of notification of the NBR decision. The appeal is submitted by email (to appealscommittee@

nbr.gov.bh).

bA h r A i n, Ki n gd o m o f 173

An appeal must contain the following information:

• Taxable person information, commercial registration or trading license details and the reference

number of the NBR decision

• A letter, in Arabic, containing reason(s) and the legal basis for appealing against the NBR deci

sion. An additional copy in English may also be submitted

• The VAT period to which the appeal request relates

• Any supporting documents or information that the committee should consider

• The email address of the appellant and/or their agent or representative, if applicable

To make an appeal, the taxable person is required to pay the following to the NBR:

• The VAT due (where the appeal relates to the decision to impose an amount of VAT)

• The administrative fine (where the appeal relates to the decision to impose an administrative

fine)

• The prescribed fee of BHD50 per decision being appealed

The committee will notify the appellant of any hearing date of the appeal, at least 10 days before

hand. The committee will issue its recommendation on the appeal to the Minister (or its dele-

gate), within 30 days from the date of the submission of the appeal. The Minister (or its delegate)

will then have to approve, amend or cancel the recommendation within 15 days from the receipt

of the recommendation. Where the appellant does not receive any communication from the NBR

within the prescribed period, the appeal shall be considered rejected.

The decision of the committee can also be appealed by submitting an appeal to the competent

court in Bahrain within 60 days from the date of notification of a rejection of the original appeal.

Conciliation in VAT evasion crimes. Conciliation is a potential method to settle a VAT evasion

crime between the NBR and the accused person, outside of the criminal courts. The accused

person should submit a Conciliation Request Form to the NBR, by email (to inspections@nbr.gov.

bh).

The Conciliation Request Form contains the following information:

• Taxable person information, commercial registration or trading license details and the reference

number of the NBR decision

• A statement of the reasons for the conciliation request and any supporting relevant facts and

documents that support the request

A request for conciliation must be submitted before any criminal lawsuit is filed or during the

hearing at the competent court. A request for conciliation cannot be submitted after the final and

conclusive judgment in the criminal lawsuit has been issued.

The NBR will consider the conciliation request and would notify the accused person of either of

the following decisions:

• Acceptance to consider the conciliation request, whereafter the accused person must pay the

required amounts to complete the conciliation procedures within the period set by the NBR

• Rejection to consider the conciliation request, whereafter prosecution of the criminal proceed

ings of the VAT evasion crime will resume

The payments required to be made by the accused person as part of the conciliation process are:

• Payment of the amount of VAT evaded

• Payment of an amount equivalent to the minimum fine for the crime

Personal liability for company officers.

For a natural person, imprisonment for a period of not less

than three years and not exceeding five years; and a fine of not less than the amount of the VAT

due but not exceeding three times this amount may apply. The fine is doubled if the offense is

174 bA h r A i n , Ki n g do m o f

repeated within three years from the date of the final conviction. The offender or multiple offend-

ers are jointly liable for the payment of the VAT due.

For a legal person, without prejudice to the criminal responsibility of a natural person, a legal per-

son is subject to double the maximum fine applicable to a natural person if a VAT evasion crime

is committed in their name, on their behalf or for their benefit.

Statute of limitations.

The statute of limitations in Bahrain is five years. No claim for additional

VAT can be made by the NBR after five years from the end of the VAT period to which the addi

tional VAT relates. No claim for VAT wrongfully recovered can be made by the NBR after five

years from the date the VAT was paid.

The limitation period is interrupted in the following cases:

• The taxable person receives an assessment notice from the NBR

• The taxable person receives a request for payment from the NBR

• The taxable person submits a refund request to the NBR

• VAT Appeals Review Committee dispute

• Any causes of interruption as provided for in the Civil Code.

175

Bangladesh

ey.com/GlobalTaxGuides

Bangladesh GMT +6

Ernst & Young Advisory Services Bangladesh Limited (EYASBL)

Navana Pristine Pavilion

128, Gulshan Avenue

Block # CEN(H)-2, Level-9

Gulshan-2, Dhaka-1212

Bangladesh

Indirect tax contacts

Rakesh Saha +880 17 1323-1867

rak[email protected].com

Rezwan Ali Hyder +880 17 8807-7155

rezwan.a.h[email protected].com

A. At a glance

Name of the tax Value-added tax (VAT) and Supplementary Duty (SD)

Local name Value-added tax (VAT) and Supplementary Duty (SD)

Date introduced 10 July 1991 (revised as of 1 July 2019)

Trading bloc membership Asia-Pacific Trade Agreement (APTA)

South Asia Free Trade Area (SAFTA)

Global System of Trade Preference (GSTP)

SAARC Preferential Trading Arrangement (SAPTA)

Trade Preferential System among the Member States of the

organization of the Islamic Conference (TPS-OIC)

Preferential Trade Agreement Among D-8 Member States

Preferential Trade Agreement Between the People’s Republic

of Bangladesh and the

Royal Government of Bhutan

Administered by National Board of Revenue (NBR)

VAT rates

Standard 15%

Reduced 5%, 7.5%, 10%

Other Zero-rated (0%), specific amount of tax (1.5%, 2%, 2.4% and

4.5% in certain cases)

SD rates

Goods Depends on nature of goods to be imported and supplied

Services Depends on nature of supply and rate also varies

VAT number format 13-digit Electronic Business Identification Number (EBIN) in

numeric (no alphabets and special characters).

VAT return periods Monthly

Thresholds

Registration

Mandatory Exceeds the registration threshold of BDT30 million within a

12-month period, closing at the end of the month preceding

that month; estimated turnover exceeds the registration

176 bA n g l A d e s h

threshold of BDT30 million within the succeeding 12-month

period, beginning at the start of the preceding month

(registration threshold shall not be applicable in case of

establishing Branch Office, Liaison Office or Project Office of

any foreign entity)

Voluntary Option available where there is no mandatory registration

requirement

Deregistration If a person fails to commence economic activity following

registration or closes its economic activity or the economic

activity has been declared as exempt or the annual turnover

falls below registration threshold for two consecutive years

Recovery of VAT by

non-established businesses No

B. Scope of the tax

The VAT and Supplementary Duty Act, 2012 (in short, the VAT Act) is made effective from

1 July 2019 and the same has replaced the erstwhile VAT Act, 1991.

In Bangladesh, there is a unified system of VAT on taxable supply and taxable import of goods

and services. Supply of immovable properties is also covered within the ambit of Bangladesh

VAT laws. Further, the ambit of the supply of services is wide and the same covers any service

other than goods and immovable property. It also includes any grant, assignment, termination or

conferment of right, agreement to perform, refrain from performing an act or accepting a situa

tion or tolerate an act, etc.

Supplementary Duty (DS) applicability has been defined through second schedule of VAT and

SD act in various stages.

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for VAT in every jurisdiction

where it has customers that are not taxable persons. In Bangladesh, no services are subject to the

“use and enjoyment” provisions.

However, under specific circumstances there is a requirement for non-resident suppliers with no

fixed establishment in Bangladesh to register for VAT. See the subsection below Non-established

businesses.

Transfer of a going concern.

Normally the sale of the assets of a VAT-registered or VAT-registrable

business will be subject to VAT at the appropriate rate. However, a transfer of a business as a

going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is

the sale of a business or part of a business capable of separate operation including assets. Where

the sale meets the conditions, the supply is treated as outside the scope of VAT. In Bangladesh,

where a person transfers an establishment in Bangladesh as its running business in the process

of an economic activity, such transfer shall be treated as a single supply and such single supply

shall not be regarded as a supply made in Bangladesh.

Further, the running business establishment must be acquired with an intent to keep the econom-

ic activity going after its sale is affected and the purchaser must fully acquire all that is necessary

for an uninterrupted management of the economic activity thus transferred.

No taxable person shall transfer a running business establishment without making full payment

of all payable taxes and arrear dues. In addition, the respective commissioner may permit a

bA n g l A de s h 177

transfer, if the purchaser submits an unconditional bank guarantee from a scheduled bank for full

payment of all payable tax and arear dues.

Transactions between related parties.

The value of a taxable supply made by a taxable person to

an associate (related parties) shall be the fair market value of such supply, reduced by the tax

fraction of that price, if-

• Such supply is made for no consideration, or for a consideration that is lower than the fair

market value

• Such associate would not be entitled to a credit for all of the input tax arising out of such sup

ply

Fair market value is determined as per VAT and Supplementary Duty (determination of fair mar-

ket value) rules, 2019.

For the transfer of goods between two locations of an entity having centralized VAT registration,

the interunit movement must be under the cover of Form Mushak 6.5.

C. Who is liable

VAT is imposed and payable on the taxable import and taxable supply of goods and services. The

following persons are liable to pay VAT:

• For taxable import – the importer

• For any taxable supply in Bangladesh – the supplier

• For taxable supply of imported services – the recipient of such supply

• For any other cases – supplier or the recipient of supply

VAT registration is required for:

• A person whose turnover exceeds the registration threshold of BDT30 million within a 12-month

period, closing at the end of the month preceding that month

• A person whose estimated turnover exceeds the registration threshold of BDT30 million with-

in the succeeding 12-month period, beginning at the start of the preceding month

Further, VAT registration is mandatory for the following persons irrespective of turnover who:

• Supplies, manufactures or imports goods or services subject to Supplementary Duty in Bangla-

desh

• Supplies goods or services or both by participating in any tender or against any agreement or

work order

• Is engaged in export-import business

• Establishes Branch Office, Liaison Office or Project Office of any foreign entity

• Is appointed as VAT agent

• Is engaged in the economic activity relating to the supply, manufacture or import of any spe

cific goods or services or in any specified geographical areas as may be prescribed by NBR

Further, in terms of General Order 17/VAT/2019 dated 17 July 2019 (“GO 17”), mandatory VAT

registration (i.e., irrespective of turnover) is required for supply of specified categories of goods

and services.

“Person” means any natural person and also includes the following entities, namely:

• A company

• An association of persons

• A government entity

• A foreign government or a department designated, or any official appointed by it

• An inter-state or international organization

• A joint venture for property development or any other similar initiative

• Other business organization

178 bA n g l A d e s h

Further, “association of persons” means any partnership, trust or any similar association of per-

sons, but does not include any company or unincorporated joint venture.

Exemption from registration.

The VAT law in Bangladesh does not contain any provision for exemp-

tion from registration.

Voluntary registration and small businesses.

Any person making a taxable supply and not required

to be registered may apply to register for VAT voluntarily. A person registered voluntarily pays

tax from the first day of the next tax period following the date of registration and must preserve

the required records and accounts.

In terms of section 10 of the VAT Act, a person is required to be enlisted as a turnover tax

taxpayer in case its turnover exceeds, at the end of any quarter of a 12-month period, the

enlistment threshold of BDT5 million, but does not exceed the VAT registration threshold of

BDT30 million. Application for such enlistment is to be made within 30 days from end of such

a quarter.

Group registration.

Group VAT registration is not allowed in Bangladesh.

However, a single VAT registration (central registration) can be obtained for multiple business

locations of the same legal entity. Single registration for multiple business locations are permis

sible when all accounts, tax deposit and VAT records are preserved centrally in automated system

through software and such multiple units/business locations are engaged in economic activity

relating to the supply of identical or similar goods or services.

Fixed establishment.

The term “fixed place” is used in Bangladesh instead of “fixed establish-

ment.” A “fixed place” means any of the following places at or through which economic activi-

ties inside or outside Bangladesh are carried on, namely:

• A place of management

• A branch, an office, a factory or a workshop

• A mine, a gas well, a quarry for extraction of stones or any other similar mineral resource

• A location of any construction or installation project

Accordingly, any supply made by a nonresident carrying on an economic activity from or through

a fixed place in Bangladesh shall be treated to be made in Bangladesh. Further, any supply made

by a resident shall be treated to be made in Bangladesh.

Non-established businesses.

The following supplies, inter alia, made by a nonresident without

having any fixed place are treated as being made within Bangladesh:

(a) Any supply made by the nonresident:

– In relation to an immovable property and the land attached to it situates in Bangladesh

– In relation to goods that is transferred, conferred, installed or assembled in Bangladesh

(b) Certain specific supplies made by nonresidents to a VAT unregistered person in Bangladesh,

such as:

(i) The services are physically provided in Bangladesh by the service provider staying in

Bangladesh at the time of supply

(ii) The services are directly related to land located in Bangladesh

(iii) The services are radio or television broadcasting, or telecasting services received at an

address in Bangladesh

(iv) The services are electronic services delivered to a person located in Bangladesh at the

time of supply

(v) The supply is of a telecommunications service initiated by a person located in

Bangladesh at the time of supply, other than a telecommunications supplier or a person

who is a global-roaming person temporarily staying in Bangladesh

Tax representatives.

For specific scenarios, nonresident businesses not having any fixed place of

business in Bangladesh are required to register for VAT in Bangladesh through a local VAT agent.

bA n g l A de s h 179

In such case, VAT compliance will be ensured by such local VAT agents. Whereas the nonresident

is responsible for payment of all dues including taxes, fines, penalties and interest.

Further, any person (having license) may be appointed for providing advice to a taxable person

or for representing it in any proceeding.

Reverse charge.

In case of import of services, the recipient of the service is liable to pay VAT if

(i) the recipient is a registered or registrable person and acquires such service in the process of

economic activities and (ii) if such service is provided in Bangladesh in the process of an eco

nomic activity by a person registered/required to be registered and such service is taxable at a

rate other than zero-rated. “Imported service” has been defined to mean service supplied from

outside of Bangladesh.

In case of import of services by a VAT-registered service recipient, VAT is payable by the service

recipient. There is a requirement under the VAT law by which the bank/financial institution

remitting payment to the foreign service provider is required to collect VAT if the VAT-registered

service recipient (i.e., the remitter) does not submit proof of payment of VAT to the government

treasury on such payment.

In case of import of services by a VAT-unregistered service recipient – the bank/financial institu

tion remitting payment to foreign service provider is required to collect VAT before such remit-

tance.

Domestic reverse charge.

In case of certain services (like payment of rent for properties), the

recipient of the service is required to deposit VAT.

Digital economy.

Nonresidents providing electronic services to VAT-unregistered customers in Ban-

gladesh (i.e., business-to-consumer (B2C) supplies) are required to register and account for VAT

on their supplies in Bangladesh.

Nonresidents providing electronic services to VAT-registered recipients (i.e., business-to-busi

ness (B2B) supplies) are not required to register and account for VAT in Bangladesh. Instead, the

customer is required to self-account for the VAT by way of the reverse-charge mechanism (see

the Reverse-charge subsection above).

There is no specified VAT rate for supplies of electronic services. The VAT rate depends on the

particular service being supplied, and no specific clarifications have been issued by the National

Board of Revenue to date.

An electronic service is defined to mean the following services, when provided or delivered on

or through a telecommunications network, a local or global information network, or similar means,

namely:

(a) Websites, web-hosting or remote maintenance of programs and equipment

(b) Software and the updating thereof delivered remotely

(d) Access to databases

(e) Self-education packages

(f) Music, films and games

(g) Political, cultural, artistic, sporting, scientific and entertainment broadcasts and telecasts and

events, including telecasts

There are no other specific e-commerce rules for imported goods in Bangladesh.

Online marketplaces and platforms. “Online sale of goods” is defined as the means to sale and

purchase of goods and services using an electronic network that have been previously supplied

by any manufacturer or service provider or trader on payment of VAT and has no sales center in

Bangladesh. Such services are subject to the reduced rate of VAT at the rate of 5%. The process

180 bA n g l A d e s h

of collection of VAT has been outlined by an explanation letter, issued by National Board of

Revenue.

Registration procedures.

Every person required to be registered under VAT is required to make

an online application with requisite documents. The only method to apply for VAT registration in

Bangladesh is online. If the tax officials find the application proper after primary verification, a

VAT Registration Certificate is issued, which contains a Business Identification Number (BIN/

VAT registration number). However, registrations for nonresidents are required to be made through

a local VAT agent.

The list of documents required in the VAT registration application is as follows:

• Copy of ETIN certificate

• Copy of NID/passport of all authorized signatories

• Copy of NID/passport of all share holders

• Copy of latest bank statements (for all bank accounts to be reported at the time of EBIN regis

tration)

• Copy of trade license and certificate of incorporation

• Copy of import registration certificate (IRC) (in case of import)

• Copy of export registration certificate (ERC) (in case of export)

• Copy of old BIN (11 digits) (in applicable cases)

• Copy of BIDA/BEPZA/BEZA/BSCIC registration (for industrial undertaking)

Deregistration.

A registered person may apply for cancellation of VAT registration (deregistra-

tion) for the following reasons:

• Failure to commence economic activity after registration

• Closure of economic activity

• Economic activity has been declared as exempted

• Annual turnover falls below the limit of registration for two consecutive years

For the purpose of deregistration, an application is required to be made before the VAT Depart-

ment. No specific time limit is prescribed for the filing of an application for cancellation of VAT

registration.

Changes to VAT registration details.

Every registered or enlisted person must‚ in respect of any

change in the following areas relating to its economic activity‚ inform the Commissioner within

such time and in such manner as may be prescribed‚ namely:

• A change in the name of such person or the type of business‚ including the name of the business

or any other commercial name

• A change in the address or any other contact details of such person

• A change in the places of its economic activity

• A change in information relating to any bank account of such person

• A change in the nature of one or more of the economic activities carried on by such person

• A change in ownership or partnership

• Any other prescribed change

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of

VAT, including the zero rate.

The VAT rates are:

• Standard rate: 15%

• Reduced rates: 5%, 7.5%, 10%

• Zero-rate: 0%

• Specific amount of tax: 1.5%, 2%, 2.4% and 4.5% in certain cases

bA n g l A de s h 181

The standard rate of VAT applies to all supplies of goods or services unless a specific measure

provides for a reduced rate, the zero rate or an exemption or for any other rates mentioned above.

Examples of goods and services taxable at 0%

• Immovable property situated outside Bangladesh

• Goods for export

• Services directly related to land situated outside Bangladesh

• Services physically carried out on goods situated outside Bangladesh

• Services included in the customs value of an imported goods

• Supply of service outside Bangladesh

Examples of goods and services taxable at 5% rate

• Specified fruits juice (mango, pineapple, guava and tamarind)

• Pickles

• Information technology-enabled services (ITES)

• Internet service

Examples of goods and services taxable at 7.5% rate

• Packing paper

• Self-copy paper

• Non-AC hotel

• Construction firm

Examples of goods and services taxable at 10% rate

• Electric poles

• Repair and servicing

• Transport contractor (except petroleum goods)

• Printing press

The term “fixed VAT amount or specific amount of tax is fixed on unit basis and not on sale value.

Examples of goods and services taxable at fixed VAT amount or specific amount of tax

• Newsprint

• Brick chips

• SIM card supplier

The term “exempt” refers to supplies of goods and services that are not liable to tax and that do

not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Prescribed basic food items for human consumption

• Supply of unprocessed agricultural, horticultural or piscicultural products, if the supplier is the

producer of the goods

• Public health and medical services provided by a government entity or by private bodies

• Sale of land or transfer and its registration

Option to tax for exempt supplies.

The option to tax exempt supplies is not available in Bangla-

desh.

E. Time of supply

The time of supply for goods is the time when the possession of goods is conferred, or they are

removed.

For services, the time of supply is the time when the services are rendered, generated, transferred

or assigned.

182 bA n g l A d e s h

For immovable property, the time of supply is the time when the property is delivered, created,

transferred or assigned.

The VAT imposed on a taxable supply becomes payable at the time when any of the following

activities first occurs:

(a) When such supply is made

(b) When a tax invoice for such supply is issued

(d) When any supply is used personally or given to others for use

Deposits and prepayments.

A deposit given in respect of a supply of goods or services, or both,

is not considered as payment made for that supply unless the supplier treats the deposit as con

sideration for the supply since a prepayment for a supply of goods or service triggers a tax pay-

ment.

Continuous supplies of services.

VAT imposed on periodic or progressive supplies becomes pay-

able when any of the following activities occurs first:

(a) When separate invoices are issued for each such supply

(b) When the receivable consideration against each such supply is received in part or in full

Goods sent on approval for sale or return. There are no specific time of supply rules in Bangla-

desh for goods sent on approval for sale or return. As such, the normal time of supply rules apply.

Reverse-charge services.

There are no specific time of supply rules in Bangladesh for reverse-

charge services. However, it is prescribed that in case of import of services, the bank or any other

financial institution used as a medium for making the payment must collect the VAT payable

while making payment of the value of service. Thus, effectively, VAT is paid at the stage of pay

ment to foreign suppliers of services.

Leased assets.

For the supply of leased assets (i.e., lay by agreements, where consideration for

any supply is paid in more than one installment), the time of supply is when each installment/

rental is paid. As such separate tax invoices must be issued for each instalment/rental and the

output tax is payable on such invoices. There is no separate or specific provision depending on

the nature of lease.

Imported goods.

VAT is levied at the time of importation for imported goods (unless otherwise

exempted through first schedule or a statutory regulatory order (SRO), i.e., a government notifi

cation issued by NBR) and they are collected at the same time and in the same manner as customs

duty, even if import duty is not impossible on such import.

Advance tax.

Advance tax is payable at the time of import of goods, along with customs duties

and taxes. The rate of advance tax is 3% for manufacturer (subject to fulfillment of certain con

ditions) and other than manufacturer is 5%. Advance tax payable at the stage of import is avail-

able for setoff against the output tax payable on the subsequent domestic supply.

F. Recovery of VAT by taxable persons

A registered person is entitled to take input tax credit of VAT charged on goods or services pro-

cured by it, provided the goods or services are procured in the course of such person’s economic

activity and qualify as “input.” In addition, a taxable person shall be entitled to an input tax

credit if related to a taxable supply where output tax is 15% or export.

bA n g l A de s h 183

“Input” has been defined to mean all sorts of raw materials, laboratory reagent, laboratory equip-

ment, laboratory accessories, any substance used as fuel, packing materials, services, machinery

and spares; but the following goods and services shall not be considered as inputs:

• Labor, land, structure, office equipment and fixture, construction, balancing, modernization,

replacement, expansion, repair and renovation of any building or structure or establishment

• Purchase and repair of all kinds of furniture, office supply, stationary items, refrigerator and

freezer, air conditioner, fan, lighting equipment and generator

• Interior design, architectural plan and drawing

• Rent or lease of vehicles

• Travel, entertainment, staff welfare, development works, and goods and services related to

these

• Rent of premises, office, showroom or similar place of business establishments in whatever

name it be called

Provided that in respect of the operation of a business by a “trader,” services or goods imported,

purchased, acquired or collected in any other means for the purpose of sale, exchange or hando

ver in any other way shall be considered as “input.”

The time limit for a taxable person to reclaim input tax in Bangladesh is in the month of purchase

or in the subsequent four months.

For the importation of goods, bill of entry is the mandatory documents for claiming input tax

credit. For the import of services, a treasury challan (government form) is the mandatory docu

ment for claiming input tax credit. For purchasing of goods locally, tax invoice (VAT-6.3) is the

mandatory document for claiming input tax credit.

Availability of input tax credit is subject to conditions prescribed under the law. Some of such

important conditions are mentioned below:

• Claim of credit is required to be made in that respective tax period when the inputs have been

collected or purchased or within four succeeding tax periods

• Input tax credit is not available for turnover tax paid under the purview of turnover tax

• Input tax credit is not available on goods or services if not recorded in a purchase register or in

purchase-sales register and not declared in the input-output coefficient

• Value of supplies exceeding BDT0.1 million must be made through banking channel or mobile

banking channel only

• Excess input tax credit is not allowed if a new input-output coefficient is not submitted where

change in value of inputs is beyond 7.5%

• Input tax credit is not available when goods or services are supplied at a lower rate than that of

the input

Nondeductible input tax.

Input tax credit is not available in the following cases:

• VAT paid on input shall be taken as credit by any registered person in case of supply of zero

rated under export and standard-rated goods and services only. For supply of reduced rated or

specific amount of tax or exempted goods or services, VAT shall not be taken as input tax

credit.

• When the tax invoice does not contain all requisite information such as name, address and reg-

istration number of both the buyer and the seller

• Any of the specified condition (maintenance of registers, payment through banks, etc.) are not

complied with

• Purchase of goods or services that don’t qualify as input as per definition of input/some goods

or services are excluded from definition of input and hence not eligible for input tax credit

184 bA n g l A d e s h

Further, input tax credit is also not permissible for certain procurements specified under the law.

Examples of such procurement specifically not eligible for input tax credit is given below.

Examples of items for which input tax is nondeductible

• Passenger vehicle or its spare parts or repairs and maintenance of such vehicle. Input tax

credit may be allowed when the economic activities of such person include dealing in vehicles,

renting them out or supplying transportation services

• Entertainment or costs used for the provision of entertainment. Input tax credit may be allowed

when provision of entertainment relates to such person’s economic activities and the entertain

ment is provided in the normal course of its economic activities

• Membership or right of entry in a club, association or society of a sporting, social or recre

ational nature

• Input tax credit up to 80% is allowed on transportation of goods

Examples of items for which input tax credit is allowed

(if related to a taxable business use where output VAT is 15% or 0% under export)

• Imported goods for the purpose of resale or manufacture

• Locally purchased goods for the purpose of resale or manufacture

Partial exemption.

Where a registered person pays or is liable to pay a part of the consideration

for a taxable supply, any input tax credit to which the person is entitled must be calculated on the

basis of the amount of the consideration such person pays or is liable to pay.

VAT paid on input shall be taken as credit by any registered person in case of supply of zero rated

under export and standard rated goods and services only. For supply of reduced rated or specific

amount of tax or exempted goods or services, VAT shall not be taken as input tax credit.

If a registered person is not entitled to input tax credit in full, its entitlement to it against its total

imports and acquisitions must be calculated proportionately based on a formula (IxT/A) where I

is the input tax originating from imports and acquisitions; T is the value of all taxable supply

given by any registered person registered on any tax period; and A is the value of all supply given

by any registered person registered on any tax period.

Approval from the tax authorities is not required to use the partial exemption standard method in

Bangladesh (i.e., the above formula for input tax credit). Special methods are not allowed in

Bangladesh at present, except in cases where the NBR has the power to determine special proce

dure for taking input tax credit against a taxable supply made by a supplier of financial services.

Capital goods.

Capital goods have not been defined under the VAT regulations. Thus, input tax

rebate for capital goods can be claimed under the normal input tax recovery rules (as outlined

above).

Refunds.

If in a tax period, the sum of input tax and the receivable decreasing adjustments exceeds

the sum of output tax, supplementary duty and increasing adjustments, the excess amount of

money shall be carried forward and shall be deducted over the following six tax periods, after

which any remaining excess money shall be refunded. Further, such refund is permissible on a

monthly basis (i.e., without carry forward for six months) subject to the following:

(a) 50% or more of such person’s turnover is or will be derived from zero-rated supplies

(b) 50% or more of such person’s expenditure on inputs is on imports or acquisitions used in the

manufacture of zero-rated supplies

ity regularly results in excess input tax credits

Withholding VAT. The following entities, defined as “withholding entity,” are required to deduct

VAT at source (VDS), while making payment to vendors:

• A government entity

bA n g l A de s h 185

• A nongovernment organization approved by the NGO Affairs Bureau or the Directorate-Gen-

eral of Social Welfare

• A bank, insurance company or a similar financial institution

• Any secondary or post-secondary educational institution

• Any limited company

For procurement of goods: VDS is applicable except where (1) manufacturer issues tax invoice

with 15% VAT or reduced rate of VAT or specific amount of tax and (2) any supplier issues tax

invoice with 15% VAT subject to submission to the recipient of supply the certificate for regular

submission of VAT return or VAT Honor Card for the last financial year, received from Integrated

VAT Administration System (IVAS) or from respective Divisional Officer, as the case may be.

For procurement of services: a list of 43 services has been prescribed for mandatory VAT deduc

tion at source as per prescribed rates.

Irrespective of whether the person is VAT registered or not, VDS is required to be deposited

within 7 days of end of relevant tax period.

Pre-registration costs.

Input tax incurred on pre-registration costs in Bangladesh is not recover-

able.

Bad debts.

In case partial or full amount of a supply remains unpaid for a period more than

12 months, the supplier can claim adjustment of corresponding VAT with prior to approval of the

tax authorities, subject to reduction in corresponding input tax credit claim by the recipient of

supply.

Noneconomic activities.

Input tax incurred on purchases that are used for noneconomic activities

is not recoverable in Bangladesh.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Bangladesh is

not recoverable.

H. Invoicing

VAT invoices.

Every registered or enlisted person must issue, on or before the date when VAT

becomes payable on the taxable supply, a fiscal-year-wise serially numbered tax invoice as pre

scribed (Mushak 6.3 or Mushak 6.9, respectively). Tax invoices must accompany goods during

transportation. No input tax credit shall be admissible against a tax invoice if the information

specified is not included in such invoice. An enlisted person must issue a serially numbered

turnover tax invoice. The NBR, through an order in the official gazette, can declare an invoice or

bill issued by a registered person in its own format to be treated as a tax invoice.

Credit notes.

Credit notes mean a supplementary invoice based on which the registered person

can make a decreasing adjustment of one or more than one invoice issued earlier that is related

to the amendment. A debit note means a supplementary invoice based on which the registered

person can make increasing adjustment of one or more than one invoice issued earlier that is

related to the amendment.

Electronic invoicing.

Electronic invoicing is not allowed in Bangladesh. Invoices are required to

be issued in printed form. There are two types of invoices, one is commercial invoice issued by

an entity against supply of any goods or services and the other is tax invoice. VAT records can

be maintained manually or through software in applicable cases. Where it is maintained through

software, tax invoice is generated electronically and might be sent through mail for internal

purpose only. But to take input tax credit, printed signed copy is required. Further, during trans

portation of goods, supplied by any VAT registered entity, original signed copy of tax invoice

186 bA n g l A d e s h

must accompany with the vehicle. In such case where VAT records are maintained through soft-

ware, tax invoice must be printed and signed to accompany the vehicle.

Categorized entities (specified suppliers situated in city corporation areas or in district cities or

selected suppliers by the respective Customs, Excise and VAT Commissionerate) with annual

turnover more that BDT5 million are required to use an electronic fiscal device (EFD) or sales

data controller (SDC) or point-of-sale (POS) software. Some of the specified or selected suppli

ers required to use EFD/SDC/POS are as follows:

• Residential hotel

• Restaurant and fast-food shop

• Advertisement agency

• Jewelry shop

• Health club and fitness center

• Coaching center

• Department store

• General store/supershop

• Cinema hall

• Courier and express mail service

Simplified VAT invoices.

Simplified VAT invoicing is not allowed in Bangladesh. As such, full VAT

invoices are required. However, the NBR, through an order in the official gazette, can declare an

invoice or bill issued by a registered person in its own format to be treated as a tax invoice.

Self-billing.

Self-billing is not allowed in Bangladesh.

Proof of exports.

Supply of goods from inside to outside the geographical limits of Bangladesh

is considered export of goods. In case of export of goods, the following would serve as proof of

export:

• Copy of bill of lading or airway bill or truck receipt

• Copy of export general manifest

• Copy of proceeds realization certificate

Export of service outside Bangladesh is zero-rated. To substantiate the same, a taxable person

must analyze whether its supply can be classified as export of service. There is no standard pre

scribed document as proof of export for services. However, agreement with the foreign service

recipient, availability of the invoice and proof of receipt of foreign currency would be critical

documents, which may be required depending on the scenario.

Foreign currency invoices.

As per the prescribed format of VAT invoice, price, value and taxes

must be reported in the domestic currency, which is the Bangladeshi taka (BDT). Hence, the

invoices should report the BDT values. Values in a foreign currency may also be reported in the

invoice, as incorporation of any additional information on a tax invoice is permissible.

Supplies to nontaxable persons.

A VAT-registered person is required to issue a full tax invoice in

all cases and there is no specific provision for tax invoices for supplies to non-registered persons.

Records.

Businesses must keep all accounts and records so as to facilitate assessment of their tax

liability and other obligations. The format of some of the records are prescribed under the law.

In Bangladesh, examples of what records that must be held for VAT purposes include:

• Books of accounts for purchase

• Books of accounts for sale

• Books of accounts for purchase – sale (for trading kind of activity)

• Tax invoice

• Invoice for contractual manufacturing

• Invoice for transfer of goods

bA n g l A de s h 187

• Certificate for tax deduction at source

• Credit note and debit note

In Bangladesh, VAT books and records can be kept outside of the country. Where records are kept

in hard copy, such records should be held at the taxable person’s registered address. VAT records

and accounts have to be preserved in the registered premise or premises on fiscal year basis in

such a way that those are not destroyed, and they can be examined any time with ease. Further,

any taxable person with a turnover of BDT50 million or more, must maintain VAT records and

accounts through software, specified or approved by NBR. This is provided that the electronic

information must be preserved with proper security in such a way so that those can be easily

used.

Where records are kept electronically (using VAT software as prescribed by the General Order),

the system must be managed with all information at the commercial premises of the taxable

person. If a cloud server is used, then a database replica must be preserved in the commercial

premises of the taxable person.

Record retention period. Every taxable person must maintain and keep VAT records for a period

of five years. Provided that for any unfinished proceedings, VAT records are to be preserved till

disposal of the proceedings.

Electronic archiving. Electronic archiving is allowed in Bangladesh. However, it is only allowed

by using approved VAT software. Also the electronic information must be preserved with proper

security in such a way so that those can be easily used. If the turnover of a registered person is

more than BDT50 million or for taking central VAT registration, accounts and records should be

maintained in the software from enlisted vendors. A person can also get their own software

approved from the VAT Department for such purposes. Separate guideline is issued by NBR for

such software.

I. Returns and payment

Periodic returns.

Every registered or enlisted person must file the return for each tax period

within a period not exceeding 15 days after the end of the tax period. If a VAT return filing due

date is a public holiday, the next working day is to be considered as the due date. The NBR has

powers to extend the due date of a VAT return filing to avoid fine and interest in the case of

natural calamities, epidemic or pandemic. The tax period in case of a VAT-registered person is

one calendar month and for a turnover taxable person is three calendar months ending on

31 March, 30 June, 30 September or 31 December. A taxable person may file an application with

the Commissioner to grant permission to file an amended return after removing the clerical

mistakes and omissions from such return. Further, there are provisions for submission of late

return subject to submission of prayer within the specified time and following the terms and

conditions mentioned in the VAT act.

Periodic payments.

Payment of VAT must be made on a monthly basis for every taxable person.

Net payable VAT is required to be made on or before submission of monthly VAT return of the

respective month, i.e., 15th day of the subsequent month. However, payment of VDS is required

to be made within seven days of next tax period of the respective tax period. Turnover tax must

be paid by the enlisted person before filing the quarterly return for the tax period. Payment of

VAT of an amount of BDT5 million or above must be made through online (Automated challan)

or through electronic means (e-payment).

Electronic filing.

Electronic filing is allowed in Bangladesh. Presently, the VAT-registered entity

has the option to file a VAT return manually, as well as electronically. Electronic VAT returns

must be submitted on the online portal of the government using the credentials of company (log-

in ID and password).

188 bA n g l A d e s h

Payments on account.

Payments on account are not required in Bangladesh.

Special schemes.

Turnover tax. Small businesses with annual turnover from BDT5 million to

30 million have the option to pay a flat tax at the rate of 4% on the turnover, known as turnover

tax.

The turnover tax payable in a tax period by any enlisted person must be paid before filing

the return for that period. VAT or turnover tax incurred on purchases by small businesses using

the turnover tax scheme cannot be recovered as input tax.

Annual returns.

Annual returns are not required in Bangladesh.

Supplementary filings.

Invoice-level information. Invoice-level information relating to sales and

local purchase invoices, which are of the value more than BDT2 million, must be filed online in

prescribed form on a monthly basis (Mushak 6.10). Further, in case, online submission of such

information is not feasible, the same must be submitted to the VAT Department in paper form.

Presently, the VAT-registered entity has the option to submit such information manually, as well

as electronically. Electronic submission must be submitted on the online portal of the government

using the credentials of company (log-in ID and password).

Audited financial statements. Any registered limited company must submit audited financial

statements for the preceding year to the Commissioner within six tax periods of the current finan

cial year. Provided that, the Commissioner can, based on an application made by the limited

company, extend the timeline for a further six months, taking into account the logical grounds

for an extension.

Correcting errors in previous returns.

The Commissioner may, on an application made by a tax-

able person within such time, on such terms and in such manner as may be prescribed, grant a

taxable person permission to file an amended return after removing the clerical mistakes and

omissions from such return. The Commissioner may determine the surrounding circumstances

of which a decreasing adjustment may arise as a result of any amendment made under this sec

tion, and returns may be filed without paying monetary penalty.

Digital tax administration.

There are two transactional reporting requirements in Bangladesh. See

the subsection above Supplementary filing.

J. Penalties

Penalties for late registration.

The penalty for not applying for registration or enlistment within

the prescribed time limit is BDT10,000.

Additional penalties and interest will also apply if there

is any evasion of VAT on sales before registration.

Penalties for late payment and filings.

The penalty for not filing the VAT or turnover tax return

within the prescribed time period is BDT5,000. For the late payment of tax, interest may be

charged at a rate of 1% simple interest per month.

Penalties for errors.

An error of not including the output tax in the VAT return may result in a

penalty minimum half and maximum equal to the amount of output tax not included.

An error of claiming more input tax credit than entitled to in the VAT return may result in a pen-

alty minimum half and maximum equal to the amount of input tax irregularly taken.

An error of making incorrect adjustments in the VAT return may result in a penalty minimum

half and maximum equal to the amount of the incorrect adjustment.

If a person fails to pay tax due to mistake or misrepresentation or if there is any tax payable or

takes tax refund or takes excess input tax credit or fails to make proper decreasing/increasing

adjustment and subsequently pays the final tax with interest assessed under the relevant section

of the Act, no penalty shall be imposed on him in such case.

bA n g l A de s h 189

No penalty shall be imposed, if any registered entity fails to submit monthly VAT return during

its operation temporarily closed due to lack of supply and resumes its operation after a certain

period of time.

For any tax payable, interest can be charged for a period of maximum 24 months.

An error of an irregularity related to a tax invoice or credit/debit notes may result in a penalty of

BDT10,000.

Failure to maintain prescribed records may result in a penalty of BDT10,000.

The late notification or failure to notify the tax authorities of changes to a taxable person’s VAT

registration details may result in a penalty of BDT10,000. For further details, please see the

subsection above Changes to VAT registration details.

Penalties for fraud.

The penalty for willingly evading or attempting to evade assessment and pay-

ment of taxes is at minimum half and maximum equal to the amount of taxes evaded.

Personal liability for company officers.

If an offense is committed by any company, every director,

partner, chief executive, manager, secretary, official, employee, representative or VAT agent who

is involved with such offense shall be deemed to have committed such offense unless they prove

that such offense was committed without their knowledge or that they tried their best to prevent

the commission of such offense.

For specified offenses mentioned under the VAT law, punishment with imprisonment for a term

extending to one year or fine equal to amount of tax payable, or both is prescribed. In this rela

tion, section 112 of the VAT and SD Act 2012, covers offenses and punishment relating to false

or misleading statement or description. Further, it has been mentioned in the said section that

whoever dishonestly makes a false or misleading statements or descriptions in any tax document

submitted to any VAT officer shall be punished with imprisonment for a term that may extend to

six months, or with a fine equal to the amount of tax payable, or with both.

Statute of limitations.

The statute of limitations in Bangladesh is five years. The Commissioner

or the appropriate officer shall not make a tax determination, including an amended tax determi

nation, for a tax period at the expiry of five years after such tax period, unless the registered

person performs any act that contravenes specified conditions of the law, such as willful negli

gence or commits fraud in filing returns, evading payment of tax, concealing information, etc.

For 100% export-oriented industries, the statute of limitations is three years. However, for such

industries, the Commissioner cannot demand any tax arrears for any tax period more than three

years before of the concerned tax period.

Further, an application for amendments in a VAT return for any clerical error or more or less tax

paid due to an error in calculation or any other error except forgery, can be submitted within four

years of submission of the relevant return and cannot be amended if the tax authority starts any

audit or inquiry or if the error is discovered in any other manner.

190

Barbados

ey.com/GlobalTaxGuides

Bridgetown GMT -4

Ernst & Young Street address:

Mail address: One Welches

P.O. Box 261 Welches

Bridgetown St. Thomas

Barbados Barbados

Indirect tax contacts

Marilyn Husbands +1 (246) 467-8601

marilyn.husbands@bb.ey.com

La-Tanya Phillips +1 (246) 430-3882

la-tanya.phillips@bb.ey.com

Dipesh Panicker +1 (246) 467-8631

dipesh.panick[email protected]y.com

Denise Brewster +1 (246) 430-3816

denise.brewst[email protected]y.com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Value-added tax (VAT)

Date introduced 1 January 1997

Trading bloc membership Caribbean Community and Common Market (CARICOM)

Administered by Barbados Revenue Authority, VAT Division

VAT rates

Standard 17.5%

Reduced 10%

Other 22%, zero-rated (0%) and exempt

VAT number format XXXXXXXXXXXXX (13 digits)

VAT return periods Bimonthly and monthly

Thresholds

Registration BBD200,000

Recovery of VAT by

non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• The supply of any taxable goods or taxable services by a taxable person (registrant) in Barbados

• The importation of taxable goods from outside Barbados

VAT will generally be imposed on any goods or services supplied locally (or imported) unless

they are specifically exempted by the legislation. Examples of goods and services to which VAT

will apply include clothing, office supplies, furniture, most foodstuffs, commercial rent, profes

sional services, telecommunications services, etc.

bA r bA do s 191

However, as noted below, the VAT legislation provides that certain categories of goods or sevices

may be exempt from VAT or zero-rated (i.e., subject to VAT at 0%).

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, jurisdictions

can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the juris

diction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from

being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a

non-established supplier of the service may be required to register for VAT in that jurisdiction

where it has customers that are not taxable persons. In Barbados the “use and enjoyment” provi

sions (B2B/B2C) apply to services that are supplied by a nonresident who meets the VAT thresh-

old and are utilized in Barbados by a recipient who does not make taxable supplies and as such

are generally deemed to have taken place in Barbados and VAT is applicable.

The supply of a service rendered to an unregistered nonresident person that does not relate to a

service pertaining to real property situated in Barbados and is not consumed, used or enjoyed in

Barbados is zero-rated if the service is provided for consideration in a foreign currency. Where

services pertaining to real estate situated in Barbados are supplied to a nonresident and the ser

vices are not consumed, used or enjoyed in Barbados, the Barbados registrant is required to

charge VAT.

Transfer of a going concern.

Transfer of going concern rules do not apply in Barbados. As such,

VAT applies to all sales of a business or part of a business capable of separate operation includ

ing assets.

Transactions between related parties.

In Barbados, for a transaction between related parties, the

value for VAT purposes is calculated at the open market value of the supply. There is no differ

ence between the supply of goods and services.

C. Who is liable

Barbados VAT law imposes a registration requirement on any person who makes taxable supplies

in Barbados, other than a person whose annual turnover is less than BBD200,000 a year.

In general, any person that begins making taxable supplies in Barbados and expects to exceed the

registration threshold above must apply to the VAT authorities for registration within 21 days

after the date on which taxable supplies are first made.

Where a registrant enters into a contract for the provision of goods or services to the Government

of Barbados, the VAT payable to the registrant in respect of those supplies is paid directly to the

Barbados Revenue Authority by the government accounting officer or authorized person that is

making payment. In such instances, the registrant will receive payment exclusive of the VAT

portion and will not be required to account for the VAT on that supply when filing their VAT

returns for that period.

Exemption from registration.

There are no formal rules that allow an entity that should be regis-

tered for VAT to request that it not be treated as a taxable person. However, in practice, certain

types of entities that are established in Barbados and operate exclusively in the international

sector (e.g., entities that are grandfathered under the previous international business companies

(IBC) Act, SRLs, etc., and entities that currently hold a foreign currency permit. Companies

licensed under the International Business Companies Act) are not required to register for VAT.

Voluntary registration and small businesses.

Entities that carry on taxable activities valued below

the VAT registration threshold (BBD200,000 annually), may apply to be voluntarily registered.

However, such voluntary registration is at the discretion of the Revenue Commissioner.

Group registration.

Group VAT registration is not allowed in Barbados.

192 bA r bA do s

Fixed establishment.

In Barbados, there is no legal definition of a fixed establishment for VAT

purposes. A nonresident business that carries on a taxable activity would be required to register

for VAT purposes if it meets the registration threshold as outlined below.

Non-established businesses.

Non-established businesses, which in Barbados are referred to as

nonresident, non-registrant businesses; are generally not liable to VAT, unless they are making

taxable supplies in Barbados in excess of the registration threshold. However, see the Digital

economy subsection below on special rules for non-established businesses making supplies

online to consumers in Barbados.

Tax representatives.

Tax representatives (known as “tax agents” in Barbados) are required in

Barbados where any taxable person is not resident in Barbados or is absent from Barbados at a

time that would prevent the fulfillment of the person’s VAT obligations. Registrants may also

appoint tax agents to fulfill their VAT filing obligations. Refer to Section J on Personal liability

for company officers.

Reverse charge.

The reverse charge does not apply in Barbados. Where a non-established busi-

ness makes supplies in Barbados, it may be required to become VAT registered in Barbados and

charge VAT on its supplies (see the Non-established businesses subsection above). However, if

the non-established business is not registered or liable to be registered and makes a supply (of

goods that are located in Barbados or services that are physically performed or utilized in

Barbados) to a VAT registrant in Barbados (a business-to-business (B2B) supply) that is acquir

ing the goods or services exclusively for the purposes of making taxable supplies, the supply is

deemed to have taken place outside Barbados (unless the supplier and the recipient agree that the

supply is to be regarded as having taken place in Barbados) and VAT is not charged or accounted

for on the supply.

Domestic reverse charge.

There are no domestic reverse charges in Barbados.

Digital economy.

Barbados enacted legislation to facilitate the collection of VAT on goods and

services purchased online from a vendor outside Barbados, where the goods and services are for

consumption in Barbados. The legislation provides that VAT should be applicable on taxable

supplies sold online by a registrant. For supplies received by Barbados individuals (i.e., nontax

able persons), such supplies are subject to VAT in Barbados when rendered by foreign vendors

where the goods or services are consumed in Barbados (i.e., for business-to-consumer (B2C)

supplies).

The definition of “online” includes the purchase of goods or services by electronic means on the

internet using payment facilities provided by a financial institution or a payment processor or

using any similar means of payment. The party responsible for collecting and paying the VAT is

the supplier of the goods or services.

Nonresidents that provide electronically supplied services (for both B2B and B2C supplies) are

required to register and account for VAT on such supplies made in Barbados. This is a modified

VAT registration meant only to facilitate the payment of the VAT collected on these supplies. The

normal input/output offset rules do not apply. Note that the VAT registration threshold does not

apply. The Barbados tax authorities have indicated that further guidance in respect to the opera

tion of this online regime is being prepared.

There are no other specific e-commerce rules for imported goods in Barbados.

Online marketplaces and platforms. There are no specific rules in Barbados relating to online

marketplaces and platforms other than the online services provision (see the

Digital economy

subsection above).

bA r bA do s 193

Registration procedures.

Taxable persons must register through the Revenue Authority’s new Tax

Administration Management Information System (TAMIS). The registration must be made online

(https://tamis.bra.gov.bb).

Individual taxable persons are required to provide their Barbados identification card upon rereg

istering under the new system. Individual taxable persons and partnerships registering for the

first time need to provide the application for the business name and certificate of registration.

Companies registering for the first time need to provide copies of their incorporation documents,

which would include the following: articles of incorporation, notice of address, notice of direc

tors, request for name search and certificate of incorporation. Where a company was previously

registered under the legacy system and is re-registering under the new TAMIS system, it will also

need to provide the TIN from the previous system. Registrations can typically be approved with-

in five business days.

Deregistration.

An application to cancel registration can be made in writing when the VAT regis-

trant is no longer required to be registered, such as when a company ceases to carry on a taxable

activity or ceases to make taxable supplies.

Changes to VAT registration details.

Tax registrants must notify the Comptroller in writing when

there is a change in the registrant’s status within 21 days after the change.

Changes to VAT registration details include transfer of the ownership of any of the registrant’s

taxable activities; change in the name, address or nature of any of the registrant’s taxable activi

ties; change in the address from which, or the business name in which, any of the registrant’s

taxable activities are carried on; the date on which it ceased to carry on any of its taxable activi

ties; and in the case of an unincorporated body, any change in the officers of the unincorporated

body.

D. Rates

The term “taxable supply” refers to a supply of goods and services that is liable to VAT, including

a supply taxed at the zero rate.

The VAT rates are:

• Standard rate: 17.5%

• Reduced rate: 10%

• Increased rate: 22%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods and services, unless a specific measure

provides for a reduced rate, the zero rate, increased rate or an exemption.

Examples of goods and services taxable at 0%

• Exported goods and services

• A small basket of staple food items

• Prescribed drugs

• Veterinary services

• International cruises

• Imported inputs for manufacturing

The new reduced rate of 10% took effect from 1 January 2020. It was previously 7.5%. This rate

was increased by a policy note issued by the Revenue Authority. At the time of preparing this chap-

ter, the increase has not been legislated but is being applied in practice.

Examples of goods and services taxable at 10%

• Accommodation in guest houses, hotels and inns or similar places, including a dwelling house

normally let or rented for use as a vacation or holiday home, and to direct tourism services.

194 bA r bA do s

Examples of goods and services taxable at 22%

• Mobile services of voice, data and text messaging

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT

and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Financial services

• Medical services

• Residential property sales

• Water and sewerage services

• Public postal services

• Transportation services

Option to tax for exempt supplies.

The option to tax exempt supplies is not available in Barbados.

E. Time of supply

The time when VAT becomes due is called the “time of supply.” In general, the time of supply

for goods and services supplied by a taxable person is the earliest of the following events:

• The date of issuance of the invoice by the supplier

• The date on which payment is received for the supply

• The date on which the goods are made available to the recipient or the services are performed

A taxable person must account for VAT in the VAT period in which the time of supply occurs,

regardless of whether payment is received.

Deposits and prepayments.

Deposits are generally not regarded as consideration for a supply

because they are given merely as security for the performance of an act. However, deposits under

a construction contract are taxable at the time of payment.

Continuous supplies of services.

Where goods are supplied under an agreement resulting in a

change of ownership (e.g., a hire purchase agreement), the time of supply is deemed to be when

the goods are made available to the recipient.

However, services that are provided against a periodic payment are deemed to be supplied at the

earliest of the following events:

• When the particular periodic payment is made

• When the particular periodic payment becomes due

• When an invoice for the particular periodic payment is issued

Goods sent on approval for sale or return.

Where goods are provided on a sale or return basis, the

time of supply is considered to be when the goods are sold. Goods returned to a supplier under

such an arrangement are not considered to have been supplied and no VAT implications should

arise.

Reverse-charge services.

There are no provisions in the Barbados VAT Act relating to reverse

charge. As such, there are no specific time-of-supply rules.

Leased assets.

The lease of assets is considered to be a supply of services and, as such, would be

subject to the time of supply rules mentioned above in respect of continuous supplies.

Imported goods.

VAT is payable on the importation of taxable supplies. It is levied on the sum of

the value of the goods imported and the amount of duties, fees or other charges that are payable

upon the entry of the goods into Barbados.

bA r bA do s 195

F. Recovery of VAT by taxable persons

VAT paid by a registrant is recoverable as input tax if it relates to goods and services acquired

solely for the purposes of making taxable supplies. Input tax is recovered by offsetting it against

output tax (that is, tax charged on supplies made) in the VAT return for each VAT period. If input

tax exceeds output tax in a period, the excess is due to the registrant as a refund.

The time limit for a taxable person to reclaim input tax in Barbados is five years.

Goods or services are deemed to be for the purpose of making taxable supplies if the supplier

acquired, imported or produced the goods or services for either of the following purposes:

• Their supply or resupply as a taxable supply

• Their consumption or use (whether directly or indirectly or wholly or partly) in producing

goods or services for supply as a taxable supply

Nondeductible input tax.

Input tax may not be recovered on purchases of goods and services that

are not used for business purposes.

Examples of items for which input tax is nondeductible

• A personal vehicle

• A portion of the input tax for company vehicles

Examples of items for which input tax is deductible

(if related to a taxable business use)

• Business entertainment

• Travel expenses

• Utilities

• Inventory purchases

• Occupancy costs

Partial exemption.

The Barbados VAT law states that if all supplies made by a taxable person

during a tax period are taxable supplies, the input tax incurred in the period is deductible in full.

However, if some, but not all, of the supplies made by the person during the tax period are taxable

supplies, a partial recovery calculation is required. This measure applies to persons making both

taxable and exempt supplies. Input tax is recoverable on the following basis:

• If all the input tax for the period is directly related to the making of taxable supplies, the VAT

is recoverable in full.

• If none of the input tax for the period is directly related to the making of taxable supplies, no

VAT is recoverable.

• If part or all the input tax for the period is related to the making of both taxable and exempt

supplies, an apportionment calculation must be performed. The amount of recoverable input tax

is calculated based on the ratio of the value of taxable supplies made during the period com

pared to the total value of supplies (taxable plus exempt) made during the period.

• If a taxable person makes no taxable supplies during the tax period, the VAT authorities may

limit the amount recoverable to the amount that they consider to be “fair and reasonable.” How-

ever, this provision is generally not invoked.

Approval from the tax authorities is not required to use the partial exemption standard method in

Barbados. Special methods are not allowed in Barbados.

Capital goods.

Input tax incurred on capital goods (e.g., equipment) acquired for the making of

taxable supplies is deductible. However, there are specific restrictions for certain capital assets,

e.g., motor vehicles.

Input tax incurred on capital goods or assets that are acquired for the making of both taxable and

exempt supplies must be allocated to the respective taxable and exempt supplies on a reasonable

basis. Input tax allocated to exempt supplies is not deductible.

196 bA r bA do s

Refunds.

A refund arises when the amount of input tax recoverable in a taxable period exceeds

the amount of output tax payable. The VAT Act provides that registrants may offset unpaid VAT

refunds owed for a previous period against output tax due for the current period. Under prior law,

refunds were generally paid by check after the submission of the VAT return. If the refund claim

was submitted within the specified time (21 days after the end of the tax period) and the refund

amount remained unpaid after six months, the tax authorities are required to pay interest to the

taxable person on the outstanding balance at a prescribed rate of 1% per month.

Pre-registration costs.

Input tax incurred on pre-registration costs in Barbados is not recoverable.

Bad debts.

A taxable person may claim an output tax deduction for tax they have paid on credit

sales where they have written off the account receivable as a bad debt. This relief is, however,

subject to the following conditions:

• The supply was made to an unrelated party

• The debt was unpaid for at least 12 months

• A return was filed for the period in which the supply was made and the output tax paid

Noneconomic activities.

Input tax incurred on purchases that are used for noneconomic activities

is not recoverable in Barbados.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses that are not registered for VAT in Barbados is

not recoverable.

H. Invoicing

VAT invoices.

A taxable person must provide a tax invoice for all taxable supplies made to regis-

trants. A tax invoice is necessary to support a claim for input tax recovery.

Credit notes.

A credit note or debit note must be issued if the quantity or consideration shown on

a tax invoice is altered. Credit and debit notes must contain broadly the same information as a

tax invoice.

Electronic invoicing.

Electronic invoicing is allowed in Barbados, but not mandatory. There are

currently no separate requirements for the format of electronic invoices.

Simplified VAT invoices.

Simplified VAT invoicing is allowed in Barbados, for transactions under

BRD20.

Self-billing.

Self-billing is not allowed in Barbados.

Proof of exports.

VAT is charged at a rate of 0% on supplies of exported goods. However, to

qualify as zero-rated, exports must be supported by evidence that confirms the goods have left

Barbados.

Foreign currency invoices.

Invoices may be issued in a foreign currency from the domestic one,

the Barbadian dollar (BBD). The currency in which the invoice is issued should be clearly indi

cated on the invoice.

Supplies to nontaxable persons.

Where a registrant makes a supply to a consumer (i.e., a non-

registrant), no VAT invoice is required unless requested by the purchaser.

Records.

In Barbados, examples of what records must be held for VAT purposes include:

• The originals of all tax invoices received, copies of tax invoices issued, pro forma invoices and

certificates of waiver

bA r bA do s 197

• Purchase invoices, including bill and receipts to support expenditures made and a record listing

and summarizing purchase transactions, which may be in the form of a purchase ledger or an

analyzed purchases book for each taxable period

• Sales invoices, receipts issued under Section 9(1) and a record listing and summarizing sales

transactions or BBD20 or more for each taxable period

• Stock records in respect of opening and closing stock for each taxable period and the movement

of stock for the taxable period

• Records of salaries and wages and a summary of supplies made by the person to its employees

and officers

• Record of supplies taken by the registered person for personal use or given free of charge or for

nominal consideration to other persons

• Document setting out all transactions with connected persons other than employees and offi

cers

• Documents relating to the goods imported or exported by a registrant

• Records listing and summarizing cash receipts and cash payments in respect of daily transac

tions

• Records prepared in summary form and known as a “summary statement” containing the infor

mation as set out in the First Schedule to the Regulations

• Any other documents or records related to the business, such as booking records, diaries, cor

respondence, computer printouts audit reports, etc., as the Comptroller may require

In Barbados, VAT books and records can be held outside the country. However, if held outside

the country, records must also be held in Barbados. All records must also be expressed in the

English language and the currency of Barbados, in such a form and containing such information

as will enable taxes to be determined.

Record retention period. Records should be retained until the expiration of seven years after the

end of year to which the records and books of account relate or for such other period as may be

prescribed.

Electronic archiving. Electronic archiving is allowed in Barbados. Records and books of account

can be kept in an electronic format, as long as they are kept in a retrievable format that is easily

accessible by the Comptroller.

I. Returns and payment

Periodic returns.

VAT reporting periods are generally bimonthly, i.e., every two months. However,

the tax authorities may require longer or shorter tax periods if they consider it appropriate.

Returns must be filed by the 21st day of the month following the end of the tax period. Returns

must be filed online using the Barbados Revenue Authority’s TAMIS system. Additionally,

requests may be made to offset refunds from prior years against current VAT liability. However,

it is difficult to determine the time frame in which this will be actioned.

Periodic payments.

Any tax due for the period must be remitted with the return to the Barbados

Revenue Authority, by the 21st day of the month following the end of the tax period. VAT due

may be paid electronically through a wire transfer or using the Government’s platform (eZPay)

or by cash, check or credit card at BRA locations.

Electronic filing.

Electronic filing is mandatory in Barbados for all taxable persons. VAT returns

must be filed electronically, online with the tax authority (https://tamis.bra.gov.bb).

Payments on account.

Payments on account are not required in Barbados.

Special schemes.

Foreign Currency Permit (FCP). Entities that earn 100% of their income in

foreign currency are eligible for a FCP, which allows for certain benefits. Services supplied by

198 bA r bA do s

an FCP to a nonresident person are exempt from VAT, whereas goods imported by an entity with

a FCP would be zero-rated.

Secondhand goods. A supplier of secondhand goods may apply to be registered under the sec

ondhand goods scheme, whereby output tax in respect of a sale of a secondhand good under the

scheme is determined by applying the tax fraction (i.e., 17.5/117.5) to the difference between the

cost price of the item and the selling price of the item (i.e., markup). No output tax will be due

if the item is sold for the same price or a lesser price than what it costs.

Annual returns.

Annual returns are not required in Barbados.

Supplementary filings.

There are no supplementary filings required in Barbados.

Correcting errors in previous returns.

A person who has made an error or omission from prior per-

iodic filings can make amendments to returns online via the TAMIS system. Registrants should

ensure to upload supporting information with respect to the changes in the amended return.

Digital tax administration.

There are no transactional reporting requirements in Barbados.

J. Penalties

Penalties for late registration.

A person who fails to register is compulsorily registered and may

be subject to a penalty not exceeding BBD1,000.

Penalties for late payment and filing.

A late payment penalty of 10% of any output tax due. A

penalty of BBD100 for the late submission of a VAT return. Interest at the rate of 1% of any

outstanding tax and penalty.

Penalties for errors.

There are no specific penalties in Barbados for errors. However, in addition

several other penalties may apply, including the following:

• Failure to display a certificate of registration: BBD1,000

• Failure to notify the tax authorities of changes relating to the registration: BBD1,000

The late notification or failure to notify changes to a taxable person’s VAT registration details to

the tax authorities within the 21-day period would be liable to a penalty not exceeding BBD1,000

as the Comptroller determines. For further details, see the subsection

Changes to VAT registration

details

above.

Penalties for fraud.

Criminal penalties may also apply in certain circumstances, such as in cases

of fraudulent conduct, including the following:

• False statements or omissions in a record, book of account, a return or tax invoice: BBD250

• Issuing false invoices: BBD5,000 or six months imprisonment

• Failure to display VAT prices on goods or services: BBD5,000 and a further penalty of

BBD2,500 for each day or part thereof that the breach continues or three times the value of

goods or services, whichever is the greater

Personal liability for company officers.

Penalties may apply to directors, where a corporation fails

to pay an amount of tax required. The directors of the corporation at the time the corporation was

required to pay the amount are jointly and severally liable, together with the corporation, to pay

that amount and any interest and penalties relating to that outstanding amount.

Penalties and interest would include a late payment penalty of 10% of any output tax due; a

penalty of BBD100 for the late submission of a VAT return and interest at the rate of 1% of any

outstanding tax and penalty.

bA r bA do s 199

Statute of limitations.

The statute of limitations in Barbados is five years. The tax authority may

not issue an assessment of output tax and/or penalties more than five years after the later of:

• The day on which a person filed a return for a period

• The day on or before which the person was required to file a return for the period

However, this limitation period does not apply in specified circumstances, including where there

has been neglect, carelessness, willful default or fraud.

There is no time limit for taxable persons to voluntarily correct errors in previous VAT returns.

200

Belgium

ey.com/GlobalTaxGuides

Brussels GMT +1

De Kleetlaan 2

B-1831 Diegem

Belgium

Indirect tax contacts

Marc Joostens +32 (2) 774-61-58

marc.joostens@be.ey.com

Sofie Van Doninck +32 (3) 270-14-16

sofie.van.doninck@be.ey.com

Antwerp GMT +1

Borsbeeksebrug 26

2600 Berchem

Belgium

Indirect tax contact

Jan Van Moorsel +32 (2) 774-93-77

jan.van.moor[email protected]y.com

Ghent GMT +1

Pauline van Pottelsberghelaan 12

9051 Gent

Belgium

Indirect tax contact

Pascal Vanzieleghem +32 (9) 242-52-16

pascal.vanzieleghem@be.ey.com

A. At a glance

Name of the tax Value-added tax (VAT)

Local names Belasting over de toegevoegde waarde (BTW)

Taxe sur la valeur ajoutée (TVA)

Date introduced 1 January 1971

Trading bloc membership European Union (EU)

Administered by Belgian Ministry of Finance (http://www.minfin.fgov.be)

VAT rates

Standard 21%

Reduced 6%, 12%

Other Zero-rated (0%) and exempt

VAT number format Prefix: BE

10 digits: ZNNN.NNN.NNN

Z = 0 or 1, N = figure from 0 to 9

be l g i u m 201

VAT return periods Monthly for all VAT-registered persons

Quarterly for those whose total annual turnover (VAT exclusive)

does not exceed EUR2.5 million (EUR250,000 for specific

business sector) and whose quarterly intra-EU supplies do not

exceed EUR50,000

Thresholds

Registration

Established None

Non-established None

Distance selling EUR10,000

Intra-Community

acquisitions EUR11,200 (for exempt taxable persons)

Electronically supplied

services EUR10,000 (annual, for EU suppliers)

Recovery of VAT by

non-established businesses Yes

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods or services made in Belgium by a taxable person

• The intra-Community acquisition of goods in Belgium for goods coming from another Member

State by a taxable person (

see the chapter on the EU)

• The importation of goods from outside the EU, regardless of the status of the importer

Special rules apply to intra-Community transactions involving new means of transport (

see the

chapter on the EU

) and to the supply of new buildings and the surrounding building land.

Quick Fixes.

Pending introduction of a “definitive” system for the VAT treatment of intra-Com-

munity supplies of goods to taxable persons, the EU has adopted Quick Fixes for intra-Commu-

nity trade in goods. For an overview of the Quick Fixes rules, see the chapter on the EU. For

documentary requirements see

Section H. Invoicing, subsection Proof of exports and intra-Com-

munity supplies.

Quick Fixes were implemented in Belgium through the law dd. 3 November 2019, implementing

EU Directive 2019/475 and EU Directive 2018/1910, which was published on 13 November

2019 and entered into force on 1 January 2020. The Belgian Government published their com

ments in Circular letter 2020/C/50 of 2 April 2020.

The Belgian Government has taken a pragmatic approach on various points and has provided for

a number of lighter/more flexible rules in its guidelines, such as for example:

• Proof of intra-Community transport: the Belgian VAT legislation foresees that it will be pre

sumed that the goods have been dispatched or transported from Belgium to another EU Mem-

ber State, if the supplier is in the possession of a so-called “destination document” relating to

the dispatched goods, as well as a transport invoice when the transport is performed on behalf

of the supplier. The “destination document” is always to be considered as one of the elements

of the supporting proof of the cross-border transport and never as a “stand-alone” to be suffi

cient.

• Call-off stock simplification: the Belgian VAT authorities accept that the consignor is not

deemed to have performed an intra-Community acquisition of goods in Belgium, in the event

of loss, destruction or theft of goods (even in their totality), if the following cumulative condi

tions are fulfilled:

– There is an entry in the register of the consignor

– The loss, destruction or theft of the goods can be proven to the satisfaction of the Belgian

VAT authorities.

202 be l g i u m

Effective use and enjoyment.

To avoid instances of non-taxation or double taxation, EU Member

States can apply use and enjoyment rules that allow a service that is “used and enjoyed” in the

EU to be taxed or prevent a service that is “used and enjoyed” outside the EU from being taxed.

If a service is taxed in the EU under the use and enjoyment provisions, a non-EU supplier of the

service may be required to register for VAT in every Member State where the service is effective-

ly used/enjoyed.

For the information regarding the rules relating to VAT registration, see the chap-

ters on the respective countries of the EU.

In Belgium, the following services are subject to the “use and enjoyment” provisions:

(1) Transport and connected services carried out outside the EU and invoiced to a Belgian tax

able person are considered as falling outside the scope of Belgian VAT, based on the “use and

enjoyment” rule.

(2) Transport and connected services carried out in Belgium but invoiced to a taxable person

established outside the EU are subject to Belgian VAT, based on the “use and enjoyment”

rule.

Transfer of a going concern.

Based on the transfer of a going concern (TOGC) provision foreseen

in article 19 of the EU VAT Directive 2006/112/EC (transposed in the Belgian VAT code via

articles 11 and 18 § 3), the TOGC of a universality or independent branch of activity, is consid

ered as a transaction outside the scope of Belgian VAT, provided that the following five condi-

tions are simultaneously fulfilled:

• The transfer must relate to a universality of goods or a separate (independent) operating divi

sion, which includes tangible assets and, as the case may be, intangibles assets.

• The assets transferred must allow the transferee to operate the business independently. The

Belgian VAT authorities have confirmed that the intention to operate the business indepen

dently should be examined at the level of the transferee.

• The transferee should have the intention to use the assets transferred for onward business

activities, instead of selling them upon the transfer or ceasing the activity.

• The transferor must be a taxable person.

• The transferee must be a taxable person or become one due to the transfer, who would be

entitled to deduct (at least a part of) the input tax.

Transactions between related parties.

The taxable base amount of a supply of goods or services

between related parties consists of the normal value as defined in article 32 of the Belgian VAT

Code to the extent that:

• The normal value is higher than the consideration agreed upon between parties

• The acquirer of the goods/services does not have a full right to deduct input tax

Special attention is required for supplies of immovable rent where the option to tax was

levied.

C. Who is liable

A taxable person is any business entity or individual that makes taxable supplies of goods or

services or intra-Community acquisitions or distance sales in Belgium.

No VAT registration threshold applies in Belgium. A taxable person that begins activities in Bel-

gium must notify the Belgian VAT authorities by means of form 604A.

Special rules apply to foreign or “non-established businesses.”

Exemption from registration.

Taxable persons established in Belgium are not liable to register for

VAT if they only perform exempted activities not giving rise to a right to deduct input tax.

be l g i u m 203

Taxable persons not established in Belgium and liable to register for VAT on the basis of the Bel-

gian VAT code can be exempted from registration, in some specific cases:

• In some cases, the exemption from VAT registration is mandatory. For example, exemption is

based:

– Either on the nature of the transactions (performance of mere export supplies out of Belgium,

some imports of goods; purchase of goods subject to the VAT-only warehouse regime; etc.)

– Or on the existence of a more favorable regime

– Or on the occasional nature of the operations carried out

• In some other situations, the exemption from VAT registration is not mandatory (e.g., when a

taxable person not established in Belgium (but in another EU Member State) performs output

supplies subject to the general domestic reverse charge and supports deductible input tax for

EUR10,000 per year). In these situations, a taxable person not established in Belgium (but in

another EU Member State) can still apply for a VAT registration in Belgium, if so desired. This

tolerance is currently not foreseen for taxable persons duly established outside the EU.

Voluntary registration and small businesses.

In the following cases, a taxable person that is not

established in Belgium can request a voluntary registration:

• A taxable person (established in the EU or outside EU) performs works in Belgium related to

immovable property for which the Belgian VAT is due by the recipient of the service, in accor

dance with the general reverse-charge rule provided by Article 51, §2,5° of the Belgian VAT

code.

• A taxable person (established in the EU) makes supplies of goods or services (other than

immovable works) on a regular basis in Belgium for which the VAT is due by the recipient of

the supply in accordance with the general reverse charge provided by Article 51, §2,5° of the

Belgian VAT code. This voluntary registration can only be applied when the amount of deduct

ible Belgian input tax reaches or exceed EUR10,000 a year.

Group registration.

VAT grouping is permitted under the Belgian VAT law. VAT grouping is an

option for Belgian businesses and Belgian branch offices of foreign businesses. The option to

create a VAT group is subject to various conditions. Businesses must be financially, economi

cally and organizationally linked with each other in order to form a VAT group. Subsidiaries in

which the parent company owns more than 50% of their share capital must normally be included

in the VAT group if the parent is a member. The VAT group is treated as one single VAT registra

tion.

Specific rules exist regarding VAT adjustments when creating a VAT group. Transactions within

a VAT group are disregarded for VAT purposes. However, in certain cases, these intragroup trans

actions may still be subject to VAT.

The minimum time period required for the duration of VAT group is three years.

All members of a VAT group in Belgium are jointly and severally liable for VAT debts and penal

ties.

Holding companies. In Belgium, a pure holding company cannot be a member of a VAT group.

Only taxable persons with a full, limited or no right of deduction can opt to create a VAT group.

Passive holding companies that are not VAT registered are therefore excluded.

Cost-sharing exemption. The VAT cost-sharing exemption (in accordance with VAT Directive

2006/112/EEC Article 132(1)(f)) has been implemented in Belgium. This provides an option to

exempt support services that the cost-sharing group supplies to its members, providing certain

conditions are met (in accordance with specific requirements laid out in Belgian VAT law).

204 be l g i u m

Please note that as from 1 January 2022, the application of the VAT cost-sharing exemption is

limited to the social sector (health care, cultural sector, etc.). This means that the exemption can

no longer apply anymore in the banking, financial and insurance sectors.

Fixed establishment.

A foreign business is deemed to have a fixed establishment for VAT purpos-

es in Belgium, in the following circumstances:

• The taxable person has a factory, branch, agency, storage facility, office, etc., in Belgium –

excluding construction/work sites.

• The establishment is characterized by a sufficient degree of permanence and a suitable struc

ture in terms of human and technical resources.

• The human and technical resources enable the establishment to supply goods or services on a

regular basis as described in the Belgian VAT code.

Non-established businesses.

A “non-established business” is a business that does not have a seat

of business or a fixed establishment in Belgium. A non-established business that makes supplies

of goods or services in Belgium must register for VAT purposes in one or more of the following

situations:

• Taxable transactions in Belgium for which it is liable to pay the Belgian VAT due

• Intra-Community acquisitions of goods in Belgium

• Intra-Community supplies of goods from Belgium

• Imports of goods, followed by the supply of the same goods

• Certain transactions in connection with a VAT warehouse

• Distance sales in excess of the threshold

Tax representatives.

Businesses that are established in the EU may register for VAT without

appointing a specific VAT representative. However, EU businesses may opt to appoint a tax rep

resentative.

Businesses that are established outside the EU must appoint a resident tax representative to reg

ister for Belgian VAT. However, this is not required with those countries where a mutual assis-

tance agreement has been concluded, such as the case for Norway and temporarily also for the

UK. At the time of preparing this chapter, the agreement with the UK is currently awaiting a final

decision. For further details, see the

Registration procedures below.

The tax representative is jointly and severally liable for VAT debts with the business that it rep

resents.

All non-established businesses must register with:

FOD Financiën|Fiscaliteit|KMO|Centrum Specifieke Materies|Team beheer 1 (BTW) (in Dutch)

Kruidtuinlaan 50 Bus 3410

1000 Brussel

foreigners.team1@minfin.fed.be

SPF Finances|Fiscalité|PME|Centre des Matières Spécifiques|Team gestion 1 (TVA) (in French)

Bd du Jardin Botanique 50 bte 3410

1000 Bruxelles

Please note that the tax authorities also accept e-filing of applications for a Belgian VAT ID

number, and for established companies this is mandatory.

If a complete file has been submitted and no additional questions are raised, it takes approxi

mately four to six weeks for a Belgian VAT ID number to be granted to a foreign business.

In Belgium there is also the concept of “Global VAT Representation” by which the global

representative takes all VAT compliance obligations of the non-established business. This

be l g i u m 205

representation is limited in scope (depending on type of activities carried out by the non-

established business).

Reverse charge.

Under the reverse-charge mechanism, the Belgian recipient of goods or servi-

ces receiving the supplies must account for the Belgian VAT due instead of the non-established

supplier. If this reverse charge applies to all the transactions of a non-established business in

Belgium, it is in principle not possible for the latter to be VAT registered in Belgium, except in

specific cases (for example, an import followed by a local sale subject to the reverse-charge

mechanism). In certain other situations and provided that the conditions are fulfilled, a non-

established business can still opt to register for Belgian VAT purposes.

Domestic reverse charge.

In Belgium, there are two types of reverse charge: (i) a general domes-

tic reverse charge and (ii) a specific domestic reverse charge.

The general domestic reverse charge generally applies to supplies (goods and services) taking

place in Belgium made by non-established businesses to the following:

• Taxable persons established in Belgium that file periodic VAT returns in Belgium (merely hold

ing a Belgian VAT ID number as resident company is hence not sufficient)

• Non-established businesses that are registered for VAT and have appointed an individual fiscal

representative in Belgium

The specific domestic reverse charge applies to supplies of immovable works. The specific

reverse charge applies to supplies of immovable works by a taxable person established in Belgi-

um in the benefit of the following persons:

• Taxable persons established in Belgium that file periodic VAT returns in Belgium

• Non-established businesses that are registered for VAT and have appointed an individual fiscal

representative in Belgium

Digital economy.

Specific VAT rules apply to cross-border supplies of goods and services sold via

the internet (e-commerce) in all EU Member States with effect from 1 July 2021 These new rules

apply to all direct sales to nontaxable persons (in practice these are mostly private individuals),

but we refer to these rules as e-commerce VAT rules because most of these transactions are con

ducted via the internet. In general, the place of supply is in the country of consumption, i.e.,

where the goods are shipped to or where the buyer of the goods or services resides, subject to

any “use and enjoyment” provisions that may override this rule (see

Section B, Effective use and