VAT Special Scheme

Starting 2015, suppliers must pay VAT in the customer's country of residence when they sell telecommunications, broadcasting and electronically provided services.

If a company sells telecommunications, radio and television broadcasting and electronic services to consumers in the EU, it must either be registered for VAT in the consumer's country or start using the VAT Special Scheme. The company concerned can start using the VAT Special Scheme on a voluntary basis. The scheme is available as of January 2015.

A company that has entered into the VAT Special Scheme in Finland must use the electronic VAT Special Scheme e-service for dealing with its VAT obligations.

The key terms used in this article have the following meanings:

  • consumers refers to all customers or buyers of services who are not businesses
  • company refers to all businesses, including corporate entities and self-employed individuals
  • radio and television broadcasting services are referred to as broadcasting.

Examples of electronically provided services include listening to music over the Web, and downloading video games or music files into a computer or mobile device. However, sales of goods over the Web are not treated as being an electronically provided service although the consumer places an order for the goods in a web store.

When is the Special Scheme applicable?

If a company sells telecommunications, broadcasting and electronic services to consumers in the EU, it may opt for the VAT Special Scheme. However, the scheme is only applicable when the customer is in an EU country where the company has no domicile or fixed establishment.

When is the Special Scheme not applicable?

The VAT Special Scheme is not applicable in some circumstances although the company might be selling telecommunications, broadcasting and electronic services to consumers in EU countries.

If the company has no domicile or fixed establishment in any EU country but has been registered for VAT in one or several EU countries, it cannot enter the VAT Special Scheme.

If the company is unable to use the Scheme, it must obtain a usual VAT registration in all the EU countries where it sells telecommunications, broadcasting and electronic services to consumers.

Finnish company with small-scale operations

It may be that a company must pay VAT to another EU country although it may not be liable to pay VAT in Finland because of its small scale.  In order to opt for the VAT Special Scheme, such companies must become VAT registered in Finland on application. As a result, then it has registered for VAT in the usual way and starts being liable for VAT also for the sales it makes in Finland.

For more information (in Finnish; in Swedish): "VAT exemption of small-scale business" – Vähäinen toiminta on arvonlisäverotonta.

Small-scale operations in other EU countries

A company may have to pay VAT to another EU country although it only has a small-scale operation. For this reason, a company intending to do business must learn the requirements and VAT obligations in force in the Member State of consumption, in other words, in the customer's country of residence.

Check the VAT rules in different EU countries (linkki tähän)

Member State of identification, Member State of consumption, Member State of establishment

Member State of identification is the country where the company enters the VAT Special Scheme.

  • It is required that companies first enter the Special Scheme in the EU country where they have a domicile.
  • If the company has no domicile within the EU territory but is treated as having a fixed establishment in an EU country (or in more than one EU country), it must enter the VAT Special Scheme in such a country.
  • If the company neither has a domicile nor a fixed establishment anywhere in the EU, it may select any EU country as its Member State of identification.

Member State of consumption is where the sales of telecommunications, broadcasting or electronic services has taken place for purposes of VAT place-of-supply rules. The Member State of identification passes on the paid VAT and the company-submitted VAT return to the Member States of consumption.

Member State of consumption

Member State of establishment is an EU country – different from the country being the Member State of identification – where the company that has started using the VAT Special Scheme has a fixed establishment.

Rates of VAT to be applied on different sales transactions

When sales are effected to consumers under the Special Scheme, the VAT rate must be that of the Member State of consumption. For this reason, the company must check the applicable VAT rate on the website of the Member State of consumption.

Websites of tax administrations of different EU countries (linkki tähän)

Registration required before making use of the VAT Special Scheme

The company must submit its registration notice to the Member State of identification before it can start using the VAT Special Scheme. It is filed electronically in the e-service. The Member State of identification informs the company of acceptance or rejection.

The VAT Special Scheme e-service has been made available for the companies that have Finland as their Member State of identification.  Katso identifiers are required for both registration and login as a registered user.

Filing quarterly VAT returns

The return period is the calendar quarter.  The company must use the e-service offered by the Member State of identification in order to submit VAT returns after each period, by the 20th of the month that follows the end of a calendar quarter. VAT return deadlines do not move forward if the scheduled due date falls on a Saturday, Sunday or a public holiday. The company is required to file a VAT return even for the quarters when it has made no sales to any of its Member States of consumption.

Exceptions - VAT Special Scheme cannot be used for all reporting of VAT taxable supply:

  • For services sold by the company from its Member State of establishment to its Member State of identification, the VAT return to use is the ordinary national VAT return of the Member State of identification.
  • Similarly, for services sold inside the Member State of establishment, the VAT return is the national one.
  • For services sold inside the Member State of identification, the VAT return to use is the national VAT return of the Member State of identification.
  • For services that are VAT-exempt in the Member State of consumption, no reporting under the VAT Special Scheme is required, and the company must follow the rules in force in that Member State to report such sales.

In the VAT Special Scheme, the Member State of identification transmits the submitted VAT returns to the Member States of consumption and Member States of establishment.

No input VAT must be reported within the VAT Special Scheme, and the company is not allowed to deduct them from the VAT that is payable for the selling.   If the company has purchased goods or services for its business in the Member State of consumption, it can ask for the input VAT to be refunded as a VAT refund for foreigners in that Member State.

Nevertheless, if the company is registered for VAT in the Member State of consumption but does not have a fixed establishment there (e.g. it pays VAT due to distance selling), it must file the national VAT return of the Member State of consumption in order to report and get deductions for its input VAT.

If the company has purchased goods or services for its business in the Member State of identification, it must report the input VAT on the national VAT return of that Member State.

VAT payments must be made quarterly

The company must settle the payment to the Member State of identification by the due date of the VAT return. The due date does not move forward if it falls on a Saturday, Sunday or a public holiday.

When Finland is the Member State of identification, the currency of VAT payments is the euro.

However, the company must pay the VAT directly to the Member State of consumption, if the latter has demanded payment e.g. if there has been a delay and VAT is overdue.

The Member State of identification transmits the paid VAT to the Member States of consumption.

Consequences of not filing or paying

If the company has not filed a VAT return or not paid a VAT that has fallen due, it gets an electronic reminder message from the Member State of identification. Reminders are sent out once during a calendar quarter.

The country that monitors the company's VAT returns and payments is the Member State of consumption.  It also imposes penalties for negligence, when applicable.

Member States of identification will remove the company from the VAT Special Scheme in e.g. the following circumstances:

  • Member State of identification has sent three reminders to a company that has failed to submit the VAT return for three consecutive quarters, and the company has not submitted the missing VAT returns within 10 days after the reminder was sent.
  • Member State of identification has sent a reminder for an outstanding VAT for three consecutive quarters, and the company has not paid for each of these calendar quarters within 10 days after the reminder was sent.  (However, if the outstanding amount stays below €100 for all the three quarters, the company is not removed from the Special Scheme.)
  • Company has filed a zero return for eight consecutive quarters, in other words, has not reported any VAT to any EU country.

Key terms:

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