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18 Oct 2000, Japan

Dear Dr. Ecommerce:

We need to know how to obtain VAT refund.

The scenario: a company outside the EU gets an order for shipping an EU product to a customer in a non-EU country. The Company orders the product from a distributor in an EU-country, e.g. Denmark. The distributor sends it to a the Company's representative in the same EU-country, which re-ships it immediately to the customer outside the EU. The sales invoice goes from the distributor in the EU country to the Company outside EU. (The non-EU-based Company gets paid by the non-EU customer directly for the purchase.)

Does the local EU distributor sell the product to the Company with local VAT? If it does, how can the Company either (i) avoid paying local VAT or (ii) obtain a full refund of the VAT after the goods have been shipped out of the EU-country?

We assume, since the Company sells the product in the non-EU country and pays corporate tax to that non-EU country, the representative office in the EU-country, which just acts as trans-shipper of the product, is exempt for any corporate tax on this business transaction to the EU country in which the representative office is located. This is correct, right?

Looking forward to receiving your response so EU suppliers can increase their export to non-EU based customers.

Regards

Arne

Dear Arne:

If a EU company sells a product to a customer outside the EU, regardless of whether that customer is a business or a consumer, the VAT is zero rated - in other words, 0% VAT is added to the order. If a EU company sells a service to a customer outside the EU, then there is no VAT. It should be noted that the VAT directive defines digitally delivered products, such as software or music downloaded from the World Wide Web as services.

Regarding corporate tax, that is an issue for the country in which the company is incorporated. If the company is a Danish one, then it is subject to Danish laws. I suggest you contact your tax office or an accountant for information on this matter.

All the best,

Dr. Ecommerce

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