TaxTech January 7, 2019
It is not always easy to keep track of all the changes, and therefore, in this TaxTech newsletter, we have outlined the key VAT changes around the world that will be implemented in 2019 and later, and some additional changes that were proposed in 2018 but have not been finalized yet.
Angola will be introducing a VAT system, replacing the current consumption tax. The envisaged implementation date is July 1, 2019. The current consumption tax rate is 10%, but it is not clear yet if the new VAT rate will also be 10%.
Liberia also announced that it will be introducing VAT. Details and dates are unknown at this moment.
South Africa increased its standard VAT rate from 14% to 15% on April 1, 2018. During 2018 there have been several discussions regarding the VAT zero-rate for domestic supplies. The South African government proposed that sanitary pads, white bread flour and cake flour are included in the basket for zero-rated items, effective April 1, 2019. At the same date, new rules will apply to the supply of electronic services by non-resident businesses, i.e. these suppliers will have to register for VAT in South Africa if the total value of taxable supplies made by the foreign supplier in any year exceeds ZAR 1 million.
India is looking at the reclassification of electronic books and publications. Similar to some EU countries, India will apply the reduced VAT rate of 5% to the supply of e-books. The implementation date is not known yet.
Kyrgyzstan currently has a sales tax and VAT. The differentiated rates of sales tax (1% to 3%) will be replaced with a single rate of 5%. The implementation date is unknown so far. VAT will remain at the current 12%.
Malaysia has introduced a new Sales and Service Tax, or SST, per September 1, 2018. The SST replaced the former Goods and Services Tax (GST) system. The old GST system, introduced in 2018, had a standard rate of 6% GST. The new SST is largely similar to the GST, but the number of goods exempted from SST is ten times more – a total of 5,443 items are exempted – and fewer businesses will have to pay the SST. From 2019, Malaysia will start imposing SST on imported B2B services. From 2020, SST will apply on digital B2C products and services.
The Philippines push for lowering the standard VAT rate from 12% to 10%. They also wish to repeal a long list of unnecessary and inefficient VAT exemptions. The implementation date is unknown yet. The Philippines will also implement a refund system for the 12% VAT paid by foreign visitors starting in 2020.
Sri Lanka announced a VAT rate decrease from 15% to 12.5% as of January 1, 2020.
Tajikistan announced that the reduced VAT rate will be abolished as of January 1, 2019.
Vietnam announced in 2018 that they would increase its VAT rates. The reduced rate would increase from 5% to 6% and the standard rate would go from 10% to 12%. However, no official announcements have followed since this summer, so it is unclear if and when these changes will take place.
The European Union has seen several far-reaching decisions and proposals for the future of VAT. Several ‘Quick Fixes’ were adopted and will be implemented on January 1, 2020, but more importantly, the European Commission proposes to move away from the country of origin principle, and to implement a system whereby the supplier will have to charge local VAT in the country where the customer is (destination principle). We will probably hear more about these proposals in 2019.
The European finance ministers finally adopted the proposal of the European Commission permitting Member States to apply reduced, super-reduced or zero VAT rates to electronic books and other electronic publications, aligning them with the VAT treatment of physical publications. Many EU countries will implement updated VAT rates on eBooks in the coming months.
Regarding VAT rates, the European Union allows EU Member States to have standard VAT rate at a minimum of 15%, but it also allows them to put in place a maximum of two separate reduced rates of at least 5%; one extra reduced rate lower than the minimum of 5%; and one exemption with right to deduct or ‘zero rate’. There are also proposals to have a maximum standard VAT rate of 25%.
Canary Islands has proposed to decrease its VAT rate from 7% to 6.5% per January 1, 2019. It has also put forward certain zero-rating reclassifications for supplies currently at the 3% reduced rate. However, there has been no formal announcement yet.
Croatia will decrease the standard VAT rate from 25% to 24% per January 1, 2020. Initially, this was supposed to happen on January 1, 2019, but the implementation has been delayed by one year.
France will apply a lower VAT rate on the supply of bottles made of recycled plastic, and increase the VAT on bottles that are not recyclable. This new rule will apply as of January 1, 2019.
Greece will continue to apply a reduced VAT rate on the eastern Aegean islands of Chios, Kos, Leros, Lesvos and Samos. Furthermore, the VAT rate on concerts and other events will be reduced from 24% to 6%, although the implementation date is not yet set. Also, the Greek government announced that they want to reduce the standard VAT rate from 24% to 22% by 2021.
Iceland has a Bill submitted before Parliament, which proposed to apply the reduced VAT rate of 11% to electronic sales and subscriptions of magazines, newspapers, as well as subscription fees for radio and TV stations per January 1, 2019.
Ireland will increase the reduced VAT rate now applicable to the tourism sector from 9% to 13.5%, starting January 1, 2019. On the same date, the VAT rate for e-books and electronically supplied newspapers will be reduced from 23% to 9%.
Malta as of January 1, 2019, digital supplies of audio books, books and similar printed matter will be subject to the same reduced 5% VAT rate which their traditional printed versions currently benefit. Prior to this date, the standard 18% rate of VAT applied.
Moldova has recategorized the VAT rate on hotel and restaurant services. It applies the reduced VAT rate of 10% to these services as of October 1, 2018.
The Netherlands will increase its reduced VAT rate from 6% to 9% per January 1, 2019. And even though the rules for supplies relating to sea going vessels were already changed in 2018, the VAT zero-rate will apply to specific situations only per January 1, 2019.
Norway scraps the VAT on e-books as of July 1, 2019. Also, the chocolate tax will be reduced as of that date, back to the same levels as in 2017. Please note that Norway is also planning to introduce SAF-T rules per January 1, 2020.
Poland is one of the EU countries that will apply the reduced VAT rate to e-books. They will apply the 5% VAT rate per April 1, 2019. Also, Finland and Lithuania will apply the reduced VAT rate. Lithuania will use the reduced VAT rate on electronic books, newspapers etc. of 5% per January 1, 2019. Finland will reduce the VAT rate on e-books, online magazines and journals from 24% to 10% from July 1, 2019.
Portugal will apply the reduced VAT rate to certain supplies of goods per January 1, 2019, including the supply of hair protheses, and services relating to fire prevention. Also, the admission fee for singing, dancing, music and circus shows will be subject to the reduced VAT rate per July 1,2019. The latter does not apply to cinema’s and bullfighting shows. The reduced rates are 6% in the mainland, 5% in Madeira and 4% in Azores.
Russia will increase its standard VAT rate from 18% to 20% on January 1, 2019.
Slovakia will introduce a 10% VAT rate as of January 1,2019. This rate will apply to providers of accommodation services.
Turkey has raised the VAT rate on electronic books and online journals from the 1% and 8% reduced rates, respectively, to the standard rate of 18%. The new rates apply from December 19, 2018.
Ukraine will apply the 7% reduced VAT rate to berry producers as of January 1, 2019. This particularly applies to horticulture, grapes and viticulture products.
The United Kingdom has been working on many things, including considering changing VAT rates. However, for now, the two most significant changes for businesses will be the Brexit and the introduction of Making Tax Digital. The Brexit will happen on March 29, 2019, while the MTD rules will apply as of April 1, 2019.
The GCC countries agreed to implement a harmonised VAT system, but not all GCC members have done that yet.
Bahrain will introduce a VAT with a standard VAT rate of 5% as of January 1, 2019. The initial threshold for registration, however, is fairly high (over USD 13 million), and many smaller businesses will not exceed this threshold. Smaller businesses will have more time to register for VAT, ultimately til December 20, 2019.
Oman will introduce a VAT system starting on September 1, 2019. The standard VAT rate will be 5%.
Kuwait and Qatar have postponed the introduction of a VAT system. The Kuwaiti government was aiming for an introduction in 2019, but the opposition in parliament is high. Earlier reports in the summer had suggested a 2021 or even 2022 launch date. The Qatar Ministry of Finance stated it is still evaluating the potential impacts of a VAT, and therefore will not implement any VAT law in 2019.
The United States have a lot of different sales tax rates, which may vary per state, city and county. An overview of the 2018 rates can be found here.
The Wayfair decision from mid-2018 will have a significant impact on businesses with e-commerce activities in different American States. Many states require ‘remote sellers’ to register for and calculate local sales tax.
Following several other states that implemented rules already in 2018, Georgia, Iowa, Nebraska, Utah, West Virginia, and Washington, D.C. will require out-of-state sellers to collect and remit sales tax starting January 1, 2019: That same date, new sales tax collection requirements for marketplace facilitators will take effect in Alabama.
Colombia will reduce the standard VAT rate from 19% to 18% per January 1, 2019, and to 17% in 2022. Also, the 5% VAT rate applicable to certain products and services will be abolished.
Venezuela has implemented an emergency VAT rise on September 1, 2018, which will last at least until December 31, 2019. The standard VAT rate was increased from 12% to 16%.
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