When it comes to value-added tax (VAT) management, it’s essential that shippers understand what they need to be paying in any given country in the EMEA region—or risk facing a hefty penalty.
To state the obvious: VAT is not the same as (for example) U.S. sales tax or goods and services tax (GST)—something many shippers have nonetheless learned the hard way. It needs to be addressed by someone with experience handling VAT, or companies may inadvertently fall into the dangerous territory of noncompliance.
To further complicate things, every country in EMEA has its own tangled web of rules and regulations, and that web has snared many unsuspecting shippers trying to break into local markets. Since the EMEA region is comprised of Europe, the Middle East, and Africa, it’s incredibly vast and varied. Its VAT legislation reflects that variation, and banking on standardization is a fool’s errand.
While VAT management in EMEA is tough, it isn’t impossible. Here are some things every shipper should know before expanding into the region.
VAT in the European Union: 28 countries, 28 sets of rules
The European Union (EU) is currently made up of 28 member countries. That may drop to 27 after Brexit, which will likely create a whole new set of rules for companies to follow. But as of right now, all 28 member countries comply with the EU’s standard VAT legislation. It’s just the way they apply those rules that differ.
The tax authorities of each member country are granted a degree of flexibility in how they implement the EU’s legislation. And that flexibility has led to some dramatic differences in rates, exemptions, reporting requirements, and more from country to country—all of which shippers need to stay on top of.
Of course, it’s also important to recognize that not every country in Europe is in the EU—and some of those countries have their own VAT rules which may differ considerably from any VAT rules within the EU. Seeking help from a partner with experience in the region is the best way to navigate all this complexity, as becoming an expert overnight is virtually impossible.
VAT in Africa: Uncertainty and change reign supreme
If the VAT rules in Europe seem complicated, Africa makes them look like child’s play.
Much of this complexity stems from the fact that Africa’s VAT legislation is often fairly unclear. With 54 countries and a myriad of different VAT systems, there are a lot of different rules at play, many of which were implemented fairly recently—meaning finding experienced help can be tricky. And with more countries, such as Angola, expected to introduce VAT soon or amend or clarify their legislation, keeping up with the latest developments will be essential to staying compliant.
VAT in the Middle East: New and emerging systems to account for
As of January 1, 2018, the Gulf Cooperation Council (GCC) began implementing VAT. The rate is currently 5%.
One important thing to note is that not every GCC Member State has a VAT system just yet. Saudi Arabia, the United Arab Emirates, and Bahrain have already introduced their VAT systems, but other Member States have postponed implementation. Tax authorities in Kuwait and Oman are expected to introduce VAT systems in 2021. Qatar, meanwhile, has set no definitive date for implementation just yet.
What does this mean for shippers? For starters, it means there’s more change to come, and shippers must be prepared for this. If we’ve learned anything from the early implementers in the GCC, however, it’s that the local tax authorities have tended to focus on local businesses first and only established clear rules for foreign shippers at a later date, so some initial confusion is to be expected. Paying close attention to the emerging legislation will be essential over the coming months and years.
Complexity is no match for experience
VAT management is challenging in the EMEA region. But with the right partner, shippers don’t need to lose sleep over compliance.
At CTSI-Global, we have decades of experience navigating VAT legislation all around the world. With company-owned-and-operated facilities in Ireland, Singapore, and India, as well as the U.S., our team is immersed in regional tax regulations daily. We keep up to date with changing VAT legislation so our clients don’t have to—because when they work with us, it’s all taken care of.
Don’t go in blind. Find an experienced and knowledgable partner in CTSI-Global.