7 ms·

No, only the end consumer pays VAT in the country of consumption. Everything else nets out, because as a supplier you either you claim back the amount of VAT yo

by beejiu 2y ago

No, only the end consumer pays VAT in the country of consumption. Everything else nets out, because as a supplier you either you claim back the amount of VAT you've been charged from your local tax authority or you are subject to a "reverse charge" where the cross-border supplies are effectively treated as domestic for tax purposes.

mrbabbage 2y ago
this is correct. the main advantage of a VAT is incentive alignment. every intermediary producer must collect and remit VAT if they want to claim their VAT refunds for inputs. i.e., a seller of a good in Europe must collect VAT if they want to claim a VAT refund on whatever they paid for the good. compare to American sales taxes, where sellers have no economic incentive to collect sales taxes beyond the probability of being caught and fined.
- luckylion 2y ago
  Primarily though, they must collect VAT because it's the law. In Germany, you can get an exception if you're tiny and have very low revenue. If it was optional if you didn't want to claim expended VAT, quite a few companies would happily choose that, because you don't pay VAT on labor and that's the biggest cost in many industries. If you're primarily b2c, you could effectively lower your prices by a good chunk or get a healthy chunk of extra profit. But you can't, because there's no choice, it's just the law.
  - JetSetIlly 2y ago
    How does Germany define low revenue for VAT purposes? In the UK, the threshold for compulsory VAT registration is currently £90,000 annual revenue, which I would say is quite large.
    - jimnotgym 2y ago
      In what way is that large? A small plumbing firm with two staff will be over that.
      - JetSetIlly 2y ago
        Many businesses in the UK operate comfortably with revenue less than £90k. Sole traders mainly. But yes, once you employ staff it's likely you'll be looking at needing a higher revenue.
        jimnotgym 2y ago
        Sole traders working labour only may operate below this comfortably. But this is irrelevant to this thread about international trade in GOODS. Not many who are shipping goods and trying to make a decent income off a margin will fall under £90k. If you think you want to make £50k a year on a 25% margin, for instance, you will smash that threshold.
        JetSetIlly 2y ago
        Fair. I wanted to compare the German and UK thresholds more generally (the German threshold seems very low to me even for labour-only sole traders). But I would agree with you that trade in goods across borders would very likely cross the UK threshold very quickly.
    - luckylion 2y ago
      Max 100k € in the current year, max 25k € in the previous, so effectively you can do it indefinitely only if you remain below 25k. Should you ever cross 100k, you have to immediately switch to the regular scheme, collecting VAT (and being able to file any VAT you paid). I don't know any numbers, but I only ever see it being used by sellers on Amazon.
  - ncruces 2y ago
    In my country, segments more prone to “informal” sales (SMEs, cash transactions, limited incentive for paperwork), have reduced VAT (final sale has a reduced rate compared to many supplies), and the customer can get some of that VAT back as an income tax deduction if they demand to be invoiced. The advantage of this, is that if you have to have accounting for sales, you'll probably have accounting too for labour, and you'll also pay income tax, social security, etc.
    - PaulDavisThe1st 2y ago
      In my US state, vendors & service providers are quite open about "if you pay cash, I will not charge you the Gross Receipts Tax" (GRT is New Mexico's weird attempt at something vaguely like a cross between VAT and a sales tax).
  - Muromec 2y ago
    They are required to collect VAT, but they are also incentivized to collect it and not do funny things like having a "broken" payment terminal.
carlosjobim 2y ago
This is such a common misconception that even business owners get wrong. No, it doesn't even out for the business, because they sell their products with a profit and thus pay more in VAT than they get back. You only get more back if you're selling for cheaper than it costs you to make it, meaning you're out of business pretty quick. Edit: Congratulations to the people who are down voting very basic mathematics.
- beejiu 2y ago
  Businesses don't "pay" VAT, they collect and remit VAT on behalf of the tax authority. A business (supplier) that doesn't sell to end consumers pays no VAT, even though they collect a lot and reclaim a lot. It fully nets out.
  - carlosjobim 2y ago
    No, that's not how it works. If a business sells to another business, then the buyer is the consumer, and VAT has to be paid. And of course they have to sell with a profit. Many B2B offers and proposals are negotiated or priced without VAT mentioned, but it is absolutely added to the bill. The only time it "nets out" is if a business has the same expenses for their purchases as for their sales, meaning they're soon bankrupt.
    - autobodie 2y ago
      See "end-consumer"
    - Aloisius 2y ago
      It nets out to everyone but the final consumer. Imagine 30% VAT rate: Alice digs up some copper and tin and sells it to Bob for 10€ + 3€ VAT = 13€. Alice remits the 3€ to the authorities on Bob's behalf. Bob casts bronze bars and sells them to Carol for 39€ + 11.70€ = 50.70€. Bob claims a 3€ refund for VAT he paid Alice and remits 11.70€ to the authorities on Carol's behalf. Carol makes a sculpture from the bronze and sells it to a customer for 1014€ + 304.20€ VAT = 1318.20€. Carol claims a 11.70€ refund for VAT paid and remits 304.20€ to the authorities. The end customer ends up paying 100% of the total VAT (304.20€). Everyone else nets out to 0.
wongarsu 2y ago
Everybody pays VAT. As a business you charge VAT for everything you sell and pay that out to the tax authority, and you get VAT back for anything you buy. As a consumer it's just an item on the bill. Say the VAT rate is 20%. Now if you buy something for $100, install it and charge $100 to your customer, you get back $20 from the tax authority and pay them $20, so if billing cycles align no money actually flows to or from the tax authority. But if you add value, say by buying $100 in parts, assemble them and sell the assembly for $150, you get back $20 for parts purchased but collect $30 for the sale, creating a net flow of $10 to the tax authority. If everything happens under the same tax authority this nuance doesn't matter, in total there's always a $30 tax on a $150 part, no matter how complex the supply chain. But if more countries are involved the difference matters: if a company in Poland makes parts worth $100 and a company in Germany assembles them and sells them in the German market for $150, that's $20 in taxes for Poland and $10 for Germany. With a sales tax that's only collected when selling to a consumer it would have been $30 for Germany and $0 for Poland.
- beejiu 2y ago
  The Polish company invoices the German company under the "reverse charge" regime. The German company treats the parts as if they were supplied by another Germany company, charging itself German VAT and refunding itself an equal amount of German VAT. There's nothing collected in Poland.
  - Muromec 2y ago
    Reverse charge only moves vat collection from seller to buyer, so seller doesn't have to deal with 27 tax agencies and buyer only deals with their tax agency.
    - beejiu 2y ago
      That's kind-of the point in B2B transactions, it moves VAT all the way down the chain until it hits the consumer.
  - slowmovintarget 2y ago
486sx33 2y ago
And therein lies the rub. Any goods / materials from outside the VAT zone will have VAT charged on the import. Vis—a-vis a tariff. Example I manufacture and sell teak wood tables in Portugal. I buy the wood from Asia, which does not have a VAT and is outside the EU. When I import said wood, I get assessed a value to pay VAT on. This is a tariff. I buy the stain and finish from Germany, which is inside the EU and has a VAT, through a complex paperwork system, I also pay VAT when the finish gets imported to me, but eventually I can claim that VAT paid back and it “nets out”. So I get this back. How do I get it back? I can subtract VAT paid from the VAT collected when I sell the goods. Yes, VAT is a tariff, by a different name.
- 486sx33 2y ago
  In Linux terms, it’s GPL and it “infects” everything it touches :)
- bardak 2y ago
  By the same argument US states sales taxes are also tariffs since most of them are supposed to be paid on imported goods as well.
  - deleted 2y ago
    [deleted]
- tuukkah 2y ago
  More like VAT is a sales tax, by a different name. Regardless of the name, the buyer should pay the same amount of tax whether they buy domestic or from abroad. If VAT wasn't paid when buying from abroad, it would unfairly disadvantage domestic suppliers. (I'm not an accountant, but as far as I know, the same VAT deductions for businesses apply whether they buy from an EU country or from a non-EU country, which your example doesn't take into account.)
- jimnotgym 2y ago
  But the actual net VAT charged is the same as if I used native materials, so the imports are at no disadvantage to native sales. So it is not a tariff.
rspoerri 2y ago
This is wrong. If i offer a service for 100 €. I have play VAT for i, typically i add these to the bill, but for the sake of simple numbers i dont. As an example, i have following costs for offering the service: - Materials: 20€ - i can deduct these from the VAT. - Salaries: 60€ - i can NOT deduct these from the VAT. - Profit: 20€ - i can NOT deduct these from the VAT. So earning my company 100€ will have me pay (in switzerland for example 7%) approximately 6€ VAT, the 1€ i did not have to pay, must be paid by the producer of the materials. Of course you can argue that the customer pays the 6€ and my company only pays the 1€, but it's never the less always a split bill.
- alexanderchr 2y ago
  The bill looks like it is split because VAT is collected at each transaction, but in the end it nets out for everyone but the end consumer. So in your case the raw material producer would collect €1 of VAT from you, but this is entirely fictional, because you can immediately claim it back. Only when you sell the goods to an end consumer would VAT that cannot be claimed back be due.
charlieyu1 2y ago
And it is just pure government greed to screw ordinary people
- tim333 2y ago
  You need taxes to pay for schools, roads etc.
  - charlieyu1 2y ago
    Lots of countries do fine with a rather simple tax system. Why should I be taxed when I spend the already taxed money? Not to mention that VAT discourages spending and stifles economic growth, and people wonder why the shops are closing and wages are stagnating

by beejiu 2y ago

mrbabbage 2y ago

this is correct. the main advantage of a VAT is incentive alignment. every intermediary producer must collect and remit VAT if they want to claim their VAT refunds for inputs. i.e., a seller of a good in Europe must collect VAT if they want to claim a VAT refund on whatever they paid for the good. compare to American sales taxes, where sellers have no economic incentive to collect sales taxes beyond the probability of being caught and fined.

luckylion 2y ago
Primarily though, they must collect VAT because it's the law. In Germany, you can get an exception if you're tiny and have very low revenue. If it was optional if you didn't want to claim expended VAT, quite a few companies would happily choose that, because you don't pay VAT on labor and that's the biggest cost in many industries. If you're primarily b2c, you could effectively lower your prices by a good chunk or get a healthy chunk of extra profit. But you can't, because there's no choice, it's just the law.
- JetSetIlly 2y ago
  How does Germany define low revenue for VAT purposes? In the UK, the threshold for compulsory VAT registration is currently £90,000 annual revenue, which I would say is quite large.
  - jimnotgym 2y ago
    In what way is that large? A small plumbing firm with two staff will be over that.
    - JetSetIlly 2y ago
      Many businesses in the UK operate comfortably with revenue less than £90k. Sole traders mainly. But yes, once you employ staff it's likely you'll be looking at needing a higher revenue.
      - jimnotgym 2y ago
        Sole traders working labour only may operate below this comfortably. But this is irrelevant to this thread about international trade in GOODS. Not many who are shipping goods and trying to make a decent income off a margin will fall under £90k. If you think you want to make £50k a year on a 25% margin, for instance, you will smash that threshold.
        JetSetIlly 2y ago
        Fair. I wanted to compare the German and UK thresholds more generally (the German threshold seems very low to me even for labour-only sole traders). But I would agree with you that trade in goods across borders would very likely cross the UK threshold very quickly.
  - luckylion 2y ago
    Max 100k € in the current year, max 25k € in the previous, so effectively you can do it indefinitely only if you remain below 25k. Should you ever cross 100k, you have to immediately switch to the regular scheme, collecting VAT (and being able to file any VAT you paid). I don't know any numbers, but I only ever see it being used by sellers on Amazon.
- ncruces 2y ago
  In my country, segments more prone to “informal” sales (SMEs, cash transactions, limited incentive for paperwork), have reduced VAT (final sale has a reduced rate compared to many supplies), and the customer can get some of that VAT back as an income tax deduction if they demand to be invoiced. The advantage of this, is that if you have to have accounting for sales, you'll probably have accounting too for labour, and you'll also pay income tax, social security, etc.
  - PaulDavisThe1st 2y ago
    In my US state, vendors & service providers are quite open about "if you pay cash, I will not charge you the Gross Receipts Tax" (GRT is New Mexico's weird attempt at something vaguely like a cross between VAT and a sales tax).
- Muromec 2y ago
  They are required to collect VAT, but they are also incentivized to collect it and not do funny things like having a "broken" payment terminal.

carlosjobim 2y ago

This is such a common misconception that even business owners get wrong. No, it doesn't even out for the business, because they sell their products with a profit and thus pay more in VAT than they get back. You only get more back if you're selling for cheaper than it costs you to make it, meaning you're out of business pretty quick. Edit: Congratulations to the people who are down voting very basic mathematics.

beejiu 2y ago
Businesses don't "pay" VAT, they collect and remit VAT on behalf of the tax authority. A business (supplier) that doesn't sell to end consumers pays no VAT, even though they collect a lot and reclaim a lot. It fully nets out.
- carlosjobim 2y ago
  No, that's not how it works. If a business sells to another business, then the buyer is the consumer, and VAT has to be paid. And of course they have to sell with a profit. Many B2B offers and proposals are negotiated or priced without VAT mentioned, but it is absolutely added to the bill. The only time it "nets out" is if a business has the same expenses for their purchases as for their sales, meaning they're soon bankrupt.
  - autobodie 2y ago
    See "end-consumer"
  - Aloisius 2y ago
    It nets out to everyone but the final consumer. Imagine 30% VAT rate: Alice digs up some copper and tin and sells it to Bob for 10€ + 3€ VAT = 13€. Alice remits the 3€ to the authorities on Bob's behalf. Bob casts bronze bars and sells them to Carol for 39€ + 11.70€ = 50.70€. Bob claims a 3€ refund for VAT he paid Alice and remits 11.70€ to the authorities on Carol's behalf. Carol makes a sculpture from the bronze and sells it to a customer for 1014€ + 304.20€ VAT = 1318.20€. Carol claims a 11.70€ refund for VAT paid and remits 304.20€ to the authorities. The end customer ends up paying 100% of the total VAT (304.20€). Everyone else nets out to 0.

wongarsu 2y ago

Everybody pays VAT. As a business you charge VAT for everything you sell and pay that out to the tax authority, and you get VAT back for anything you buy. As a consumer it's just an item on the bill. Say the VAT rate is 20%. Now if you buy something for $100, install it and charge $100 to your customer, you get back $20 from the tax authority and pay them $20, so if billing cycles align no money actually flows to or from the tax authority. But if you add value, say by buying $100 in parts, assemble them and sell the assembly for $150, you get back $20 for parts purchased but collect $30 for the sale, creating a net flow of $10 to the tax authority. If everything happens under the same tax authority this nuance doesn't matter, in total there's always a $30 tax on a $150 part, no matter how complex the supply chain. But if more countries are involved the difference matters: if a company in Poland makes parts worth $100 and a company in Germany assembles them and sells them in the German market for $150, that's $20 in taxes for Poland and $10 for Germany. With a sales tax that's only collected when selling to a consumer it would have been $30 for Germany and $0 for Poland.

beejiu 2y ago
The Polish company invoices the German company under the "reverse charge" regime. The German company treats the parts as if they were supplied by another Germany company, charging itself German VAT and refunding itself an equal amount of German VAT. There's nothing collected in Poland.
- Muromec 2y ago
  Reverse charge only moves vat collection from seller to buyer, so seller doesn't have to deal with 27 tax agencies and buyer only deals with their tax agency.
  - beejiu 2y ago
    That's kind-of the point in B2B transactions, it moves VAT all the way down the chain until it hits the consumer.
- slowmovintarget 2y ago

486sx33 2y ago

And therein lies the rub. Any goods / materials from outside the VAT zone will have VAT charged on the import. Vis—a-vis a tariff. Example I manufacture and sell teak wood tables in Portugal. I buy the wood from Asia, which does not have a VAT and is outside the EU. When I import said wood, I get assessed a value to pay VAT on. This is a tariff. I buy the stain and finish from Germany, which is inside the EU and has a VAT, through a complex paperwork system, I also pay VAT when the finish gets imported to me, but eventually I can claim that VAT paid back and it “nets out”. So I get this back. How do I get it back? I can subtract VAT paid from the VAT collected when I sell the goods. Yes, VAT is a tariff, by a different name.

486sx33 2y ago
In Linux terms, it’s GPL and it “infects” everything it touches :)
bardak 2y ago
By the same argument US states sales taxes are also tariffs since most of them are supposed to be paid on imported goods as well.
- deleted 2y ago
  [deleted]
tuukkah 2y ago
More like VAT is a sales tax, by a different name. Regardless of the name, the buyer should pay the same amount of tax whether they buy domestic or from abroad. If VAT wasn't paid when buying from abroad, it would unfairly disadvantage domestic suppliers. (I'm not an accountant, but as far as I know, the same VAT deductions for businesses apply whether they buy from an EU country or from a non-EU country, which your example doesn't take into account.)
jimnotgym 2y ago
But the actual net VAT charged is the same as if I used native materials, so the imports are at no disadvantage to native sales. So it is not a tariff.

rspoerri 2y ago

This is wrong. If i offer a service for 100 €. I have play VAT for i, typically i add these to the bill, but for the sake of simple numbers i dont. As an example, i have following costs for offering the service: - Materials: 20€ - i can deduct these from the VAT. - Salaries: 60€ - i can NOT deduct these from the VAT. - Profit: 20€ - i can NOT deduct these from the VAT. So earning my company 100€ will have me pay (in switzerland for example 7%) approximately 6€ VAT, the 1€ i did not have to pay, must be paid by the producer of the materials. Of course you can argue that the customer pays the 6€ and my company only pays the 1€, but it's never the less always a split bill.

alexanderchr 2y ago
The bill looks like it is split because VAT is collected at each transaction, but in the end it nets out for everyone but the end consumer. So in your case the raw material producer would collect €1 of VAT from you, but this is entirely fictional, because you can immediately claim it back. Only when you sell the goods to an end consumer would VAT that cannot be claimed back be due.

charlieyu1 2y ago

And it is just pure government greed to screw ordinary people

tim333 2y ago
You need taxes to pay for schools, roads etc.
- charlieyu1 2y ago
  Lots of countries do fine with a rather simple tax system. Why should I be taxed when I spend the already taxed money? Not to mention that VAT discourages spending and stifles economic growth, and people wonder why the shops are closing and wages are stagnating