I just replied to the fifth question this week about the VAT implications of drop-shipments in the EU. You know, these are shipments where the seller ships directly to the buyer’s customer. So there are two transactions, one where the ship-to is different from the bill-to, and one where the bill-from is different from the ship-from. Fun and games!
There are quite a number of different scenarios here, and I will show you the most popular one.
Can you please help me one last time with this scenario:
We have a US customer that is making a purchase from our inventory in Germany. The parts are being drop shipped to the UK. Do we or do we not charge the US customer VAT?
Our initial interpretation was that we don’t charge VAT if the US customer has a valid VAT ID.
Then I was told that the VAT ID was only for customers in the EU. A US customer would have to pay VAT if the parts were staying in the EU regardless of a VAT ID or not.
I agree with your interpretation. If US Co. has a valid VAT ID in the UK, then no VAT is chargeable as this is an intra-EU supply. US Co. does not need to be a UK resident business, as long as he has a VAT number.
Even if he does not have a UK VAT number, but a VAT number in an EU country other than Germany, you can still drop-ship to the UK and use US Co’s VAT number to apply the zero-rate. This is a so-called ’simplified’ triangular (“ABC”) supply. Some EU countries can be difficult about this though.
Finally, if US Co. only has a German VAT number, then you should try to treat the supply as a local supply and charge German VAT. US Co. then will charge their UK customer with zero-rate German VAT as the intra-EU supply then takes place between US Co. and UK customer. The condition though is that US Co. organizes the transport to the UK.
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