VAT on services delivered by US LLC to EU company by EU citizen

[UncleMac]

I'm in a position where I'm currently residing in the EU. I have a US LLC through which I would like to charge an EU company for consulting services.

My question is wether or not I would potentially get in trouble for attempting 'VAT evasion' and would therefore be forced into opening an EU company?

My only interest here is getting it right in the eyes of the tax collectors. I'm not in the mood to get into any kind of trouble with them at the moment.

 

[Sols]

Why did you form a US LLC instead of a local company? For VAT purposes at least, it would be a lot easier if you just formed a local company and got it VAT registered.

My question is wether or not I would potentially get in trouble for attempting 'VAT evasion' and would therefore be forced into opening an EU company?

Potentially, yes. It's a form of tax fraud.

My only interest here is getting it right in the eyes of the tax collectors. I'm not in the mood to get into any kind of trouble with them at the moment.

If your client is a VAT registered business and if your US LLC registers for VAT, you can probably invoice them with no VAT.

VAT is messy, and you've made it worse by involving a non-EU entity. It's best to speak with a local tax lawyer/adviser for clarity.

 

[UncleMac]

Thank you!

The purpose of the US LLC was never to do business with European companies. I was just wondering if I could use it in a bind, but seems like I should rather register an EU company for business in Europe.

 

[Sols]

It's not very likely that the tax authority would come after your US LLC for VAT, but they could if they decided to. If your risk appetite is zero, then go with a local/EU company instead.

 

[thomasparra]

It's not very likely that the tax authority would come after your US LLC for VAT, but they could if they decided to. If your risk appetite is zero, then go with a local/EU company instead.

It seems crazy to think that any company with no entities in Europe would be barred from doing business with European companies because of this (especially for services). I mean surely many Asian/US companies are billing European companies every day of the year, without having legal presence in the region?

 

[Sols]

It seems crazy to think that any company with no entities in Europe would be barred from doing business with European companies because of this (especially for services). I mean surely many Asian/US companies are billing European companies every day of the year, without having legal presence in the region?

No one is barred. But if you provide certain goods or services to EU/EEA residents, you should comply with EU/EEA VAT regulations. The vast majority don't but you'll find that some large US SaaS businesses have started charging EU VAT, despite not having any presence in EU. Not paying would paint a target on their back. SMEs don't have much to worry about, but the larger ones are big enough for the EU/tax authorities to justify going after.

The main difference here is that this US LLC is operated from within EU. It's not really a US business. It's an EU business masquerading as a US business. So it would be easier for a tax authority to dish out fines.

 

[UncleMac]

For the time that I’m forced to stay in Europe (for private reasons), I’ll figure out some kind of hybrid setup to minimise risk.

Thanks for the quality input. This forum truly is a gem.

 

[thomasparra]

No one is barred. But if you provide certain goods or services to EU/EEA residents, you should comply with EU/EEA VAT regulations. The vast majority don't but you'll find that some large US SaaS businesses have started charging EU VAT, despite not having any presence in EU. Not paying would paint a target on their back. SMEs don't have much to worry about, but the larger ones are big enough for the EU/tax authorities to justify going after.

The main difference here is that this US LLC is operated from within EU. It's not really a US business. It's an EU business masquerading as a US business. So it would be easier for a tax authority to dish out fines.

Got it, that makes sense. However, if the US LLC does not only/mainly serve EU clients - I don't know if the case you are mentioning could be made by tax authorities.

 

[Sols]

Got it, that makes sense. However, if the US LLC does not only/mainly serve EU clients - I don't know if the case you are mentioning could be made by tax authorities.

The law is fairly clear, though. Sales to EU/EEA persons are in scope for VAT regulations and payment of VAT may be required if the goods or services don't qualify for exemption.

It's not as if 95% of your customers are non-EU/EEA, it's suddenly OK to commit tax evasion on the remaining 5%. Those 5% would still be subject to EU VAT regulations.

The risk of getting caught may of course be lower if your exposure (unpaid VAT) is low, but if caught, you'd be facing repercussions all the same.

 

[thomasparra]

The law is fairly clear, though. Sales to EU/EEA persons are in scope for VAT regulations and payment of VAT may be required if the goods or services don't qualify for exemption.

It's not as if 95% of your customers are non-EU/EEA, it's suddenly OK to commit tax evasion on the remaining 5%. Those 5% would still be subject to EU VAT regulations.

The risk of getting caught may of course be lower if your exposure (unpaid VAT) is low, but if caught, you'd be facing repercussions all the same.

It this VAT regulation specific to the EU/EEA? Or are there similar regulations in other parts of the world? It should be easy to be compliant without having to open an entity here, I think there is a process in place provided by the EU. It should not change anything for OP if his customers are businesses as they get the VAT reimbursed.

 

[UncleMac]

The B2B perspective is an interesting one. All of my clients are businesses.

 

[Sols]

It this VAT regulation specific to the EU/EEA? Or are there similar regulations in other parts of the world? It should be easy to be compliant without having to open an entity here, I think there is a process in place provided by the EU.

AFAIK, the concept is not unique to EU/EEA. There are other jurisdictions where foreign companies are required to pay VAT or equivalent sales tax. For physical goods, things just get held by customs or post office until duties are paid. For digital goods and services, jurisdictions generally don't have the means to go after foreign sellers. EU/EEA has more sway.

The B2B perspective is an interesting one. All of my clients are businesses.

If they are also VAT registered and if your EU company is VAT registered, you can invoice without VAT.