VAT on exports

What it means

On the export of goods outside the European Union the supply is exempt from VAT with the right to deduct input tax. The sales invoice carries no VAT, while purchases connected with the shipment are deducted in full.

The exemption does not follow from the customer being abroad but from the goods demonstrably leaving the customs territory of the Union. It is an exempt supply with a right of deduction, not a transaction outside the scope of the tax.

The exemption covers not only exports where the supplier itself dispatches or carries the goods, but also those where the foreign customer takes them out of the Union. In the second case proof is harder: the exit document is in the customer’s hands and the supplier depends on getting it. The duty to hand it over therefore belongs in the contract.

How it works in practice

The evidence is the customs declaration and the customs confirmation that the goods left the Union, backed by transport documents. Who acts as exporter follows from the agreed Incoterms delivery terms, and that has to be settled before the first consignment.

Exports are reported in the VAT return on a separate line for exempt supplies. They belong in neither the control statement nor the EC sales list, which cover domestic supplies and trade inside the Union.

Goods often leave the Union through another member state, via a port in Germany or the Netherlands, for instance. The export declaration is lodged in Slovakia, but exit is confirmed by a customs office in the other state. We therefore request the electronic exit confirmation from the customs representative or carrier and file it with the invoice.

What to watch out for

An invoice without VAT and no proof of exit is the expensive combination. An audit treats the sale as domestic, computes the tax out of the price already invoiced, and the company pays it from its own margin, because it will not re-invoice a foreign customer after the fact.

Where another firm, such as an intermediary, is named as exporter on the export declaration, the supplier must be able to show that the goods exported are the ones it invoiced. A mismatch in description, quantity or document number between the declaration and the invoice is enough for an inspection to deny the exemption.