This article is aimed at Israeli companies that supply goods or spare parts and
clear them through customs in a country in the European Union (EU). Those
companies don’t always want to go to the expense of establishing a formal branch
or subsidiary company in each country they sell to. Value Added Tax (VAT) in the
EU can range up to 27 percent, so ignore it at your peril.
may be partly relevant to other non-EU companies, but not entirely, as explained
The simple EU approach: Export from afar
It may be possible for
Israeli exporters to hire a local customs import agent to clear the goods
through the customs of the country concerned and pay the local EU VAT upon
importation under the agent’s own EU VAT registration number.
This EU VAT
may be sometimes recoverable by the Israeli exporter, if certain conditions are
met, under the EU 13th VAT Directive. However, reciprocity is often one of those
conditions. Therefore, because Israel doesn’t refund VAT to foreign firms not
registered for Israeli VAT purposes, many EU countries refuse to refund their
VAT to Israeli companies not registered for EU VAT purposes. This appears to
apply to: Bulgaria, Czech Republic, Greece, Hungary, Latvia, Lithuania,
Luxembourg, Malta, Poland, Portugal and Romania.
Even if the 13th VAT
Directive is available, the procedure can be slow and costly.
approach: Local VAT registration
Another procedure that may be available in some
EU countries is to register the Israeli company as a local dealer for VAT
purposes and thereby recover the VAT on imports and local expenses. It may even
be possible to do so without creating a taxable permanent establishment for
income tax purposes in the EU country concerned.
This is like having your
cake and eating it, but it isn’t always easy.
Third EU approach: Reverse
There are some EU countries which stipulate a mandatory reverse charge
approach companies from other countries (EU and elsewhere) in certain cases
(usually business to business). This may apply to France (but see below), Italy,
the Netherlands, Spain, and some Eastern European countries.
the local customer reports and pays the VAT instead of the Israeli exporter
(“self assessment” by the customer). Therefore the Israeli exporter cannot
recover VAT on imports and local expenses in those countries.
Can’t elect mandatory reverse charge mechanism
Until the end of September this
year, France had a “repondant” procedure whereby a non-EU firm can opt to apply
the reverse charge mechanism by voluntarily appointing a French fiscal
representative to account for French VAT and then recover the VAT on imports
into France and local French expenses.
However, the European Court of
Justice ruled on December 16, 2011 that the French “repondant” procedure is
contrary to EU VAT principles. Therefore, on June 7 the French Tax
Administration issued a notice cancelling the “repondant” procedure commencing
It remains to be seen if other EU countries follow
To sum up
Israeli exporters of goods and spare parts to EU
countries should re-consider their EU VAT and income tax options. Taking no
action may be an economic disaster.
As always, consult experienced tax
advisors in each country at an early stage in specific
The writer is a certified public accountant and tax
specialist at Harris Consulting & Tax Ltd.