What is a “place of residence”?
A person may be resident in a country if:
- the business is legally established in the country;
- the business’ significant management decisions are taken, and central management functions conducted in the country; or
- the business has a fixed place of business in the country through which it regularly or permanently conducts business and where sufficient level of human and technology resource exist to enable the supply or receipt of goods and services (e.g. a branch).
The place of residence of a supplier can have important implications for taxation purposes, particularly with regards to value-added tax (VAT). In general, the place of residence of a supplier is important because it determines which tax authority has jurisdiction over their transactions and whether they are required to register for VAT in a particular jurisdiction.
In many countries, including the European Union, the place of residence of a supplier is a key factor in determining whether they are required to register for VAT in that jurisdiction. For example, if a supplier is based in one EU country but makes sales to customers in another EU country, they may be required to register for VAT in the country where their customer is based, if they exceed certain sales thresholds. This is known as the distance selling threshold, and it varies by country.
Additionally, the place of residence of a supplier can also affect the VAT rate that applies to their transactions. In some cases, different VAT rates may apply depending on whether the supplier is based in the same jurisdiction as their customer or in a different jurisdiction. For example, in the UK, the VAT rate for digital services sold to customers in the EU is determined by the supplier’s country of residence. However, if the supplier is based outside the EU, the VAT rate is determined by the customer’s country of residence.
It is important for suppliers to understand the VAT rules that apply in the jurisdictions where they are making sales, as failure to comply with these rules can result in penalties and additional tax liabilities. In some cases, suppliers may also be required to appoint a tax representative in the jurisdiction where they are making sales, particularly if they are based outside that jurisdiction.
In conclusion, the place of residence of a supplier can have important implications for VAT purposes, particularly with regards to registration requirements and VAT rates. It is important for suppliers to understand the VAT rules that apply in the jurisdictions where they are making sales and to comply with these rules to avoid any potential tax issues.