Pay no VAT when buying a company car in another EU member state

Buy a car in Germany, say, and arrange transport yourself, and the supplier often charges foreign VAT that you cannot reclaim anywhere. That can be avoided.

Where a Dutch business buys a car in another member state, for instance Germany, and arranges transport to the Netherlands itself, the supplier often treats the transaction as a domestic supply and charges foreign VAT. That VAT cannot be reclaimed in the Netherlands, nor in Germany, where the tax authorities will refuse. The result is a real cost. Here is how to avoid it.

Opt for an intra-Community supply

Agree at the point of purchase that the transaction will be treated as a zero-rated intra-Community supply. To apply that rate, the supplier must hold the buyer's valid Dutch VAT number and be able to prove transport to the Netherlands.

At the time of sale the supplier does not yet have that proof, and because of the risk of an assessment will be reluctant to apply the zero rate. Agree in advance, therefore, that it will first issue an invoice with German VAT. The buyer pays that invoice including VAT. Once the car is in the Netherlands and the evidence has been handed over, the supplier credits the invoice and issues a new one without German VAT, applying the zero rate.

Transport can be proved, for instance, with evidence from the Dutch vehicle authority that the car has been given a Dutch registration. The buyer declares an intra-Community acquisition in the Netherlands and can deduct that VAT in the same return, to the extent the car is used for taxable activities.

Our experience is that it matters to agree this clearly in advance. Suppliers are not always willing to cooperate afterwards, since for them it means nothing but extra administration.

Watch out for the margin scheme

Where the German seller is a dealer applying the margin scheme, it shows no German VAT on the invoice but accounts for VAT on its margin. Where the buyer is entitled to deduct, that is a waste: the seller pays VAT the buyer cannot recover.

In that case it is advisable for the seller to forgo the margin scheme and apply an intra-Community supply as described above. The buyer can then deduct the acquisition VAT in the Netherlands, so the purchase carries no VAT as a real cost.