VAT on electronic services – simplified VAT scheme for non-established vendors (voesnorway)

In a legislation proposal, the Government presents a simplified VAT scheme for non-established vendors supplying electronic services to consumers in Norway.

1. Background – First part of VAT update on electronic services

New Norwegian VAT legislation, making non-established vendors supplying electronic services to consumers in Norway (B2C) subject to VAT, will come into force 1 July 2011.

On 10 December 2010, and as part of the 2011 Fiscal Budget, the Norwegian Parliament passed a bill making purchases of electronic services from abroad (import) by consumers in Norway subject to VAT at the standard rate of 25%. The new legislation seeks to provide a level playing field for established and non-established vendors supplying electronic services to consumers.

The tables below outline the VAT treatment of electronic services prior to and after 1 July 2011. Electronic communication services are not included in the table.

Table 1 – Supply of electronic services before 1 July 2011

Table 2 – Supply of electronic services after 1 July 2011

2. Legislation proposal – simplified VAT scheme for non-established vendors – second part of the VAT on electronic services update

2.1 Simplified VAT scheme for non-established vendors

An important presumption when passing the bill making consumers import of electronic services subject to VAT in Norway, was to simplify VAT obligations and the compliance burden for non-established vendors. In doing so the Ministry of Finance presents a simplified VAT scheme for non-established vendors supplying electronic services to consumers in Norway.

Under the current rules, electronic services purchased from abroad are only liable to VAT when supplied to businesses established in Norway (B2B). When making such purchases, VAT shall be accounted for by the business receiving the services under the reverse charge mechanism. B2B transactions will not be subject to any changes from 1 July 2011.

However, when electronic services are supplied to consumers resident in Norway (B2C), the reverse charge mechanism is not a practical option. According to the proposal, the non-established vendor supplying electronic services will be responsible to account for VAT when supplying such services to consumers in Norway.

Such vendors may be the person contractual responsible for the content of the services (often referred to as seller) and persons engaged in the delivery of electronic services (different types of intermediaries). This will as a starting point also apply to Norwegians intermediaries. However, when electronic services are supplied domestically, both the seller and the intermediary may be liable to calculate VAT.

As a general rule, the Ministry suggests that non-established vendors supplying electronic services above the threshold of NOK 50.000, will be liable to register in the Norwegian VAT Register according to the normal registration rules. Such registration requires that the non-established vendor must either establish a place of business in Norway or appoint a fiscal representative.

However, seeking to provide for simplified measures, the Ministry suggests that the non-established vendors may opt to use a simplified VAT scheme, as an alternative to register in the VAT Register. The main features of the simplified scheme are:

• vendors do not have to appoint a fiscal representative,
  
• vendors do not have to register in The Central Coordinating Register for Legal Entities. The vendors only have to communicate electronically with one tax office in Norway,
  
• vendors will meet electronic and simplified registration procedures,
  
• vendors will meet electronic and simplified reporting procedures,
  
• vendors will not be able to deduct input VAT in the VAT return, but will be eligible for input VAT refund applications.

2.2 Who can opt for simplified VAT scheme?

Those who will be eligible for simplified VAT scheme according to the proposal are non-established vendors supplying electronic services to consumers in Norway who are only subject to VAT for such supplies.

• By non-established means, as a starting point, that the vendors must not have a place of business within Norway. If a vendor establishes a place of business within Norway, the vendors are liable to register in the Norwegian VAT Register.
  
• Electronic services are defined as “services capable of delivery from a remote location which are delivered over the Internet or any other electronic network network and in the absence of information technology is impossible to ensure, and the nature of which renders their supply essentially automated.” As a starting point the term “electronic services” should be interpreted in line with Council Regulation (EC) No 1777/2005 and Council Directive 2006/112/EC. Please note that vendors currently registered for the supply of electronic communication services to consumer (B2C) also may opt to use the simplified VAT scheme.
  
• Consumers in Norway will include private individuals and other persons not performing economic activity (B2C). Please note that vendors will not disqualify for the simplified VAT scheme if they also supply electronic services or other services capable for delivery from a remote location to businesses and public sector bodies (B2B).
  
• Finally, the vendors must only be subject to VAT for the supply of electronic services. If the vendors are subject to VAT in Norway for the supply of any other goods or services, the operator cannot opt for the simplified VAT scheme to report VAT on electronic services. The operator must then register in the Norwegian VAT Register and report all supplies on the standard VAT declaration.

2.3 Simplified registration procedures

The tax authorities are currently developing a web site for the simplified VAT scheme. Through this web site, non-established vendors may easily access an online registration system Altinn. One of the features of the simplified VAT scheme is that the vendors do not have to produce extensive information in order to register. Vendors will be asked to submit the following details:

• Name
  
• Postal address
  
• Full web site URL
  
• National tax number

In addition, the online registration form will ask you to confirm that you/your company are/is not subject to VAT for any other taxable supply of goods or services in Norway.

Vendors who successfully complete the registration will be assigned a unique identification number and will be notified by e-mail.

2.3 Simplified reporting procedures

When registered through the simplified VAT scheme portal, vendors may at any time log in to communicate with the tax office or to submit the simplified VAT return.

In the opinion of the Ministry of Finance there is an advantage in linking the reporting procedures, as well as the registration procedures, to the rules laid out in Council Directive 2006/112/EC. Thus, as laid down in the proposal, the simplified VAT return should be completed electronically for each calendar quarter, and submitted within 20 days subsequently to the quarter to which it relates. Vendors must also submit returns for quarters where no supplies have been made. The simplified VAT return must contain the following information:

• Identification number
  
• Basis for VAT (net value of supplies)
  
• VAT amount

All amounts must be in Norwegian kroner (NOK) and rounded down the nearest NOK.

2.4 Refund applications

According to the proposal, the simplified VAT scheme does not provide for the direct deduction of input VAT incurred by the non-established vendor. However, the vendor may be relived from VAT paid on goods or services in Norway through a VAT refund application.

2.4 Documentation and duty of disclosure

2.4.1 Simplified documentation requirements

Vendors opting for simplified VAT scheme will not be obliged to issue invoices for VAT purposes. In order for the tax authorities to control the numbers stated in the simplified VAT return, the only documentation requirement for vendors is to keep records of transactions. The records of transactions should as a minimum contain the following information:

• Reference to sales documentation, as there are no invoice requirements, the records may contain references to other sources of information, for example electronic logs.
  
• Date of deliveries
  
• Name and address of customers
  
• Currency
  
• Gross value of deliveries (deliveries including VAT)
  
• VAT amount

The records of transactions should be kept electronically and upon request be made available for Norwegian tax authorities within three weeks notice.

2.4.2 Duty of disclosure

Vendors opting for simplified VAT scheme will be subject to a general duty of disclosure about circumstances which the tax authorities may find significant for the tax control. The VAT Act’s provisions on duty of disclosure for third parties will be applicable for gathering information about vendors opting for simplified VAT scheme.

2.5 Striking from the simplified VAT scheme

The tax authorities shall strike an operator from the simplified VAT scheme, in following cases:

• taxable activities have ceased;
  
• the vendor no longer meets the conditions necessary for use of the simplified VAT scheme;
  
• the vendor persistently fails to comply with the rules in the VAT Act.

A vendor who is struck from the simplified VAT scheme, and still has taxable activities, must register in the Norwegian VAT Register through a representative, who must be resident in Norway. The representative and the vendor will be both responsible for the calculation of VAT.

A vendor, who is struck due to persistently compliance failure, may be re-registered on the following conditions:

• after the striking decision, the vendor has complied with the rules in the VAT Act;
  
• It is reason to believe that the vendor, after re-registration, will comply with the rules in the VAT Act;
  
• The vendor has fulfilled his previous payment obligations.

2.6 Discretionary determination and penalties

Vendors opting for simplified VAT scheme will be subject to the VAT Act’s general provision on determination of discretion: If the simplified VAT return does not arrive, or the return is incorrect or incomplete, the tax authorities will determine the amount of VAT by discretion. Discretion shall be as close to the factual situation as possible.

The vendors will also be subject to the VAT Act’s penal provisions, including civil penalties and criminal proceedings:

• If a VAT return contains formal errors or is not submitted within the deadline, the tax authorities may impose a surcharge. The penalty charged will be at least NOK 250 and up to a maximum of NOK 5000. It is not possible to impose a surcharge greater than 3 per cent of output tax.
  
• Interest will be charged if VAT is paid after the due date.
  
• In the event of contravention of the VAT Act, surtax may be imposed. In serious cases the surtax may be up to 100 per cent.
  
• Contravention of the VAT Act may be penalised with fines or a prison sentence.

What will happen next?

Please visit www.voesnorway.com for more detailed information on the new Act, future updates on compliance issues and the web site, and general information on the Norwegian VAT system.