G-ákv 932/00
English translation
VAT – financial leasing – hire-purchase – domestic trade – imported taxable services – representatives of foreign enterprises
The Directorate of Internal Revenue has lately received numerous inquiries on the leasing and/or the reselling of computer equipment in Iceland by foreign enterprises. The enterprises in question do neither have legal residence, nor are located in Iceland, but purchase computers and lease them domestically. The leasing can be in the form of renting, finance leasing or hire-purchase leasing. The foreign enterprises have, in most or even all instances, entered into a service agreement with suppliers in Iceland, for services to lessees and prospective purchasers of the computer equipment. The issues raised in these instances are, in the first place, whether the sale of the computers to foreign enterprises should be subject to VAT (value added tax) or if it should be regarded as export. Secondly; whether the transactions between the foreign enterprises and the lessees or prospective purchasers should be subject to VAT, and in the third place, whether the foreign enterprises can obtain reimbursement of VAT in accordance with regulation no. 288/1995, on reimbursement of VAT to foreign enterprises.
In regard to this, we’d like to specify:
Primarily:
According to art. 1 of the VAT Act no. 50/1988, domestic business transactions are subject to VAT, on all stages, also the importation of goods and taxable services, as further stipulated in the VAT Act. VAT on these transactions shall therefore be submitted to the State Treasury. According to art. 12, paragraph 1, point 1 of the VAT Act, the exportation of goods is exempt from VAT (a registered enterprise shall not include the exportation of goods in its taxable turnover). For verification of export, the vendor shall keep export records or other relevant documents along with invoices, see art. 20 of regulation no. 50/1993, on the accounting and registration of income for registered enterprises. In instances such as the aforementioned, the Icelandic suppliers sell the computer equipment to the foreign enterprises. The equipment, however, never leaves the country, and can therefore not be regarded as export goods. The sale of the computer equipment shall therefore unquestionably be included in the suppliers’ taxable turnover, according to art. 1 and 11 of the VAT Act. The Icelandic suppliers must therefore charge VAT on these sales to foreign enterprises.
Secondly:
A foreign enterprise shall charge VAT on leasing (financial leasing included) or sales (hire-purchase included) to its customers in Iceland, as, in these instances, the enterprise must be regarded to be conducting taxable transactions here in Iceland, according to art. 1-3 of the VAT Act.
If the enterprise in question is neither legally residing nor located in Iceland, the VAT duty in these instances is transferred to its intermediary or representative, according to art. 3, paragraph 1, point 6 of the VAT Act. This stipulation is further pressed upon regarding taxable services (including leasing), according to art. 8, paragraph 2 of regulation no. 194/1990, on VAT on the sale of taxable services to foreign enterprises and on imported taxable services.
If the Icelandic supplier is also representative for the foreign enterprise in accordance with art. 3, point 6 of the VAT Act, he must register the operation, according to art. 5 of the VAT Act, levy VAT on all transactions on behalf of the foreign enterprise he represents, and submit it to the State Treasury. A supplier acting on behalf of the lessor/vendor before the lessee/buyer, when entering into or keeping an agreement, must, in that instance, be regarded as intermediary for the foreign enterprise. As regards liability for unpaid VAT, both parties are held responsible for the submission (payment) of VAT to the State Treasury, see page 10 of directions on VAT (RSK 11.19, 5th issue 1998). If a foreign enterprise, with no intermediary or representative in Iceland, has neglected to register its operation with the local Tax Commissioner, a special rule applies to the sale of taxable services, i.e. the purchaser of taxable services from the foreign enterprise, is responsible for the payment of VAT on the services purchased, according to art. 8, paragraph 3, of regulation no. 194/1990. The payment of VAT in such instances should be handled in accordance with art. 4 and 6 of regulation no. 194/1990.
Representatives or intermediaries of foreign enterprises, shall hold a special registration number for the declaration of the taxable turnover incurred on behalf of the foreign enterprise. The Directorate of Internal Revenue finds it preferable, that invoices also include the name of the foreign enterprise along with other information on the issuer of the invoice (here representative or intermediary), as required by law.
Thirdly:
Reimbursement of VAT according to regulation no. 288/1995 does not apply in aforementioned instances, in accordance with art. 2, point 1 and art. 3 of regulation no. 288/1995. The VAT on the purchase of computer equipment by foreign enterprises could however be deducted as input tax in accordance with stipulations thereon.
With reference to the above mentioned and the Directorate’s letter dated December 23rd 1992 (ref. 435/1992), all local tax commissioners are hereby instructed to examine the handling of transactions as described above, in their district, and to adjust VAT declarations according to correct procedure (as stated above).