Welcome back from the summer break.

VAT rates change continually in the European Union and the rest of the world
(e.g. this year’s VAT changes: Lebanon increase to 11%, Liechtenstein and Switzerland cut to 7.7%, Saudi Arabia introduction of 5%, etc.).

It is crucial to apply for the correct VAT rate (standard, reduced, super reduced rate, possible exemption), in order to comply with the local rules and regulations, benefit from possible optimizations (cash flow, input VAT deduction, correct pricing etc.) and minimize the risk of reputational damage.

For example in some countries like Ireland, your medtech products might be exempt from VAT with the possibility of respective cash flow optimizations approaches.

The further question that has to be addressed in that regard is:

On which basis do you define which VAT rate / possible exemption does apply?

Here the Customs Tariff number is key. The definition of the correct Customs Tariff number leads to the correct VAT rate application of your products. Please take into consideration the differences in the regions, e.g. 4 digit global harmonization but differences in the Sub headings – e.g. 1 digit in Switzerland / 2 digits in the European Union.

Recommendation

I highly recommend to review the application of the VAT rates of your products and the respective implementation in the master data of your ERP system on a regular basis – especially in the course of a possible ERP change (S/4HANA) and/or a new supply chain implementation.

IFI can be of any assistance, drop me an email here.