Page 2 of 5: VAT Considerations During Jurisdiction Migration
When migrating to a new jurisdiction, companies are likely to encounter Value Added Tax (VAT). For some organizations, this may be their first engagement with VAT, while for others, it will be a familiar concept, albeit with notable differences compared to their previous jurisdiction.
It is critical to assess the VAT implications of both the migration and the ongoing activities in the new jurisdiction. This evaluation should occur alongside other essential work streams, as VAT is a transaction tax that affects both costs and revenues. Numerous transactions will inevitably arise during the migration process, as well as in day-to-day operations.
Failing to understand or recognize the VAT implications associated with the migration and subsequent activities in the new jurisdiction can lead to unforeseen costs. However, a change in business model can create not only VAT risks but also commercial challenges such as logistical difficulties in importing goods and potential delays in shipments, which can disrupt daily operations.
Some contributing factors include instances where the company neglects to register for VAT or when procurement does not coordinate with suppliers regarding the importation of goods.
To facilitate an effective migration from a VAT perspective, several issues must be addressed. Assessing the VAT position of the entities impacted by the migration is crucial, as it will help determine whether their future status will improve, remain neutral, or degrade. If the latter occurs, it is important to identify strategies to mitigate VAT costs.