Buying and Selling Goods Located Overseas 

The basic rule for considering the place of supply of goods is that they are supplied where they are physically located when they are sold or allocated to the customer.
In the simplest scenario, goods located in the UK at the time they are supplied to a customer are treated as supplied in the UK and subject to UK VAT. If the goods are exported from the UK, they can be zero-rated, but the supplier has to fulfil certain criteria in terms of obtaining and retaining export evidence, etc.

Goods that Never Come to the UK

It is quite common for a business to buy goods from an overseas supplier and have them delivered directly to a customer that is also overseas.

Example: What is the UK company’s VAT position?

Company A, based in the UK, buys goods from Company B, based in China and has them delivered directly to its customer, Company C, in the USA.
This scenario can cause some confusion for Company A. Is VAT chargeable? Is the sale recorded on the VAT return, and what evidence will HMRC need to see?
In this example, the business has to look at the basic place of supply rules – are the goods located in the UK when they are sold to the customer in the USA, and have they ever come to the UK? The answer to both questions is no, they are located in China when allocated to the final customer, therefore the place of supply is China and outside the scope of UK VAT. The sale is not subject to UK VAT but the net sales figure is reported in Box 6 of Company A’s VAT return and the purchase in Box 7.
Unlike an export from the UK, there will be no formal export evidence to confirm ‘zero-rating’, and this can sometimes be questioned by an HMRC officer during an inspection. It is therefore advisable to keep all available commercial documentary evidence showing that the goods were purchased overseas and delivered directly to an overseas customer (e.g., shipping documents).
The same rules would apply when goods are sold to a customer ‘on the high seas’ during transit, providing they do not actually come to the UK.

Supplier and Customer in the EU

Where Company A, in the UK, buys goods from a supplier in Germany (Company B) and they are delivered directly to the customer (Company C) in France, different rules apply. Since leaving the EU, the sale by Company B to Company A can no longer be zero-rated as the goods do not leave the EU and Company A is not registered for VAT in the EU.
However, under the EU place of supply rules, Company A has taken ownership of the goods in Germany and is therefore making a supply of goods in Germany and is required to register for VAT there. When it registers for VAT in Germany, it will be able to recover the VAT that it has been charged by Company B on its German VAT return and will be able to zero-rate its onward supply to Company C as an intra-EU supply, provided Company C is registered for VAT in France and provides Company A with its VAT number.
Once Company A is registered for VAT in Germany, it will be able to take advantage of the EU triangulation simplification for any other trade in the EU that involves purchasing goods in one EU Member State and moving them to another, provided all the businesses are VAT registered in the EU and are located in different Member States.

Practical Tip

If a business buys and sells goods that never come to the UK, no UK VAT is due, but if the supplies take place in the EU, it may be required to register for VAT in another EU Member State.