What is the VAT treatment of electronically supplied services in a DLT context?
The analysis of transactions from a VAT perspective requires an understanding of the underlying activity taking place. Like any other transaction, transactions involving DLT assets shall be guided by the existing provisions, principles, and jurisprudence embedded in VAT legislation. From a VAT perspective, a transaction must be analyzed by reference to the nature of the activities, the status of the parties involved, and the specific facts and circumstances of the particular case.
Before any VAT is applied, the place of supply of the good or the service being provided must always be considered and very carefully analyzed. Very relevant to mention especially in the context of DLT asset transactions is the VAT treatment of supplies deemed provided electronically for VAT purposes, commonly referred to as electronically supplied services (ESS).
What is the VAT in Malta in DLT sphere?
For Malta VAT purposes, and in line with the EU VAT directive, services that are delivered over the internet or an electronic network, the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology qualify as electronically supplied services for VAT purposes. Based on such definition, careful analysis must be made when considering the VAT implications for certain transactions in the DLT sphere such as the provision of crypto exchange platforms. Specifically mentioned in Council Implementing Regulation (EU) No 282/2011 which lays down the implementing measures of the EU VAT directive are services automatically generated from a computer via the Internet or an electronic network, in response to specific data input by the recipient.
The VAT treatment for ESS is treated differently when the service is provided in a B2C context, that is when the customer is not a taxable person. In this instance, the place of supply of the service, i.e. the place where the service is subject to VAT or otherwise, should be where that customer is located for VAT purposes. This poses a challenge to suppliers providing exchange platforms that are automated, involving minimal human intervention, as the location of the customer becomes crucial in arriving at what VAT is to be charged, if any, as well as the right of input VAT recovery that it will lead to.
What VAT can the company claim back?
Input VAT recovery is linked to whether the supply is subject to VAT or otherwise exempt in the location of the customer, and also how the service is treated in Malta, should the supply take place in Malta. This means, that the Malta VAT treatment becomes crucial to determine what VAT can the company claim back. From an administrative perspective, having customers located elsewhere does not mean multiple VAT registrations in every country, as a simplified procedure referred to as the Mini-One-Stop-Shop (MOSS) system is in place whereby the supplier can opt for one single reporting registration in the country where established.