The export VAT system – cash optimisation

The COVID-19 situation has caused severe economic challenges as well as negative impact on cash flow for many businesses. In Denmark, the Danish Parliament has implemented extensive relief packages for businesses operating in Denmark.

Many of these new initiatives are cash flow focused, such as the postponement of VAT payments. However, a business may use a number of existing methods or processes to optimise its cash flow.

One of these optimising methods is the so-called “export VAT scheme”. The purpose of the export VAT scheme is to obtain a liquidity advantage on exports. The liquidity advantage consists of the company being able to recover input VAT before the output VAT has to be paid to the Danish Tax Agency. In general, this timing effect results in a spread of approximately 14 days. Due to further reliefs driven by the COVID-19 pandemic, the spread may increase to a total of 1 month and 14 days.

The export VAT scheme can be used by companies selling goods and/or services without Danish VAT to customers abroad.

Understanding the export VAT system

1. The company requests the Danish Tax Agency for a partial VAT registration – also referredto as the “export VAT number”. The company will then operate with two VAT numbers, i.e. the main number and the new export VAT number.

2. A pro forma invoice subject to VAT is issued from the main VAT number to the export VAT number for the entirety of the export sales of a VAT period.

3. The main VAT number must include the output VAT from the pro forma invoice in its VAT return, whilst the export VAT number includes the VAT as input VAT.

4. The export VAT number issues invoices without VAT to foreign customers under the reverse charge mechanism (which has previously been carried out from the main VAT number).

Accordingly, the export VAT number will always be in a refund position by filing negative VAT returns.

5. For each VAT period, the main VAT number files and pays VAT upon the due date applica-ble for the period. For each VAT period, the export VAT number files the negative VAT immediately after the end of the VAT period.

6. The export VAT number receives repayment of the input VAT excess before the mainnumber has to pay VAT.

7. A VAT account must be kept for both the main VAT number and the export VAT number.