Updated on May 9, 2022
It’s time for a heads-up to American company owners!
When it comes to sales and use taxes, even if you’ve never missed one, there is additional tax you may be forced to pay. Your VAT Number and VAT payments should be on your radar if you sell to European Union (EU) consumers.
Consumers in the European Union are charged a consumption tax known as “VAT,” which stands for value-added tax, whenever they buy physical or digital products or services. The collection and remittance of these fees may fall on you as a non-EU business selling to EU customers. Find out why your company might need a VAT identification number by reading on.
What is a VAT Identification Number?
A VAT identification number, like your EIN or FTIN, is used by EU governments to keep track of your company’s operations. Tracking VAT payments, filing returns, and claiming tax credits are all possible outcomes.
After registering to pay your digital tax, you will receive your EU VAT number (or VRN, for “VAT registered number”) Registering for EU VAT is much easier than you might think.
How to use an EU VAT Identification Number
Your VAT number comes into play at a number of times. There are times when it’s necessary to include the number in a sales transaction or when filing a tax return.
When do I charge VAT?
Congratulation to any US-based company that sells digital items to EU customers.!! VAT collection is entrusted to your capable hands.
It’s not necessary, though, if you’re selling to companies in the EU or selling actual goods to residents of the EU. Reverse charging for B2B sales will take care of VAT on physical goods sales, which will be paid at customs.
Note: You must collect the EU VAT identification number from the buyer at the time of sale in order to apply reverse charging.
You should always include your EU VAT number and the number of your clients on the receipt or invoice that you provide.
When do I file a VAT return?
Even if you haven’t sold anything in the last three months, you still have to file an EU VAT report. Firms with significant revenues are required to file VAT returns on a monthly basis, whereas businesses with lower revenues are only need to file a yearly VAT return. This will be changed over time as you file.
However, the frequency of your VAT returns will always be quarterly when you first apply for an EU VAT number.
When reporting purchases and remitting VAT payments through the EU One-Stop Shop, you must provide your tax identification number (TIN) (OSS). The OSS is an EU-wide tax system that’s designed to be simple and straightforward. Your VAT return will be filed in the nation where you originally applied for your number.
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What happens if I don’t use a VAT Identification Number?
Failure to pay taxes in the United States is very similar to failing to register for VAT and failing to pay it. Unless you owe a lot of money, the EU tax authorities are unlikely to show up at your home.
However, if it turns out that you purposefully ignored your commitments, you could be hit with fines, back payments, and even fraud charges.
Multinational corporations that retain well-paid legal counsel may not be concerned about the severity of these fines. But what if you’re a sole proprietor or a tiny business? Even a small amount of money could close your doors.
There’s also a moral case to be made here. Customers in the European Union are more likely to buy from you. There is no reason why EU sellers should be exempt from VAT. You can put your faith in us. You’ll be able to rest easier at night knowing that your VAT responsibilities have been fully met.
How can I get help with VAT compliance?
The process of obtaining a VAT registration number is straightforward. How do you, on the other hand, remain on top of invoicing, tax filing, and other regulatory requirements? That’s the tricky part.
With the support of an EU-based partner like Quaderno, a US-based corporation that sells digital items but owes VAT on those sales can avoid getting tangled up in EU distance selling restrictions. Tax compliance automation is made easy with Quaderno, a platform created specifically for internet enterprises like your own.
See for yourself how simple VAT administration can be with Quaderno’s free trial.