Updated on May 28, 2022
EU VAT is likely to be required if you wish to sell your digital goods in the EU. The time to register for EU VAT is running out if you’re already doing business in the EU. There you go.)
Good news: The process of registering for the VAT is rather straightforward. How do you keep track of the many VAT rates and apply the correct one to each sale once you have a VAT number?
Let’s start with how to get an EU VAT number, and then we’ll talk about how to fix the rest of the problems. If your company isn’t headquartered in the European Union, read on to learn how to obtain a VAT number.
Does your company need an EU VAT number?
VAT registration and VAT taxation may be necessary if you offer digital products to EU customers.
Even if you don’t satisfy the qualifications, you can still register voluntarily. We’ll talk about the advantages of registering in a moment.
To begin, let’s clarify what a VAT number is and why having one is so critical in the VAT world.
The EU and the rest of the world refer to “value-added tax” as VAT. Each stage of the product’s journey to market incurs an incremental consumption tax based on the value contributed at that particular point in time. It is a destination-based tax in the EU, which means that the actual tax rate is determined by the buyer’s location.
VAT affects both businesses and consumers.
To begin with, consumers in the EU pay taxes when they buy goods or services. Invoices and receipts include a distinct line item for VAT tax. (This is necessary by law!) It is at this point that a seller takes VAT from the buyer, and keeps it until tax season, at which point the seller pays the relevant tax agency.
VAT is also imposed on input goods and services that a firm purchases for use in its operations. Taxpayers can claim a credit for VAT taxes they have already paid when they complete their tax returns. As a result, the company’s tax burden is reduced. The reverse-charge mechanism is a specific tax arrangement for B2B transactions between VAT-registered enterprises.
However, in order to take advantage of these tax savings, enterprises must first obtain a VAT number.
Governments can track registered enterprises’ VAT activity by using a VAT number, which is a value-added tax identification number. Included in these activities are VAT taxes collected from customers, VAT tax payments, and tax credits.
The ISO 3166-1 alpha-2 country code is followed by two or more characters, up to a maximum of thirteen characters, for VAT numbers. Some western countries have VAT numbers that include letters in addition to the standard numeric digits. A VAT number that begins with “EU” may also be used by nations outside of the European Union.