Updated on May 16, 2022
Take note, American entrepreneurs!
For those who have paid their sales and use taxes on time, there may be an additional tax they must 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. These fees may have to be collected and remitted by a non-EU company selling to EU customers. Find out why your company might need a VAT identification number by reading on.
What is a VAT Identification Number?
The VAT identification number is the unique identifier used by EU state governments to track the activity of your firm, much like your EIN or FTIN. Tracking VAT payments, filing returns, and claiming tax credits are all possible outcomes.
Your EU VAT number (or “VAT registered number”) will be sent to you after you register to pay your digital tax. 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 on a number of occasions. When it comes to completing a tax return or completing specific steps in the sales process, having the number handy is a necessity.
When do I charge VAT?
Congratulations to US-based companies that sell digital items to EU customers! You get to be the one who collects VAT for the entire country.
For EU enterprises and EU consumers, though, you can bypass it. Reverse charging for B2B transactions will be used, while VAT on physical product sales will be paid at customs.
The reverse-charge technique can only be used if you obtain the customer’s EU VAT identification number at the point of sale.
The receipt or invoice should always include your EU VAT number as well as your customer’s number(s).
When do I file a VAT return?
Every three months, you must submit an EU VAT return, even if no sales were made during that time period. High-earning firms have to file VAT returns every month, whereas lower-earning enterprises only have to do so once a year, depending on the size of their organisation. As you file, this will be changed.
In the beginning, when you apply for an EU VAT number, you must file quarterly.
The EU One-Stop Shop is the only place where you may submit and remit VAT payments using your VAT identification number (OSS). The European Union’s OSS is a simplified tax system. One VAT return will enough in the nation where your VAT number was first registered.
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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 in the EU. It’s unlikely that EU tax authorities will show up at your house (unless you owe a lot of money!).
However, if it turns out that you purposefully ignored your responsibilities, you could face fines, back payments, and even fraud charges.
For multinationals with expensive legal counsel on retainer, penalties like this may not be a huge concern. Then what about a tiny business or lone entrepreneur? Even little expenses can put your business in jeopardy.
There’s also a moral case to be made here. Selling to customers in the European Union is advantageous to you. It’s not fair that you don’t have to pay the same taxes as EU vendors. We’ve got your back. Having correctly met your VAT responsibilities will allow you to rest easier at night.
How can I get help with VAT compliance?
The process of obtaining a VAT number is simple. But keeping track of invoices, return filings, and compliance is a whole other ballgame. Things get complicated at this point.
Using a partner like Quaderno to navigate EU distance selling restrictions and stay on the right side of the law is a smart move if you’re a US-based company selling digital items and owing VAT. Tax compliance automation is made easy with Quaderno, a platform created specifically for internet enterprises like your own.
It’s time to see how simple it is to manage VAT with Quaderno.
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