Why you need a VAT Identification Number

Updated on May 27, 2022

Why you need a VAT Identification Number

US company owners, beware!

Even if you’ve never been late on a sales or use tax payment, you may still be liable for this additional tax. Your VAT Number and VAT payments should be on your radar if you sell to European Union (EU) customers.

Value-added tax (VAT) is a consumption tax that EU customers pay when they buy physical and digital products and 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. You’ll use it to keep track of VAT payments, to submit tax returns, and to claim tax credits.

Your EU VAT number (also known as a “VAT registered number” or “VRN”) will be provided to you once you have registered to pay your digital tax. Don’t be alarmed; EU VAT registration is much simpler than it appears.

How to use an EU VAT Identification Number

Your VAT number comes into play at a number of times. 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?

It’s great to be selling digital items to EU customers from the United States. In return, you get to be the one to collect VAT.

Nevertheless, if you’re selling to EU firms or selling actual goods to EU consumers, you can avoid it. Reverse charging for B2B transactions will be used, while VAT on physical product sales will be paid at customs.

If you want to make use of the reverse-charge method, you must first get the customer’s EU VAT identification number.

Invoices and receipts should always include your EU VAT number and the number of your clients.

When do I file a VAT return?

Even if you didn’t make any sales during the previous three months, you must nevertheless submit an EU VAT report each quarter. VAT returns must be filed on a monthly basis by some enterprises with significant revenues, but just once a year by others with smaller revenues. As you file, this will be changed.

However, the frequency of your VAT returns will always be quarterly when you first apply for an EU VAT number.

The EU One-Stop Shop requires you to use your VAT identification number to record your sales and pay any VAT you owe (OSS). The OSS is a European Union-wide tax system that streamlines the process. You will only have to file one VAT return in the nation where you first obtained your VAT number.

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What happens if I don’t use a VAT Identification Number?

If you don’t register for VAT and don’t pay it, it’s similar to not paying your US taxes. Unless you owe a lot of money, the EU tax authorities are unlikely to show up at your home.

A finding that you purposefully ignored your responsibilities could lead to penalties like 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 if you’re only a solopreneur or a tiny business? Even little expenses can put your business in jeopardy.

There’s also a moral case to be made here. When you sell to people in the European Union, it’s to your advantage. What’s wrong with being taxed the same as EU sellers? You can rely on us. You’ll have a better night’s sleep knowing that your VAT requirements have been met.

How can I get help with VAT compliance?

The process of obtaining a VAT number is simple. But how can you truly remain on top of invoicing, submitting returns, and complying with regulations? That’s the tricky part.

As a US-based company, Quaderno can assist you navigate EU distance selling restrictions and stay on the right side of the law, even if your firm is situated in the EU. As an internet business owner, Quaderno can help you automate the tedious task of filing your tax returns.

Try out Quaderno for free and see how simple it is to manage VAT.

The tax experts at Quaderno have a great deal of experience in the field, but they are not qualified tax experts. Any questions or concerns should be directed to an experienced tax advisor or accountant.