Updated on May 30, 2022
Business owners in the United States should be aware of this.
When it comes to sales and use taxes, even if you’ve never missed one, there may be additional fee you’ll have to pay. Selling to customers in the European Union (EU) necessitates keeping up-to-date records of sales tax (VAT).
Customers in the EU who purchase physical and digital products and services are subject to “VAT,” which stands for “value-added tax,” a consumption tax. As a non-EU seller to EU customers, you may be liable for collecting and remitting these fees. Find out why a VAT identification number may be necessary for your company in the following paragraphs.
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.
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 simpler than you may expect.
How to use an EU VAT Identification Number
Your VAT number is needed in a variety of situations. 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! VAT collection is entrusted to your capable hands.
For EU enterprises and EU consumers, though, you can forego it. Reverse charging for B2B sales will take care of the VAT on physical product sales, which will be paid at customs when the goods are brought into the country.
Note: You must collect the EU VAT identification number from the buyer at the time of sale in order to apply reverse charging.
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?
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.
As a result, when you first apply for an EU VAT number, you’ll be required to file your taxes every three months.
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 European Union’s OSS is a simplified tax system. In the country where you initially registered for your VAT number, you will only need to submit a single comprehensive VAT return.
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What happens if I don’t use a VAT Identification Number?
If you don’t pay your US taxes because you didn’t register for VAT, you’re doing the same thing. 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 face fines, back payments, and even fraud charges.
For companies with expensive legal counsel on retainer, fines like this might not be a huge concern. But if you’re a tiny business or a solitary entrepreneur? Even a small amount of money could close your doors.
In addition, there’s a moral case to be made in this context. Customers in the European Union are more likely to buy from you. It’s not fair that you don’t have to pay the same taxes as EU vendors. You can put your faith in 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 keeping track of invoices, return filings, and compliance is a whole other ballgame. Therein lies the complication.
Quaderno, a partner that specialises in navigating EU distance selling restrictions, can assist a US-based corporation that owes VAT on digital products sales. For internet enterprises like yours, Quaderno is a tax-compliance automation solution.
Take Quaderno for a spin and experience for yourself how simple VAT management may really be.