Why you need a VAT Identification Number

Updated on July 20, 2022

Why you need a VAT Identification Number

Carlos \sin \sTaxes
It was conceived of on

The 11th of June, 2021 | Reviewed on

14th of March, the year 2022
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. 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 company selling to EU customers, you may be responsible for collecting and remitting these taxes. Continue reading to find out if a VAT identification number is necessary for your company.

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. VAT payments, returns, and tax credits are all things you’ll benefit from using this software.

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 is needed in a variety of situations. There are times when the number must be used, such as when completing a tax return.

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When do I charge VAT?

Congratulations if you’re a US-based company providing digital items to European customers. VAT collection is entrusted to your capable hands.

For EU firms and EU consumers, however, you can forego this need. The reverse-charge method will cover B2B sales, while VAT on physical product sales is paid at customs on import.

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. High-earning firms have to file VAT returns every month, whereas lower-earning businesses only have to do so once a year, depending on the size of the business. As you continue to file, this will be modified accordingly.

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 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?

As in the United States, failing to pay your taxes is a lot like neglecting to register for VAT and paying it. Unless you owe a lot of money to the EU tax authorities, they’re unlikely to show up at your door.

However, if it turns out that you purposefully ignored your commitments, 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. 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. Selling to customers in the EU is advantageous to you. It’s not fair that you don’t have to pay the same taxes as EU vendors. 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?

It’s simple to obtain a VAT registration number. But keeping track of invoices, return filings, and other compliance issues? Therein lies the complication.

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.

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