Let’s clear up any confusion around VAT by answering the questions we get asked the most.
What is ‘VAT’?
VAT (Value Added Tax) is a type of consumption tax charged on items that people buy.
All 27 EU member states have VAT. And many other countries around the world have adopted a similar system. Each country has a different name for it. In France, it’s known as TVA. Spain calls it IVA. And in Germany, it’s Mwst. Each country also applies its own VAT rate. VAT collected on online sales is a key source of revenue for any government.
How is VAT collected?
The seller charges their customers VAT, and then pay this to the government when they file their VAT return.
When do I need to register for VAT?
If you’re trading in a country where your company is not established, you need to register as soon as you hold stock within an EU country for onward sale to customers. Holding your stock within a country triggers a taxable supply and therefore, a VAT registration.
The other reason you may need a registration is because you have exceeded a distance selling threshold. If you exceed a distance selling threshold within a calendar year, you have to register in that country and begin charging the local VAT rate on sales.
If you are unsure whether you have crossed a distance selling threshold, we can check them for free!
How long will it take for me to get an international VAT registration number?
Once we have all the paperwork, the registration process can take anywhere between 3 – 10 weeks to receive a VAT registration number, depending on the country. It’s best to plan ahead and make sure you return the documents as soon as possible so we can get the registration sent to the tax authorities.
Ready to get started? Let’s get your business registered!
How much will it cost?
How do I know what VAT rates I should be using?
There are standard, reduced and zero VAT rates which vary from country to country. There is a generic rate table issued by the EU commission.
If you are still uncertain of which VAT rate applies to your goods or service, please don’t hesitate to ask, we have a wealth of knowledge and may be able to tell you straight away. If not, we can carry out a research project to advise of the correct VAT rates to apply. In certain circumstances, if it is still uncertain which VAT rates applies, we can apply for a written ruling from the relevant tax authority.
How often will I have to submit a VAT return?
This depends on which country you are registered in. Some countries will ask for VAT returns each month, others – quarterly or even bi-monthly. At SimplyVAT.com, we will ensure you never miss a deadline through our timely email reminders.
What if I don’t get the information you need to compile the VAT returns to you on time?
If we don’t get the correct data sent to us in time, the tax authority can issue penalties or fines that you have to pay in addition to any VAT you owe. Our new software ensures we can collate the sales data directly from the channels you sell on. We do, however, need you to supply other information such as import documents. Your client manager will work closely with you every time a VAT return is due to ensure we have everything we need to keep you compliant.
What fines and penalties are issued by tax authorities for missed VAT returns or late payments?
Penalties and interest charges can be issued for both late submissions and late payments including backdated VAT returns. The amount of penalty and interest charges differ from each tax authority, for example, the French tax authority will issue a penalty fine of 10% for late submission and 5% for late payment of a VAT return. Please note interest charges will also be added.
What is the ‘reverse charge mechanism’ and when can it be used?
In order to facilitate trade between the European Union (EU) countries, the EU created the Reverse Charge mechanism. The Reverse Charge moves the responsibility for the recording of a VAT transaction from the VAT registered seller to the VAT registered buyer for the good or service sold between 2 EU based businesses. This removes the burden of VAT for the business customer and eliminates the need for the seller to VAT register in the business customer’s country. When a transaction is subject to Reverse Charge, the seller will issue an invoice containing the customer’s valid VAT number (this can be checked on the EC VIES Website and the obligatory wording:
- For services: “VAT Exempt intra-community supply of services – Article 44 and 196 Directive 2006/112/EC”
- For goods: “VAT exempt intra-Community transfer – article 138, 2, c) Directive 2006/112/EC”
An EC Sales List will also need to be completed which details which EU B2B customers the Reverse Charge was applied to.
The recipient of the goods or services reports both their purchase (input VAT) and the supplier’s sale (output VAT) in their local VAT return.
Where can I validate an EU business’s VAT number in order to apply the reverse charge?
The European Commission maintains a website that holds the valid VAT numbers and valid EORI numbers of any EU businesses.
If you need to find out if a customer’s VAT number or EORI number is valid – please visit EC VIES Website
What is a fiscal representative?
Some EU tax authorities require a non-EU business to appoint a Fiscal Representative to help with their VAT registration requirements. A Fiscal Representative is jointly liable for any VAT owed by the seller.
At SimplyVAT.com, we work with trusted fiscal representatives when needed to keep all VAT communication in one spot for our clients!
What are Import Documents?
When importing into the EU from outside the EU, at the point of entry into the EU, import documents will be completed and issued on the import of the goods. Within the EU, there is one standard import document called the SAD (Single Administration Document) used for customs declarations in the EU, Switzerland, Norway, Iceland, Turkey, the Republic of North Macedonia and Serbia. It is composed of a set of eight copies each with a different function. The design and use of one single document was designed to reduce the administrative burden and increases the standardisation and harmonisation of data collected on trade.
The import document identifies who the ‘importer of record’ is. The ‘importer of record’ is responsible for the payment of the import VAT. The importer’s EORI* (Economic Operator Registration Identification) number should be presented in Box 8 of the SAD [which you can see an example of here] (or C88 in the UK) document to ensure the import VAT can be reclaimed via the VAT return – if the importer is VAT registered in the country of entry into the EU. Some freight forwarders will provide their own breakdown of this, on their own headed template and if this is the only evidence this cannot be reclaimed.
*The EORI number is issued by the individual country’s customs authority, however, there is a central EU database held. The number is issued to importers who wish to import goods into the EU. An EORI number’s validity can be checked on the VIES EORI checker website.
In the UK, the SAD document is known as the C88. If completed correctly by your freight forwarder, ie. The importer’s EORI number is put into Box 8, this will trigger the issuance of a C79 document (which you can find an example of here). This is the only document that the UK tax authority (HMRC) will accept in order to reclaim the import VAT via the sellers UK VAT return.
What is ‘Intrastat’, and do I need to file it?
Intrastat stands for ‘Intra-community statistics’ and is a mandatory report (once thresholds are exceeded) requested and used by the EU tax authorities to monitor the economic health of the EU countries.
Each country has a separate intrastat threshold for both ‘Arrivals’ and ‘Dispatches’ of goods between EU countries. These are the EU equivalent of ‘imports’ and ‘exports’. The thresholds differ per country – see complete list here. Once a threshold is exceeded, you will be obliged to file reports usually on a monthly basis to the relevant country.
How do I reclaim VAT from my local tax authority to pay it to the tax authority that it is due to?
E.g. if I have incorrectly paid VAT to HMRC, how do I reclaim this VAT so it can be paid to the German Tax Authority. How long does this process take?
We have helped many clients who have inadvertently paid their local tax authority instead of the correct tax authority due to the distance selling rules or when stock has been held in another EU country.
We will calculate the VAT due in the correct country and present this in a summary format for reclamation from the local tax authority. The exact reclaim procedure depends on the country of reclaim, usually, it is filed as a correction. The refund is processed and paid back to the company of reclaim. In respect of the country which needs to receive the VAT amount, we will advise them that you are awaiting a refund. Payment plans can also be arranged as long as the recipient tax authority is confident that the issue was down to ignorance of the rules rather than tax evasion.
Penalties for late submissions and payments will be due, however, it is possible to negotiate these down depending on the country.
Do you have an Affiliate programme?
Yes, we do and we would love the opportunity to work with you. We pay commission for every client signed up who was introduced by you. Visit our partner page to find out more.