In the European Union sellers can enjoy the benefits of the single market system. To make this market system work adequately, Value Added Tax (VAT) is an important concept.
As a seller in the EU, or someone who sells to EU consumers, you need to know about VAT. This article will tell you a bit about the history of VAT, what is a VAT number, why you need a VAT number, and how to file your VAT.
Are you a seller within Europe? Then you need to know about VAT. In this article we will highlight the history of VAT, what it defines and why you need a VAT number in order to sell across borders.
Why was VAT introduced?
In 1993, the European Union (EU) was created. It sprouted out of the original six countries that formerly made up the European Community (EC). Countries in the EC used different forms of indirect taxation.
The differences in indirect taxation were quite hard to understand. It was practically impossible to determine the real amount of tax included in the final price of a product. Because of this, it was quite often that EC countries overestimated the amount that could be refunded with exportation of products.
Why does this matter? Well, it enables sellers in some countries to sell their products at lower prices. This illegally creates a stronger economy in some of the countries in the EC.
When the EU was created, it came with the idea of creating a single market in Europe. This needs a neutral and transparent tax system, allowing for the exact amount of tax to be refunded at the point of export. This is where VAT comes into play. VAT is the indirect consumption tax legislation that holds for all of the EU.
What is a VAT number?
As indicated earlier, every seller who is selling to EU consumers needs a VAT registration number. Your VAT number is a personal number. Only because of your VAT number, you are able to claim back the VAT from the tax authorities.
The VAT number is used for several purposes. It is possible that you need different VAT numbers in different EU member states. In terms of the number itself, a VAT number looks different in every EU country. However, the format is always two letters which indicate the country, followed by a block of digits or characters. For example, a German VAT number looks like this: DE0123456789.
Why do you need a VAT number?
VAT is charged at all stages of the supply chain. But, when set up correctly, VAT should in most cases not become a cost to you or your company. In order to make this work, you need a personal VAT number.
Without your VAT number, the European tax authorities can’t identify you as a taxable person. This means you will not be able to claim back VAT. Also, it means that the people you work with cannot claim the VAT they paid to you.
So in short, you use your VAT number for the financial contact you have with your customers and suppliers. With correct communication, VAT is of no cost to your company and the European single market is allowed to work smoothly.
There are a lot of different instances where a company needs to request a VAT identification number. Also, which VAT number you need differs per instance. Do you need a PAN European VAT number? A local VAT number? Or do you need a One Stop Shop VAT registration?
What can you do with a VAT number?
Customers pay VAT over your products. As a seller, you also have to pay VAT to your suppliers. When filing your VAT return, it is allowed to deduct the VAT you paid to your suppliers. This means you only have to pay the difference between the two. However, tax authorities have to be sure what the difference is. Your VAT number is important for the accuracy of this process.
The most important thing to know about the VAT number is that it is a requirement for your invoices. This way, tax authorities can see in what instances you paid VAT and when you received VAT. Also, if you sell products via a website, it should display your VAT identification number. Lastly, your VAT number should also be stated in the recapitulate statement for goods and services supplied.
Who needs a VAT number?
In general, any person or company that does business in the EU needs a VAT number. This includes persons and businesses that are not located in the EU. In all the following instances, you will need a VAT number:
- A company based in the EU that carries out supply of goods taxed with VAT.
- A foreign company that buys and sells goods in the EU.
- A company that imports goods into an EU country, including cross-border transportations within the EU.
- If you store goods in a warehouse in the EU.
- If you receive services for which it is liable to pay VAT.
Non-resident companies that are selling in a particular EU country must, thus, always register for VAT.
VAT registration number Amazon
E-commerce sellers can make use of the One Stop Shop. Especially when you make use of Amazon FBA, it might be obligatory to have a registration. This is the case when your total e-commerce sales exceed the 10.000 euros threshold. If this applies to you, you can read more about it here.
How to file for a VAT number?
Registering for a VAT number differs per country. If you are selling to different EU countries, it might be a time-consuming task. Staxxer is here to help. Our Staxxers are located in all EU countries and are accustomed to the local tax infrastructure. You can request your VAT registrations here or take a look around and shoot us a message!