A value-added tax (also known as VAT) is levied in some countries from selling/purchasing certain goods and services. Generally, it can be defined as a consumption tax estimated and charged based on the value being added. Usually, VAT is considered destination-based, as application of VAT depends on the jurisdiction of the seller and purchaser. It must be noted that VAT provides almost 20% of total tax amount charged worldwide.
Whenever you choose to do business in the EU, you are surely to face the question of VAT number registration. VAT questions are complex. Nevertheless, all EU Member States follow EU VAT Directive, thus each EU country worked out its own legislation towards VAT requirements and reports.
As soon as the company is registered for VAT number, it must regularly file its VAT report, which will contain information about the incoming and outgoing invoices, whether those were issued / received by other EU counterparties or non-EU partners or not. Most importantly, all deals must be declared in the VAT report, including invoices where 0% VAT was applied.
Compulsory VAT registration for EU companies
There may be several conditions, when an EU based company is required to register for VAT and submit VAT reports. In most of the EU jurisdictions, VAT registration should be done in the following cases:
When a company registered in the EU reaches certain sales turnover, it is required to register for VAT. The thresholds for obligatory VAT registration are determined by VAT Law of each EU Member State. For example:
- €16,000 in Estonia,
- €30,000 in Austria,
- CZK 1,000,000 in Czech Republic,
See complete table of EU VAT Registration Thresholds here: EU VAT Registration Thresholds by Member State
Any company registered in the EU may choose to apply for VAT registration voluntarily, even if the determined by local VAT Law thresholds are not reached yet.
Foreign company registration for EU VAT
For foreign businesses operating across the European Union, there can be requirements in order to obtain EU VAT number. The requirements are listed not only in the EU VAT Directive, but in local VAT laws of each Member State as well. Typically, the requirements to register for EU VAT are:
- A foreign company is moving goods across the borders of the EU;
- A foreign company is storing goods in warehouses located in the EU;
- A foreign company is providing such works and services as conferences, exhibitions, instalment of equipment, etc., in the EU;
- A foreign company is involved in distance selling, i.e., selling goods online to consumers in the EU.
Application for VAT number can take from 5-10 days to several weeks to process, depending on the certain Member State procedure. Required documents and information for VAT application vary from country to country as well. VAT authorities have the right to ask additional questions and request documents to prove the company's intention to trade in a certain EU country (agreements, invoices, etc.).
Confidus will provide full guidance and support with VAT application in any EU Member State – feel free to contact us.
Once the registration of the VAT number is approved by the tax office, your business entity receives VAT number. From now on you are required to maintain the VAT status, submit VAT reports and indicate your VAT number correctly. Your commitments are as follows:
- Quote your VAT number correctly: VAT number format always: a) starts with a 2 letter abbreviation code of the EU Member State (for example, LV for Latvia, AT for Austria, CY for Cyprus, etc.,) and b) contains numbers only (for example, in Denmark - DK12345678) or combination of letters and numbers (for example, Ireland - IE234567WA);
- Check the validation of VAT in the VIES system (VAT Information Exchange System). You must clarify your valid or non-valid status of the VAT as well as its proper spelling that can be always checked using the VIES online tool http://ec.europa.eu/taxation_customs/vies/. Please note that mistakenly quoted VAT numbers can cause delays and even fines, when filing VAT reports to the tax offices;
- Follow the requirements of the VAT invoice. If your business is registered for VAT, then your sales invoices would always contain the following fields:
- invoice issuance date;
- sequential invoice number;
- name, registered address, registration number and VAT number (if there is such) of your client;
- description of goods or services, including their amounts, volume, price per item and the actual date when the goods or services are delivered (if this date is different from the invoice issuance date);
- Net amount, VAT rate and amount, total sum including VAT amount.
A VAT return – is a balance document, which indicates the amount of VAT due on sales (also known as the output VAT) and the amount of VAT that can be returned on purchases (also known as the input VAT), hence providing detailed information about how much VAT is paid and how much can be reclaimed from the local tax administration.
Periods of VAT returns
The periods of VAT report mostly depend on the turnover of the company, number of deals within the EU and on the legislation of the specific EU Member State. Most common periods for VAT returns are:
- On monthly basis: 1) for EU companies with large turnover and large amount of transactions; or 2) typical for such EU States as Bulgaria, Poland, Czech Republic;
- On quarterly basis: typical for such countries as Cyprus, Austria, the Netherlands;
- On semi-annual basis: this period term is used rarely for companies with limited activity or 2) companies which are newly registered for VAT (for example, Cyprus);
- On annual basis: 1) in some EU States Annual VAT Return is used as additional report uniting all monthly or quarterly VAT declarations submitted throughout the year (for example, in Italy); or 2) this period can be used for non-active companies, which have VAT numbers.
We must note that more and more EU Member States move to monthly VAT returns, due to the toughened compliance and increased amount of intra-community deals, and especially, increased amount of fraud deals with 0% VAT rate application.
Information indicated in the VAT return
Each Member State draws its own rules for VAT returns, but there are some common guidelines for all VAT declarations:
- Totals of all incoming and outgoing invoices (dis-regardless, made with EU or non-EU companies);
- Totals of VAT for all incoming and outgoing invoices (including all types of VAT rates: standard VAT rate and reduced VAT rate);
- VAT amount due (total of VAT payable to the government);
- Total of intra-trading supplies with 0% VAT rate (including names of countries, where the goods come from and where they are delivered to).
Besides periodic VAT declaration VAT scope of work includes:
- EC Sales Lists (ECSL) and Intrastat forms;
- VAT Refunds;
- EORI number requirements.
Professional support is crucial when dealing with VAT matters, especially when it comes to VAT refunds and VAT returns. Do not hesitate and consult with Confidus Solutions regarding correct use of 0% VAT rate for intra-trading and triangulation schemes.
EU VAT Registration Thresholds by Member State
Below you can default VAT rates imposed in countries of the European Union. Keep in mind, that increased or decreased tax rate, as well as tax exemption may be applicable, based on circumstances.
|Czech Republic||CZK 1million|
If you want to know more about exact VAT tax rate imposed in certain jurisdiction - ask us.