Non-EU businesses selling to EU customers may face many VAT obligations depending on the nature of their transactions. Advice should be sought to ensure compliance and efficiency.
VAT is the EU’s version of sales tax. If you are selling goods from the USA to customers in Europe or other countries where VAT is used, you might have certain obligations to register for and charge European sales tax.
VAT is similar to sales tax, but there are a couple of key differences:
VAT is charged upon importation of goods in the EU and on every subsequent sale in the supply chain, including the final sale to the retail customer.
However, once you are VAT registered you can recover the VAT you pay upon import when you do file your tax filings. On the customer facing side, you are obliged to add VAT onto the retail price of your goods and this tax charged must be remitted to the relevant tax authority.
The VAT rates differ across the EU countries – it is 19% in Germany and 20% in the UK for example. The VAT you pay on import depends upon the country. There are various methods used by customs officials in the EU to value your imported goods; the most common being the selling price or the full production cost. Regardless, the import VAT you pay can be recovered in full when you file your VAT return.
On the sales side, you will charge the relevant VAT rate as a percentage of the retail price and this tax is paid over to the tax office.
These VAT registration/(s) which your company will obtain will be non-resident VAT registrations allowing you to operate in compliance with European VAT legislation without the need for any business presence in the EU (premises, legal entities, bank accounts etc.).
The registration threshold for non-resident businesses is in fact nil and as a result any overseas entity that makes a sale of any value is required to be registered for VAT.
This is different for locally established EU companies who are given the option to register until a certain sales threshold is reached. In order to be compliant as a foreign business, you thus need to have a VAT registration and comply with the laws and regulations from your first sale into that jurisdiction. You also need the VAT number to ensure the import tax paid will be refunded. Try our VAT Number Checker Tool here.