VAT is everywhere but it’s a complexity of small differences. This article gives simple solutions to the complex, expensive and confusing problem of global VAT,
In theory, VAT is simple. The principles are easy enough to understand. There is broad agreement on how to regulate and collect VAT. If you know how VAT works in one country, you have a pretty good idea of how it works everywhere else.
Or not. The European Commission’s report on the VAT GAP forecasted the loss of VAT revenue to be €164 billion in 2020. So not everyone is being VAT-savvy.
And VAT is everywhere. It’s the world’s largest source of consumption tax. Over 160 countries have adopted VAT. You pay VAT when you buy milk at the corner shop. And VAT needs to be accounted for when a contractor hires an engineering firm to perform a multimillion Euro project.
At the same time, VAT is extremely complex. Think of it as the complexity of small differences. Each country has subtly different VAT compliance requirements. Keeping track of those subtleties is extremely difficult. But failing to keep track of them can seriously harm your business.
When do VAT reverse charges apply? Is digital services VAT something you need to worry about? Why are online financial services classified as ‘digital services’ in this country but not that country?
What are the different thresholds for distance selling? And why are the rules for B2B transactions different from the rules for B2C transitions?
Putting theory into practice
The real complexity, however, is not just understanding your VAT obligations but complying with them.
VAT compliance can be confusing, time-consuming and error-prone. You need to submit all the correct documentation, in the right format for each country, according to the different deadlines set by each jurisdiction.
Fortunately, automation and expert guidance can prevent inefficiencies and human error that make noncompliance almost inevitable. That’s good news, because even accidental non-compliance can result in serious penalties.
Wrapped up in red tape
Managing global VAT is administratively demanding. Massively demanding. Businesses who want to reach customers around the globe often need to be registered for VAT in several countries. In each jurisdiction, the procedures for registration are different. The filing procedure is different. The dates at which you need to file are different. Even The language on the official documents is different.
Oh, and you need to store all those invoices and customs certificates safely for years. If tax authorities request a document and you don’t have it, you could be in trouble.
Why compliance matters
Why is VAT compliance so important? The short answer is that noncompliance – even accidental non-compliance – can result in serious penalties and interest charges.
In this article published by the EU commission, it states that European companies pay €158 million per day in interest costs alone. That’s interest on late tax payments! That’s a lot of money to be giving away to governments on account of something that can be managed with ease today.
Furthermore, there are deeper risks. For example, failure to file VAT correctly and on time can lead to extended audits, which could uncover past irregularities. Ultimately, your businesses could be liable for massive interests payments, with potential ruin cash flow consequences.
Tax authorities may even request copies of invoices and corroboratory documentation from your clients and partners, tarnishing your firm’s reputation.
You also run the risk of being removed from online platforms or being forced to cease operations.
A simple digital solution for a complex problem
In conclusion, VAT is so complex and time-consuming for three broad reasons.
Firstly, knowing precisely which VAT rules apply to your business is complicated. It’s especially complicated because VAT laws keep changing to adapt to an evolving global economy.
Second, the actual process of compiling all relevant documentation and filing on time, in every jurisdiction in which you have an obligation, is extremely laborious and error-prone.
And third, failing to comply with your VAT obligations has very serious consequences.
We designed technology-driven VAT solution to address these problems.
- Our online knowledge portal gives you access to the latest VAT information at the touch of a button. Plus, our expert team provides advice and insight on optimising your global VAT compliance.
- Vatglobal’s proprietary VAT technology automates the entire VAT compliance process. Filing becomes faster, more efficient and more secure. You receive automated reminders for all your filing deadlines. In addition, our error-correcting AI ensures that all filing is performed correctly.
- By combining world-class human expertise with the most advanced VAT compliance technology, we ensure your businesses is always 100% VAT compliant, wherever you have an obligation.
Global VAT is complex. We make VAT compliance as simple as 1,2,3. Get in touch with Vatglobal so you can stop worrying about VAT and focus on growing your business.