It’s a constant question for many financial directors over how best to manage VAT compliance for your business. The “VAT compliance” function of a business is the most important tax process for many companies. Especially for businesses who have a presence or trade in multiple jurisdictions.
So how best to approach it? Does one manage it all in-house or is there an argument to say it’s better in the hands of someone else? What options are available to you when you need to comply with VAT regulations, filing requirements and tax liabilities.
Why it’s important you get your VAT compliance right
The legal obligations, VAT reporting responsibilities and complex calculations required make it a very difficult process to manage, especially without technology. When you factor in the strict penalty regimes for non-compliance and missing deadlines, it is no wonder all businesses need help in this area.
VAT Compliance starts with knowing when to register
It should be clear that almost all businesses will need to be VAT-registered in their own country. In addition, those who trade with customers or suppliers in a foreign country that has a VAT regime will very often have to register for VAT and comply with their local laws. Ultimately, the key question is how businesses manage this process.
All VAT-registered businesses are required to file periodic VAT returns. These are statutory declarations where all taxable transactions which took place in that period must be reported and any VAT liability or refund is calculated. Each country has a unique filing deadline which usually corresponds to the date that any tax liabilities must be paid. Failure to submit a VAT return on time or late settlement of a VAT liability will result in penalties being imposed.
So who should take care of this administrative process?
The answer is there are only two options available: deal with it internally or appoint an expert.
Managed Compliance vs. In-house
For local VAT registrations, the vast majority of companies will deal with the VAT in-house or outsource it to the company accountant.
However, for foreign (non-resident) VAT registrations, it is probable that the relevant in-house resources do not exist and in other cases, it is a legal requirement to appoint a certified representative in the foreign jurisdiction
When evaluating this decision, companies should consider the below requirements:
|In-house Considerations||Outsource Partner Requirements|
|Employees must have local language skills||Multi-lingual expertise|
|Understanding of foreign tax legislation||Detailed knowledge of local VAT laws|
|Local representation may be a prerequisite||Relevant accreditation to act as tax or fiscal representative|
|Technical specifications must be set up (access to tax office portals and software)||Access to all filing portals and required VAT software|
|Might have to deal with audits (in-country)||Audit management capabilities (remote and onsite)|
|Knowledge of intricacies of compliance rules (invoicing, VAT rates, exchange rates)||Detailed guidance on all compliance considerations|
|Preparation and submission of relevant filings (VAT returns and other statutory declarations)||Ability to prepare and submit all statutory filings and comply with reporting obligations|
|Deadline management and compliance control||Intelligent workflow process to manage deadlines, alert, update and remind clients|
|Software to automate processes and ensure accuracy and compliance||Compliance and filing software to remove human error and create efficiency and automation|
|Most countries are moving towards digitalisation of VAT / real-time reporting obligations which require a technical solution||Software to manage real-time reporting or digital tax obligations in all countries|
|Data analysis, tax coding and security||Advice on transactional tax code classification and VAT treatment and secure access to or integration with client data|
Choosing an outsourced partner
Some VAT specialist businesses, like Vatglobal, offer a centralised outsourced solution for businesses who require assistance with their VAT compliance in multiple jurisdictions. A managed compliance service should be able to provide:
- Registration and fiscal representation.
- Integration with our proprietary software to facilitate the submission of statutory VAT declarations.
- Compliance support and technical advisory.
The outsourced partner will need to register themselves as the formal representative of your business for VAT purposes, allowing them to communicate on your behalf and submit all statutory declarations. In most cases, this tax agent will prepare the VAT calculations and filings as well as check the underlying transactional data for compliance issues.
It’s apparent that in many cases, it is not legally possible for a company to deal with the foreign VAT compliance in-house, and even when it is technically viable, there are several complexities which make it far more effective to outsource the function. That being said, businesses with capable tax teams can certainly manage the VAT process in many countries if they have the necessary resources.
Enjoying this article? This article represents a snippet from the more comprehensive Guide to Managed VAT compliance. If you wish to download this detailed FREE guide, click here.