Selling your goods to private individuals, e-commerce sellers, in multiple countries – especially in the European Union – creates VAT compliance obligations in multiple countries. It is illegal to trade in a country where you should be VAT registered but don’t have a VAT number. Tax authorities in the EU and across the world are implementing measures to identify and penalise non-compliant businesses, including forcing platforms such as Amazon and eBay to close accounts of non-registered sellers. Therefore, it is fundamental that your business registers for VAT wherever required.
But what does it mean to be VAT registered?
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.
The format and reporting criteria will differ depending on the country, as will the filing period and deadlines. Most VAT returns are filed on either a monthly or quarterly basis.
A VAT registered business may appoint an agent to prepare and file the VAT returns on its behalf. In some countries this may be a prerequisite, but even in cases where the company can file the return itself, it is recommended that an agent is appointed owing to the language issues and compliance and reporting complexities.
Once you are registered for VAT in a country, most of your sales to or from that country will need to have VAT added. The VAT you add to your sales price is not your revenue – it is tax that is owed to the local authorities and is therefore a liability. The total VAT charged on sales (known as “output tax”) must be reported in the VAT return filing (usually due monthly or quarterly) and paid to the relevant tax office.
For example, if you are registered for VAT in France where the standard VAT rate is 20%, you must add 20% to your ‘Net’ selling price and you are effectively collecting this tax on behalf of the government.
If your selling price is 100 (this is the ‘net’ price), you need to add 20% of 100 and charge the customer a total of 120 (this is the ‘gross’ price). 100 is revenue for your company and 20 is owed to the tax man. Therefore, being VAT registered will automatically make your gross sales price higher and therefore your goods will be more expensive to private customers unless you decrease your net prices.
If you are registered for VAT in more than one country, there are rules to determine which VAT rate must be applied to the sale. The VAT rates in the EU vary between 18% and 27% – so ensuring the correct VAT rate is applied can have a material impact on your margins.
There are certain scenarios where you will not have to charge VAT on your sales even if you are registered in that country.
Claiming back import VAT
If you pay VAT in the countries where you are registered, you can claim back various eligible expenses. However, it is crucial that you keep the original source documents to prove that the VAT was paid, as these can be requested by the tax office from whom you are claiming the VAT.
Unlike “output VAT” on sales, “Input VAT” that is being deducted or claimed does not have to be reported in the period they are paid. For example, if you make a sale in Germany in January – that sales (and the correct amount of output VAT) must be declared in the January VAT return.
However, if you import goods into Germany in January, you can claim back the VAT paid in January or any month thereafter (so it is not necessary to claim your inputs every period if you don’t want to – you may choose to collate the purchases and imports and send them every few months only).
Providing data for the VAT returns
All statutory VAT reports must be filed on a periodic basis according to the deadlines imposed by the relevant tax authority. Most countries expect either monthly or quarterly submissions, but other frequencies exist as well (bi-monthly, half-yearly, annually etc.).
Each tax office has a specified date by which the VAT filing must be made, and any liability settled. This can range from between 10 days after the end of a period to 2 months, depending on the jurisdiction.
Data must therefore be submitted to your VAT agent with enough time prior to the relevant deadline to ensure the data can be analysed, tested for compliance and ultimately reported in the manner expected by that tax office.
This data needs to be a list of all the relevant transactions for that country (imports, sales, movement of goods, exports, purchases etc.) There are specific fields that are required in order to prepare the VAT return and this information must be included in the periodic data that is sent.
When you charge VAT on your sales (“output tax”), you are effectively acting as the tax collector for the VAT office. All the output tax you charge and receive from customers must be reported and paid over once you have filed the periodic VAT return (less any eligible input VAT deductions).
The deadline for filing the VAT return and paying the liability is the same date. This is important, especially if you are paying a foreign tax office where international payments can take a few days to clear. In most cases, you can pay a tax office directly from any bank account, if you ensure that the correct value – in the local currency – is ultimately transferred. Therefore, you need to check with your bank regarding FX and wire charges.