The answer to this question is not always as clear-cut as you might imagine. There are a number of factors which will impact this such as who you sell to, where you sell and what you are selling. To better understand your EU VAT liability, you need to ask yourself a few questions.
•Is your business based inside or outside of the EU?
•Are you selling to customers or to businesses?
•Are you selling goods or are you providing a service?
•Are the customers that you sell to located inside or outside the EU?
When answering these questions, you need to consider that the EU VAT distance selling rules will generally apply. You also need to note that there are some exceptions to the rule for excise products. You will need to find out more about this from the European Commission website.
Stay Up To Date With Your Thresholds
If your business is based on the EU and is selling to customers who are also based in EU member states, you need to keep track of your total annual sales. This will include the postage that you charge to customers. The total sales amount will have to be compared to the thresholds set for different countries. If your sales are under the threshold, you will not have to register for VAT.
However, it is important to note that the VAT threshold will be different in each EU member state. These thresholds can also be easily reached with an example being Poland where the threshold is just €35,000. However, if you are based in Germany, the threshold is €100,000.
If you are going to be selling in a number of EU member states, you should look at software that will help you monitor your threshold levels. If you do not register for VAT, your customers may become liable for this and that can result in poor customer feedback. It is recommended that you look at a full listing of the thresholds so that you have an idea of what you need to be tracking.
Storing Goods In Another European Country
If your business is going to be using a fulfillment center in an EU country to sell to businesses or private customers, you have to register for VAT in that country. This needs to be done whether or not you are going to sell through a marketplace such as Amazon. An example of this will be businesses that use the Amazon Pan EU program where their goods are stored in up to 7 different EU countries. You will need to register for VAT in all 7 of the countries or face penalties.
The penalties that you face when you do not register for VAT can include a hefty backdated payment. If you are using an online marketplace, your account could be shut down due to this. The European Commission has a new standard proposed for greater fairness and transparency for online platforms which should help your small or medium-sized business. According to this, if your account is suspended, the marketplace has to provide you with a statement of reasons for this.
Keep Track Of Your Sales And Invoices
You need to have a system in place that tracks all of your sales information including the country the customer is located in. If you are struggling to do this, you need to look at some software to help you. There are a lot of software packages out there that could do this for you and you need to look into this. Investing in some technology will also make your shipping, sales, and invoices more accessible and easier to manage.
The Different VAT Names And Rates
Every member state of the EU has VAT and they will also apply their own rate of VAT. With the different languages that are spoken across the block, you will also find different names for VAT. In France, it is known as TVA, in Spain as IVA and in Germany MWST.
As the rates of VAT are different depending on the country, you need to keep track of the different rates. You may want to hire an expert who understands the ins and outs of EU VAT if you are going to sell in multiple member states. Here is a good table of the percentages from VATGlobal.
Know Which Rates To Apply
The classification system for Vat will vary from one country to another. This is similar to the different thresholds and you need to be aware of it. You have to apply the correct rates to the goods and services that you provide or you could be under or overpaying your VAT.
How Long Does It Take To Register?
You should allow 3 to 10 weeks for VAT registration. The exact amount of time it will take will vary depending on the country you are registering in. Allowing the maximum of 10 weeks ensures that you are safe.
Make Sure You File Correctly
Once you have registered for VAT, you need to ensure that you are filing the returns correctly. You will be able to file either monthly, bi-monthly, quarterly, annually or bi-annually. You will need to check which options are available in the member state you register in.
Complying With Reporting Requirements
If you are using the Amazon Pan EU service, you have to file EC sales lists. You may also need to file an Intrastat Declaration.
If you are selling digital goods, you need to know about VAT MOSS which is applicable to these sales. There is a proposed threshold for Cross-Border sales of digital goods which might be introduced soon. This is likely to be around €10,000.
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