EU VAT Compliance

Businesses providing taxable supplies of goods or services in the European Union (EU) must ensure they’re compliant with value added tax (VAT) regulations as set out by the EU in the EU VAT Directive. All member states of the EU must then implement these VAT compliance obligations into their own laws — non-EU members selling into the EU must also abide by these rules and regulations (in a similar way with other regions with a VAT system).

VAT registration

Companies providing taxable supplies in the EU must register for VAT to obtain a valid, unique EU VAT number from their home country. It’s an essential part of the VAT compliance process. If companies are also buying and selling goods in another EU country, they may also have to register for VAT there. This will give them a valid VAT number which they can record all transactions against. Businesses can also provide this number to their EU customers to ensure they’re correctly charged nil VAT on intra-community supplies of goods or services.

Once a business establishes an obligation to register for VAT, they must submit a local VAT registration form with any requested supporting documentation. This will typically include:

Company registration number
Business’s bank account details
Unique Taxpayer Reference (UTR), for U.K. businesses
Details of annual turnover
An original copy of the certificate of incorporation of the company
A copy of the company’s articles of association
An extract from the national company registrar as proof of existence
If the company is appointing a local tax agent or fiscal representative, then a letter of authority or power of attorney

The requested documentation can vary by country. The registration process may also be in the local language. Once submitted, it can take approximately 2-8 weeks to receive a VAT number.

Depending on the tax authority, they may also request further information as a measure of prevention against VAT fraud.

VAT invoices

Companies are obliged to produce VAT invoices for any transaction liable for VAT. This includes supplies made to both other VAT-registered companies, as well as to consumers (there are exemptions). The EU VAT Directive stipulates the basic information that should be provided on a standard invoice. This includes:

Invoice date
Name and address of the supplier and their VAT number
Name and address of the customer
Unique and sequential invoice number
Description, including quantity if applicable, of the goods or services
VAT rate applied
VAT charged
Net, VAT due and gross value of the supply
Details of any discounts
A clear indication if the transaction is an intra-community supply with nil VAT

Some countries have additional requirements, such as the seller listing their company registration number and address.

EU countries require many businesses to store hard copies of invoices for a set period of time. This typically is 5-10 years.

VAT exemptions

A small number of supplies are exempt from VAT within the EU if they are considered in the public interest. These include education, medical and dental care, and social services. In addition, most financial and insurance services are also exempt.

VAT accounting Records

Businesses will be required to maintain full accounting records for tax authorities to support their VAT payments and transactions. For the most part, companies’ local accounting records will be sufficient. However, some countries’ VAT accounting demands can prove challenging.

VAT returns

Businesses are required to submit periodic VAT returns to report taxable transactions to the relevant authorities to be fully compliant. A VAT return includes totals for intra-community supplies. All EU member states have different return forms, and set their own reporting calendar. Most countries pick either monthly or quarterly reporting depending on the volume of trade.

Many countries now permit or oblige companies to file online. Some countries will also require an annual return, e.g. Germany and Italy.

Intrastat

Intrastat is the EU system for collecting trade data within the EU. The EU requires countries to impose a monthly or quarterly Intrastat reporting obligation on VAT-registered companies which separately lists all B2B intra-community supplies of goods and services. This includes sales (dispatches) and purchases (arrivals) of goods across EU borders, as well as supplies to the company itself.

Sales direct to consumers — B2C — are not required to be listed. EU countries have varying Intrastat reporting thresholds for both dispatches and arrivals.

FAQs

A VAT registration is the process of listing your business as active in the production and sale of taxable goods and services with the relevant authority. Once a business registers for VAT, it becomes responsible for charging the correct amount of VAT on any goods and services sold. The business also becomes able to reclaim any VAT paid on company purchases.

Businesses must register for VAT once their taxable supplies exceed the threshold or criteria set out by the EU (or the local authority in a non-EU nation). Businesses should be aware that thresholds can change. The requirements to register for VAT applies to all types of commercial business, regardless of industry or operating structure.The EU has made efforts to make the requirements to register for a VAT number the same in all EU member states. Typical instances of jurisdictions where a business is required to register for a local VAT number include:

If a foreign company is buying and selling goods in another country
If a company is importing goods into an EU country, which can include moving goods across national borders within the EU
Holding goods in warehouses or on consignment stock in other EU countries for customers
Holding a live conference, exhibition, or training if there is paid entrance
Selling goods to consumers over the internet or through catalogues (distance selling)
Supply and install of equipment in a limited number of situations
A very limited number of situations where services are being provided (following the 2010 VAT Package reforms)The requirements above apply equally to EU and non-EU businesses.

The relevant tax authorities will usually give approximately seven days’ notice before visiting your business for a VAT compliance check. On the date of the visit, representatives from the tax authority will check your VAT information and transactional data to determine whether or not you’re collecting and charging the right amount of tax. Penalties may be issued to businesses who have neglected their compliance obligations.

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