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VAT stands for Value Added Tax which is a type of consumption tax charged on goods or services that people can buy. VAT rates can vary drastically even within one country. There is often a standard VAT rate, a reduced VAT rate and zero-rated items or exemptions.
The UK and the 27 EU member states operate a VAT system that is built of a singular set of rules. However, these rules can be interpreted and applied differently in each country, which can create confusing and complicated situations. VAT rates, filing frequencies and registration thresholds are just a few of the things that can differ between different countries and tax authorities.
Over 150 countries around the world have implemented a tax system similar to VAT as it allows governments to collect revenue at every step of the supply chain. But VAT doesn’t need to be a barrier to international trade. With a brilliant VAT services provider, you can continue to expand into new markets whilst we handle the intricacies of the VAT system in the EU and beyond.
In most cases, the seller collects the VAT on behalf of the government from any sales made to their customers. VAT is usually included in the purchase price, so the seller then remits the VAT owed to the correct tax authorities alongside a VAT return.
In some cases where the item is imported from outside the EU to a customer within the EU, the price will exclude VAT (such as when you deliver DAP). This means that the customer will pay additional import duties and taxes before receiving the item. The courier is then the one who will be collecting the taxes from the customer and remitting it to the tax authorities.
As a UK company trading in the EU, you will need to register as soon as you hold stock within an EU country for onward sale to the end customers. Holding your stock within a country triggers a taxable supply and therefore, a VAT registration.
Now that the UK is not a part of the European Union, there is a customs border between the EU and the UK. One of the commonly used rules for cross-border trade is the distance sales thresholds. However, these will no longer apply when selling cross border from the UK into the EU.
However, if you are holding stock within an EU country, the distance selling rules still apply. These rules state that you will apply the local rate of VAT from the sale departure country until you exceed a set threshold in the inbound country (sale arrival country). If you exceed a distance selling threshold within a calendar year, you have to register in that country and begin charging the local VAT rate on sales.
In short, if either of these apply to you then you may need to register for VAT.
A) Holding stock in an EU warehouse and/or B) If you want to become the importer of record, or C) Crossing a distance selling threshold from one EU country to the other.
The importer of record (IOR) is responsible for the payment of the import VAT and duties upon the goods clearing through customs.
As a non-EU established business, you will now need to decide who will be the importer or record when importing into the EU, will it be you, or the customer?
If you become the IOR then you will need to register for VAT in each country where you will import directly to customers. This could be very costly if you want to be the IOR and get registered in each EU country.
The other option is to make your customers become the IOR, which means they will be responsible to pay the import VAT and duties when receiving the item from the courier.
It's up to you who becomes the importer of record, just bear in mind that it may not be a good customer experience if the customer must pay an unexpected fee upon delivery.
The distance selling rules are a set of rules that allow you to hold stock in one EU country and sell cross border to a private individual in another EU country whilst charging the sale departure VAT rate until a set threshold is exceeded within a calendar year. Once you cross a threshold, you will need to VAT register in the inbound country at which point you will begin to charge the sale arrival country’s VAT rate.
These rules allow you to keep your cost of compliance low, while selling to customers across the EU.
If you do not exceed a threshold within a calendar year, it will go back down to zero on the 1st January.
It is important to be monitoring your distance selling thresholds so that you are registering on time to avoid paying any fines and penalties. You can find a list of the thresholds here.
From the moment we have the application complete and depending on the country, it can take between 4 – 12 weeks to receive an EU VAT number. We recommend planning in advance, where possible, as the registration times can be even longer when tax authorities are inundated with new registrations as a result or legalisation changes or events such as the UK’s exit from the European Union. It’s best to get in contact with us at least 2 months prior to needing an EU VAT number.
If you fail to register on time, you may receive late fines or penalties on the amount of VAT owed.
Most EU countries will have standard, reduced and zero VAT rates. It’s important to know which VAT rate your products fall under, as you may find that in one country the item falls under the reduced rate, whereas it is standard rated in another. You can narrow it down with this generic VAT rate table issued by the EU commission. Click here.
If you still aren’t sure which VAT rate applies to your product, SimplyVAT.com can also apply for a written ruling from the correct tax authorities to find out which VAT rate your product falls under.
The frequency of your VAT returns is determined by the country you are registering in, along with the annual turnover of your business. Some are filed monthly, quarterly, bi-annually and annually. Good news is you’ll never have to worry about missing a deadline, because we’ll remind you well in advance.
We’ve also put together a table of filing frequencies here.
Fiscal representatives are locally established entities that are jointly and severely liable for the VAT owed by non-EU based businesses. Having one is required by specific EU countries and is designed to help tax authorities ensure VAT compliance by businesses established outside of the EU.
Now that the UK is established outside of the EU, UK businesses must appoint a Fiscal Representative when getting VAT registered in specific EU countries. This is not necessary in all of the EU countries, but it is important to factor in this additional cost of compliance if you start to hold stock in an EU country.
If you need a fiscal representative to ensure your compliance, we work with trusted partners to keep all VAT communication in one place.
EORI stands for Economic Operator Registration and Identification number. This identifies you to be the importer of the goods into the UK and EU.
Using the EORI number on the import documents ensures you can deliver your goods to your customers with the VAT already accounted for (Delivered Duty Paid).
Having a valid EORI number and VAT registration number in the country where your customers are based in the EU is the most effective way of keeping your customers satisfied and allowing you to reclaim any import VAT back on your VAT returns.
If you already have a GB EORI number, you will also need a secondary EORI number if you plan on importing into the EU.
As the distance sales threshold no longer applies when selling from the UK into the EU, a UK business will zero rate any sales of goods because it is considered an export.
Businesses will then need to decide who is the importer of record. The IOR will be accountable to pay any import duties and taxes. This can be either the seller or the customer. If it is the seller, you should technically be VAT registered and then charge the local rate of VAT on your goods being sold into the EU.
If the customer is the importer of record, there will be no additional VAT obligations for your business.
Keep documentation to prove your exports in case of audit from the tax authorities.
VAT registered UK businesses will zero-rate sales of goods to EU businesses as an export from the UK. There will be no need to complete an EC Sales List after the end of the transition period, however customs declarations will be required for all cross-border orders between the EU and UK.
You will also need to keep clear documentation to prove that the goods have left the UK, so you can support the zero-rated supply claim in case of audit. Import payments are due at the EU border when the goods are imported. The Importer of Record will be responsible to pay the import duties and taxes. If the customer is a VAT registered business, they will be able to reclaim the import VAT on their VAT return.
If you sell digital goods and services to private customers in the UK, then you will be able to include these in your VAT returns made to HMRC (if you meet the threshold).
When selling digital goods and services to EU private customers, these supplies will fall under the non-union VAT MOSS (mini one stop shop) rules. VAT is charged where the customer is located. There is no threshold to exceed if you are based outside the EU and supplying to private individuals in the EU.
You can either decide to register in one EU country under MOSS or register in each country that your customers are based (using the regular VAT registrations).
The Pan-EU Programme will no longer include the UK and the EFN will no longer operate between the UK and the EU after the end of the EU transition period.
If you hold stock in an Amazon FBA warehouse in Europe, you will trigger an obligation to be VAT registered. Depending on the country where you are getting registered, you may require a fiscal representative.
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