We know what VAT is and we now also know how VAT is calculated. If you missed out on these blog notifications, don’t worry at all! Just click into the links and get up to speed before you move on to the deeper understanding of VAT within the EU that I am going to further explain here.
VAT can be a very confusing subject, especially if you are just starting your new business venture. So allow me to break it down for you…
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Each country within the EU has set its specific rate of VAT. By law, this rate only has to be higher than 15%, or 5% for specific goods and services which qualify for the reduced rate.
As VAT does not always apply on some products, when showing the price on your product you should always state whether the price is inclusive or exclusive of VAT.
The way in which VAT applies in the EU depends on what products or services you are selling, and to whom, with a clear distinction between selling B2B and B2C.
If you are selling goods B2B, then the question of whether you should charge VAT depends on whether he customer has a EU VAT number. If they do then it is not required for you to charge VAT, and if they don’t have a VAT number then you must apply your country’s VAT to the sale.
If you are selling goods B2C, then you must register your business in the country where your customer is and apply the VAT rate for that country onto the sale. For example, if J;
you are selling on Amazon.de you will apply the current VAT rate of 16%(until 31st December when it returns back to 19% in January 2021). If your sales do not exceed the threshold in that particular country, then you are not required to register in that country.
So now here is where things change slightly. If you are selling services B2B, you are not required to charge VAT as it is already paid by the customer at their own countries rate and then later deducted through their VAT returns.
If you are selling services B2C then you are required to apply the VAT depending on the rate for your country. There are some exceptions which are taxed based on the rate of VAT in the customers country.
If you are selling and storing your goods in the UK and your annual income sales exceed the threshold of £84,000, then you are required to register for VAT. Alternatively you can voluntarily register for VAT no matter what your sales turnover is…..trust me, this has its benefits!
If you are selling into any country within the EU, you will be required to register for VAT if your annual sales total exceeds the threshold limit for that particular country. If you are storing your goods in another country within the EU then you are automatically obliged to register for VAT in that country.
If you’re shipping products to the EU from outside, you’ll also need a European Operator Identifier Number (EORI). This, along with your VRN, identifies shipments and lets you reclaim VAT paid at customs.
Failure to oblige and pay VAT in Europe can result in penalty fees, investigations into your business, and you could even potentially lose the rights to having an Amazon or eBay seller account.
So to save yourself the headache, you must ensure that you are VAT compliant in whichever country you plan on selling and storing your products.
At Sterlinx, we have a vast growing list of countries where we can complete VAT compliance services for. All of this information can be a bit daunting sometimes, so let us professionals handle it! If you are thinking of expanding your business into the EU and require VAT registration and submission services, get in touch and set up your free consultation today. We would love to have you on board and see your business grow and thrive into the EU!