If you intend to offer goods or services in Europe, one of the initial steps you are supposed to undertake is to understand VAT registration. Value-added Tax or VAT is a tax levied on most goods and services in countries in Europe. Here is what you need to know about VAT compliance in Europe.
Find Out Whether You Should Register
The initial step would be to determine whether your business will need to register for VAT in Europe. This depends on a few factors:
· Location of your business: In case your company is located in the EU, you typically register in your domestic country.
· Where you sell: If you sell to consumers in other EU countries, registration in those countries may be required. But that depends on your volume of sales.
· Goods or services type: There are special VAT rules on particular goods and digital services, e.g., digital downloads or low-value imports.
You can sign up for a simplified system known as One-Stop Shop (OSS). In this case, many EU nations permit you to declare all EU sales on a single submission.
Learn About Registration Thresholds
The registration thresholds of VAT also vary, depending on whether your business is based in the EU or not.
· EU businesses: You are usually required to register when your sales in one country of the EU are more than the country’s limit. Or if your product sales across borders are above the EU limit of €10,000.
· Non-EU companies: VAT registration is usually mandatory in any sale to consumers within the EU, no matter how small the sale is.
Understanding your thresholds will enable you to decide on either registering in a single country, or more than one country, or just to use OSS to make reporting less complicated. In other words, this will inform your VAT strategy in EU.
Select The Appropriate Jurisdiction
It is up to you to choose the country of registration. This tends to be the home country in the case of EU businesses. In the case of cross-border sales, OSS enables you to be registered in one of the EU countries to declare VAT on behalf of the rest of the member states. Non-EU companies usually incorporate in the EU country where they often offer goods or services.
Prepare Your Documentation
The registration of VAT demands some information and documents, including:
· Registration details of the business.
· Evidence of identity and address of directors or company representatives.
· Bank account information.
· Description of your business operations.
Some countries might need more details.
File Your VAT Registration
Most countries allow you to register online with the tax authority of your choice. After approval, you will be assigned a VAT number. You are required to use it when submitting VAT.
Once registered, you have the responsibility of:
· Imposing VAT on qualified sales
· Filing periodic VAT returns
· Maintaining an effective audit trail.
Maintain Compliance
Registration of VAT is not a single process. You should ensure compliance by:
· Filing returns on time
· Paying due VAT
· Maintaining records of sales and VAT collected.
Violation may lead to fines, penalties, or even blocked shipments, particularly when sales are across borders.
Final Word
You can engage VAT compliance experts to simplify things. They can ensure compliance as you focus on growing your business.
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