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EU VAT: Essential Value Added Tax Guide for Exporters & International Businesses

EU VAT: Essential Value Added Tax Guide for Exporters & International Businesses

Count carefully when it comes to taxes

Today’s post comes courtesy of Andy Spencer, Head of Consulting at Accordance, a provider of VAT assistance

It is essential for international companies to meet their VAT obligations, and ensure they are not being exposed to financial penalties and liabilities. With 27 EU Member States, each required to comply with the EC Directive but each with their own interpretation of the VAT legislation, it can be a time consuming and confusing task for international business. [Editor's Note: Interested in learning about international regulations for businesses? See this article about data regulations in multiple countries]

The local tax authorities have flexibility on several areas, including: standard and reduced VAT rates, VAT registration liabilities, liability to account for VAT and the reverse charge, invoicing guidelines, VAT reclaim allowances, and goods and services exempt from VAT reporting requirements.

Why Understanding VAT is So Important

It is essential for firms trading in Europe to ensure that they account for the correct amount of VAT in the correct Member State at the correct time. Failure to do so can result in financial penalties and exposure to additional VAT costs, which will directly affect profitability. Customer relationships can also be problematic if VAT is not accounted for correctly, as companies will have to spend valuable time resolving issues which, with effective management, need not have arisen.

International businesses need to consider VAT regulations in multiple countries to avoid VAT becoming an unnecessary cost. For many businesses, savings can be made once they become aware of their VAT obligations, avoiding the payment of VAT that has been incorrectly charged and cannot be recovered, as well as taking the opportunity to recover VAT that has been charged to the business.

Getting VAT Compliant

Get your business VAT compliant and identify savings opportunities:

  • Review your VAT liability
  • Make proper use of available exemptions and the Reverse Charge
  • Review your international VAT Registration profile
  • Review international business contracts
  • Get VAT reporting right
  • Reclaim VAT through the EU Refund Directive
  • Ensure internal ERP systems are compliant

When supplying goods or services it is important that you understand if it is you or your customer who must account for VAT. The same principle applies when buying goods or services. The payment of wrongly-charged European VAT is a big issue for many firms and serious cash flow problems are created unnecessarily, and you have no right to recover this VAT. Additionally, you may have an obligation to account for VAT using the reverse charge.

Your business may need to register for VAT in the countries that it trades into, if it sells above the thresholds that each Member State sets out, allowing the reclaim of local VAT incurred through VAT returns.

Exceptions

The general reverse charge may be used in some cases to remove the need for a supplier to be registered for VAT as a non-established trader but these rules differ from one Member State to another and within a Member State can differ for goods or services. Keeping up-to-date is therefore vital to achieve VAT compliance. De-registrations can also be applied for, if your business no longer trades into a country meaning that you can avoid the on-going administrative burden of VAT reporting costs.

File Your VAT Now

VAT reporting guidelines vary across Europe. In addition to VAT returns, many businesses will need to file Intrastat and EC Sales Lists and it is crucial that compliant reports are submitted by the tax authority deadlines to avoid risks of fines and penalties.

Most international businesses will incur foreign VAT at some point but many avoid VAT claims because they believe it will be too complicated or time consuming. If your business has previously overlooked international VAT recovery, it may be easier than expected to claim back the VAT – especially because of the introduction of the electronic portal in 2010.

About the Author

Andy Spencer - Head of ConsultingAndy Spencer is Accordance’s Head of Consulting. Accordance is a unified VAT Compliance and Consulting practice, with a focus on cross-border transactions. The company provides practical, commercially beneficial VAT assistance to blue-chip companies across the EU and beyond. Accordance assists a full spectrum of international businesses better manage cross-border VAT costs. The company reaches across Europe, but manages all work from an accessible and responsive hub in the UK. Accordance often works with accountants, acting as an ‘outsourced VAT department’ for their clients. The Accordance team includes senior ex-Big 4 VAT personnel, expert European VAT Compliance management, VAT legal specialists, Customs and Duty Experts and VAT savings experts. More info at www.accordancevat.com

 

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Author:Globial International Business Team

The Globial International Business Team researches, analyzes, and reports on all things related to global trade and business.

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