VAT, which means value-added tax, is a consumption tax employed throughout the European Union and many other countries across the globe, which is applicable to services, goods, and various other taxable provisions. VAT falls under the ambit of federal taxes and is applicable in more than 150 countries across the globe. The customers in the EU pay this tax while purchasing any product or hiring any service; whereas, in the United States customers aren’t charged with a federal value-added tax and instead each state is allowed to apply sales tax at the state level. US-based businesses that sell their goods and services to people in the European Union must know their duties for amassing VAT.
Following are the details you are required to know regarding VAT rules and designing VAT invoices:
What Is a VAT Invoice?
This is an accounting document provided by any business that sketches the particulars of the services and/or goods that accept a value-added tax. According to the European Union Tax Laws, the last 15 days of the month in which the good or service was extended is the maximum time for issuing a VAT invoice.
Under any VAT invoice, a business can apply value-added taxes on customers in the European Union countries and gather the taxes for making payment to the government afterwards.
In order to make sure that European Union countries are applying taxes on the services and products that their citizens buy, non-EU members must gather VAT for various products and services offered to European Union buyers.
How to Charge VAT on Invoices
For charging invoices with VAT businesses are required to obey the following steps:
- Register Your Business for EU VAT
Get your business registered with a VAT number in any one of the 28 European Union countries. You are allowed to choose one of the countries of your choice. If you only know English you will most probably be inclined towards the country/countries in which English is used as a chief language such as Ireland. With the help of the local authority, you can register online for a VAT Mini One Stop Shop. If you have customers in more than one European Union country, you can save a great deal of time by enabling yourself to submit all of your EU VAT through one tax return. The comprehensive information for applying for VAT from a non-EU member country is discussed next.
- Confirm Client Details
Within the boundaries of the EU, business-to-business transactions aren’t charged with VAT. VAT is merely applied on business-to-consumer deals. All EU businesses have a VAT number, ask them for it.
- Charge VAT Correctly to EU Customers
The businesses with correct VAT numbers in the EU enjoy the facility of reverse-charge mechanism. They are entitled to reimburse the VAT applied on their services and products.
- Issue a VAT Invoice
You are required to provide a VAT invoice for your EU customers. A VAT invoice is required to incorporate:
- Name and address of business
- VAT number
- Name and address of client
- Invoice number
- VAT number of the client
- VAT rate and the gross amount applied for each service
- Total due amount after including VAT
- Submit VAT Returns Quarterly
One VAT is required to be submitted for each quarter on the behalf of your business. VAT amounts can be paid online. From the last day of each quarter onwards you will be left with 20 days to pay the required amount.
What’s the Purpose of Value-Added Tax?
A value-added tax, like many other taxes, are specifically applied for raising revenue and subsequently funding government plans and other externalities. Since it is a consumption tax, therefore, it gathers money for facilitating the governments.
Where Does VAT Apply?
Value-added tax is applicable on all the 28 countries that constitute European Union. However, the VAT rates significantly fluctuate in different countries. The United States is the only country that doesn’t impose a value-added tax federally.
What’s the Difference Between VAT and Sales Tax?
The difference between the value-added tax and sales tax is that the value-added tax is applied at each level of the supply line and is amassed by all kinds of vendors: distributors, marketers, manufacturers, and salesmen all gather VAT. On the contrary, sales tax is merely pooled up by a retailer at the last stage of the supply network when an exchange is executed to the last client; the last client subsequently pays the taxes on their transaction.