Guest post from Avalara | A three-part series on tax issues and compliance | Part One
You can’t do business across the European Union and much of the world without dealing with Value‐Added Tax, or VAT. It’s a legal requirement in the majority of places your organization wants to be, and like pretty much every tax, it can be a pain to deal with.
You’re going to be dealing with a VAT burden, whether you’re selling goods or services, shipping items overseas to customers or warehouses, transacting business over the Internet, or on marketplaces. Half the battle is understanding the requirements or knowing where to get support.
Registering for VAT
First of all, what does it mean to register? It means getting your VAT number. Businesses providing taxable supplies that have exceeded the resident VAT registration threshold are required to register and get that valid, unique VAT number. You’ll typically register in your home country (if they have a VAT regime), but you may also be required to register in other countries where you’re buying and selling.
Here are a few examples where you may be required to register for VAT in a foreign country:
- Distance‐selling goods to consumers above a country’s distance‐selling threshold (Typically €35k in most European countries) regardless of the channel.
- Selling goods to consumers through an online marketplace that takes care of warehousing and fulfillment in a country outside of where you are established (e.g. Amazon FBA).
- Holding goods in another country where you sell to businesses locally.
The above is not an exhaustive list, so it’s worth ensuring you understand your obligations as you trade internationally to avoid risk.
Filing VAT returns
Once registered for VAT in a country, you usually charge local VAT on sales and file returns. Many marketplaces help with the VAT determination, but it is your responsibility to ensure you are filing.
You need to file your VAT by means of VAT return. These are official tax documents that spell out in significant details including facts and figures relating to your organization’s transactions, including what you purchase and what you sell. The returns declare all your organization’s VAT transactions and any applicable taxes, and they calculate what VAT you owe. Once you’re registered for VAT in any EU country, you must complete VAT returns.
Just as different countries set different rules for VAT and have vastly different VAT returns, they also establish different schedules for when businesses must file those returns. Here are some of the Tax Returns businesses face:
- Monthly reporting: This is the most common cycle, because it’s more frequent revenue and many countries believe it’s the best approach for keeping tabs on the growing problem of VAT fraud.
- Quarterly reporting: This is the chosen predominant frequency of some countries, but the main reason they have quarterly reporting is to benefit companies that have smaller turnover.
- Annual reporting: This is often required in addition to your standard monthly or quarterly reporting, but in some countries, you have the ability to file one annual return per year under certain conditions.
Additionally, the deadline for returns vary. Germany, for example, requires VAT filings within 10 days of the end of the reporting period. The Netherlands, however, typically allows two full months to file. Whatever the country requires, keep in mind that you’ll have to file VAT returns in each of the countries in which your organization is registered.
Do you need fiscal representation?
Non‐EU businesses operating in EU markets face some additional considerations. In most EU countries, these businesses must appoint a VAT fiscal representative. EU businesses, on the other hand, don’t have to appoint a fiscal representative, but rather can name a VAT agent or tackle the compliance work themselves.
What exactly is a fiscal representative? It’s a company that resides in the country where the activity takes place. The fiscal representative must be accepted by the local tax authority to perform this service. As the title suggests, its role is to represent the non‐resident company in VAT matters, to ensure they are fully compliant, and they can also share joint liability for any tax or penalties that might be due.
It should come as no surprise that the fiscal representative will require some sort of bank guarantee or monetary deposit to be sure it’s not left in a bad spot. That guarantee will remain in place for the period of the trading and some period thereafter, just in case the tax authority decides more tax is owed.
The fiscal representative will want to be sure VAT compliance is of the highest order. That may feel like a hassle to the non-resident company that has already handed over a hefty guarantee, but the fact of the matter is, the fiscal representative’s financial well‐being and reputation are on the line here.
Its not all bad news! With all the complexity around tax, it can be a burden to manage, but Avalara is well position to work with you to understand your requirements, and to support your growth while taking the pain of compliance off your hands.
About Avalara
Avalara helps businesses of all sizes achieve compliance with transaction taxes, including sales and use, VAT, excise, communications, and other tax types. The company delivers comprehensive, automated, cloud-based solutions designed to be fast, accurate, and easy to use. The Avalara Compliance Cloud® platform helps customers manage complicated and burdensome tax compliance obligations imposed by state, local, and other taxing authorities throughout the world.
Avalara offers more than 700 pre-built connectors into leading accounting, ERP, ecommerce and other business applications, making the integration of tax and compliance solutions easy for customers. Each year, the company processes billions of indirect tax transactions for customers and users, files more than a million tax returns, and manages millions of tax exemption certificates and other compliance documents.
For more information, please contact mark.carpenter@avalara.com for information on how Avalara can help.
