Most businesses that operate in countries with a Value Added Tax (VAT) system need a VAT number. A company’s VAT number is used to identify a customer’s tax status and is included on most invoices.
For importers, a Value Added Tax (VAT) number is often crucial. Even within the European single market, a VAT identification number is a prerequisite for selling in other countries. For example, within an EU country, a VAT number is necessary for trade between EU Member States. Having a VAT number means you are VAT registered.
The precise VAT regulations differ from country to country. In general, however, the following principles broadly apply.
As stated above, a VAT identification number is a prerequisite of trade between EU countries. Moreover, when importing, VAT registration can be advantageous. Supplying a company’s VAT registration number at the point of import may be a prerequisite of reclaiming import VAT. Follow the VAT registration process in order to get a VAT Number and become VAT registered.
VAT identification numbers are also important for domestic taxable transactions. A company’s VAT number is required when it supplies goods or services that are subject to pay VAT. Similarly, when a company receives goods for which it is liable to pay VAT under the reverse charge mechanism, a VAT tax identification number is required.
More broadly, any taxable person with domestic turnover exceeding the mandatory registration threshold set by local tax authorities must register for VAT through the VAT registration process.
The basic principles of how VAT is charged and accounted for are fairly straightforward. However, in practice, VAT regulations are very complex, with numerous obligations and exceptions.
For example, under some circumstances, if you sell goods online to customers in another country, you may need to register for VAT in that country and obtain a local VAT number. The exact rules for when you need to register can differ from country to country.
Complicating things further, under EU rules, there are certain conditions under which you must register for VAT if your goods are stored in local warehouses.
As the rules are complex, and are different in each country, businesses should consult a VAT expert if they are in any doubt whether they require a local VAT number in any or all of the countries in which they sell or store goods.
So, how does VAT work with a VAT number? As each company is issued a unique VAT number, it enables tax authorities to identify a business and easily verify its VAT status.
However, as each country issues its own VAT numbers, you may need more than one. In cases where you provide goods or services to multiple countries (such as those detailed above), you may require multiple local VAT identification numbers.
That holds even within the European Single Market. All EU country Member States follow a shared VAT identification number protocol. However, each issues its own numbers, following different formats.
While different countries issue VAT numbers in different formats, these numbers are generally preceded by a 2-digit country code. For example, French VAT numbers begin with FR (followed by 9 digits), and in Peru, the VAT number begins with PE (followed by 11 digits). You should always verify that the VAT number is valid in each corresponding country’s tax system.
In the European Union, an EU country, VAT numbers can be verified online, using the VIES VAT number validation service.
Note that Brexit somewhat complicates the question of a UK VAT number issued by the UK tax authorities. HMRC issues numbers prefixed with GB for VAT for the taxable supply of goods or services in England, Scotland and Wales. However, following Brexit, HMRC issues a VAT number starting with XI for goods traded under the Northern Ireland Protocol.
In countries where GST is used, the GST number serves the equivalent purpose of a VAT number.
For instance, in Canada, a company’s GST number is used when reporting GST/HST. It also serves as a unique identifier when a business engages with the Canada Revenue Agency.
America does not have a VAT system, and the US does not issue a number. Note, however, that sales tax does apply to the sale of goods and services in the US. Read our guide on the difference between VAT vs sales tax to learn more.
Failing to register and account for VAT when required can have very serious consequences. If you don’t provide a valid VAT number on receipts for taxable supplies, you could be subject to fines, penalties and extended audits. In certain cases, you could even be banned from operating in a country or suffer serious reputational damage.
Holding a valid number also has a number of business benefits. For example, some online platforms may require sellers to supply a valid number. And in cases where reverse charges VAT applies, the supplier may refuse to supply the relevant goods or services if you cannot provide an appropriate VAT number.
Now that we have a more detailed understanding of why a VAT number is so important from a business and regulatory perspective, we should clarify how to get a VAT registration number.
VAT registration is usually performed through the local tax office. The good news is that you may not have to visit the office in person. In many cases, you can register for VAT online. Some tax offices, such as HMRC, even permit applications by post.
You can even simplify the process further by appointing a VAT agent. Your VAT agent can perform numerous functions on your behalf, from registering your business for VAT and acquiring a valid VAT number to managing VAT returns on an ongoing basis. Ideally, your VAT agent should help you optimise your VAT management and VAT returns, providing strategic guidance and maximising opportunities for VAT returns and refunds to which you are eligible.
Tax offices will generally require documentation about the nature of the business, including a certificate of incorporation and other supporting documents. You will generally also have to provide the business account and evidence of turnover.
Note, however, that the precise requirements for obtaining a VAT number differ depending on the country’s specific regulations. In addition, you will likely need to submit application forms in a local language.
For these reasons, many businesses seek the assistance of a VAT specialist with local knowledge and experience.
Once you register for Value Added Tax, you will receive confirmation that you are registered and that your VAT registration was successful, including your unique VAT identification number. However, the exact time frame depends on the local tax authority.
For example, the UK’s HMRC says that applicants generally receive their VAT tax registration certificate within 30 working days. The precise time will depend on the processes and efficiency of the relevant tax office, as well as whether there is unusual demand at the time of your application.
For most businesses, getting a valid VAT ID number is a crucial first step. However, once you are registered for VAT, you are subject to a number of complex regulations. VAT IT’s technology-driven VAT compliance and recovery services ensure your business is always completely VAT compliant, in every jurisdiction. By maximising VAT recovery and optimising compliance we also save you time and money and reduce the cost of international trade. Get in touch with VAT IT for an integrated VAT solution for your company.
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