The VAT laws have changed with time and most businesses are overwhelmed by the various regulations in place. However, it’s important to follow the progress of the tax laws just to ensure your business remains compliant. Here are some tips to help you with international tax compliance.
B2B digital sellers VAT
In an attempt to make business to business VAT bearable for enterprises outside the EU a critical change has been implemented. The computerized system in place today is meant to help these businesses to accurately account for VAT in multiple countries thus eliminating the need for registrations.
In consonance with the EU VAT laws, goods and services offered by non-EU sellers to EU customers are subject to VAT as long as the recipient business is in the EU. However, your business doesn’t have to be registered in the country where the customer is located. Similarly, it’s not mandatory that you have to use the computerized platform for VAT.
This is because for transactions between business to business VAT is charged on the client in accordance with the reverse charge mechanism.
The reverse charge mechanism
The reverse charge mechanism is where VAT is charged on the client when they are purchasing from a business outside the EU. This is also known as the tax shift and your company is supposed to charge itself the VAT thus acting as a client and as a supplier.
As such, if your business is outside the EU, you won’t be handling VAT after selling to business clients in the EU. At the same time, this mechanism is friendly to the customer since they will claim the VAT for the services or goods purchased which means they’ll have paid zero VAT.
Because of the financial gain that comes with the reverse charge mechanism and business to business VAT, it’s possible for individual clients to pose as business clients.
Determining if you are dealing with a business client in the EU
When the question of how businesses based outside the EU can ascertain whether the client is an individual or a business, the solution is quite simple. The first step is requesting the client to submit their VAT number since only businesses can be given a VAT number. Then, using a validation system like the VIES tells you whether the claim is legit or not.
The verification system provides immediate feedback and you’ll be able to see if the number belongs to the client or not. If they are imposters, the law requires you to treat any transaction with them as a personal purchase and handle the VAT as required by the law.
VAT regulations can be complicated especially when it comes to cross-border transactions. In fact, it’s pretty difficult to know if your business is still compliant with the ever-changing tax laws in the international arena.
If you want to expand your business to overseas markets, VAT compliance should be a priority. Since VAT violations come with strict penalties, you’d be better off if you are well updated on the specific tax laws. The best and safest thing to do is get into contact with an expert who is conversant with VAT laws and have your queries addressed.