Don’t fall into the cross-border VAT trap: Essential VAT information for US businesses

 

Is your business growing and moving into EU markets? Are you importing goods in to the EU under your own name or setting up a new EU warehouse or office?

If so, you’ve probably heard of this thing called VAT – Valued Added Tax.

If you are aware of it – great. You may already have a VAT registration in the EU and are filing VAT returns and you may feel confident that you have a good working knowledge of the VAT requirements affecting your business.

However the VAT liability of your products and services and your VAT compliance obligations could change once you start trading with customers outside of the EU country where you are VAT registered.

If this is happening in your business it is essential to familiarise yourself with cross-border VAT requirements before you start expanding in to new EU markets.

The key first step to getting the VAT aspects of your trading arrangements right is to determine and document your trading model.

For example, some key questions will include:

  • Are you trading out of a UK entity?
  • Do you intend to set up overseas branches or subsidiaries and trade locally within the countries you are expanding into?
  • Do you need to move stock abroad?
  • Can you determine whether your customers are business customers (B2B) or consumers (B2C)?

 

All these factors (and many more…) will impact on how VAT is accounted for on your international sales.

Factors to Consider when trading cross-border in the EU

Some of the key EU VAT issues for you to consider include:

  • Do I need to get VAT registered in one or more EU countries?
  • Can my finance department cope with the additional mandatory VAT compliance and reporting requirements such as monthly, quarterly and annual VAT Returns?
  • Are there additional VAT-related declarations I need to submit to the tax authority, for example EC Sales List and Intrastat?
  • Can my billing system cope with additional EU VAT invoicing requirements?
  • What extra business records do I need to keep, for example documentation relating to goods imported in to the EU or evidence of overseas customer status?
  • Can my accounting system deal with international transactions and VAT accounting?

 

Not only that, VAT requirements can vary from country to country so you need to gain an understanding of the local VAT rules in all the new countries you are trading in or with. VAT can get very complicated once you trade internationally, so it is always recommended to plan ahead and seek the best possible advice.

So, don’t fall into an international VAT trap and make sure you know your cross-border VAT requirements before it is too late. Often, VAT errors are very hard to undo and can be costly in terms of fines and penalties or unnecessary VAT incurred on imports.

Based on our extensive experience in training US businesses, with the help our of VAT consulting partners rbcVAT (www.rbcvat.com) we have put together a helpful guide to the top 15 VAT pitfalls to avoid when trading in the EU.

You can download the guide here:

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