Beginners guide to VAT
VAT is short for Value Added Tax, and just like it implies only the value added will be taxed. So what your company pays in VAT you can deduct from the VATs due. VAT is a major source of income for countries. The VAT income is then used for roads and schools and Covid vaccinations, good stuff for all of us. Simple, right?
Not quite. All those PhDs and high IQs have managed to create something that is far from simple. There are over 600 000 reduced VAT rates in EU for essential goods like food and books. You have to register for VAT if you exceed 10 000€ sales threshold, except when you are selling cross-border when VAT must be collected on all sales. You can, and in some instances must register for VAT in another country, the registration allows you to deduct the paid VAT easier but creates broader reporting requirements. An example of a hot topic in VAT is which country can collect the VAT on hotel bookings, the booking solution or the place of consumption? Complicated? Yes. But we are here to help!
With the introduction of the long-anticipated simplification to e-commerce sales VAT, there is a possibility to create something that resembles a single EU market. And the VAT is to be paid to and according to the consumption country via the new reporting systems. One of the clever people finally realized that making VAT payment difficult also reduces the much-needed tax income. The new regulation still isn’t applicable to goods from outside of EU with value over 150€, warehousing in another country, deduction of paid VAT from VATs due and multiple other issues, but we are getting there.
In order to take advantage of the new regulation, you have to register for applicable schemes:
- OSS: for intra-EU sales (https://easproject.com/vat-oss-threat-or-a-possibility/)
- IOSS: for shipments from outside of EU (https://easproject.com/ioss-shopify/)
- Non-Union: Digital goods and services from outside of EU (https://easproject.com/non-union-scheme-what-kind-of-animal-is-it/)
The existing ones, domestic and B2B remain unchanged.
To take advantage of the mentioned 600 000 reduced VAT rates means you have to have a capable full landed cost calculator installed. The accurate calculation must identify the product group which in turn is used to determine the appropriate tax rate and taxes – again, in accordance with the destination country VAT.
Still doesn’t sound simple? No, it isn’t simple. Which is why we automated the whole process.
Just get in touch with us.
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Let’s face it – if you run an eCommerce store in the US, Australia, or Canada, shipping to Europe can feel incredibly complicated.