Many countries institute a value-added tax (VAT). VAT operates similarly to the way a retail sales tax does in that a tax is levied on goods or services by a country’s government at every point along the service chain where value is added. In many instances, companies have the obligation to report this tax. Are you one of them?
Check out this list to see if you have a VAT reporting obligation.
1. Do you receive subscriptions for delivering online games, music, or software to individuals in Europe?
You may have a VAT reporting obligation and will need to charge VAT even if you have no company, presence or office in Europe. This also affects your pricing, as most Europeans will expect to pay tax-inclusive prices.
2. Do you import goods in your own name into Europe?
If so, are you picking up unnecessary VAT costs or racking up liabilities without realizing it? A VAT obligation can arise even if you do not have a company, presence or office in Europe.
3. Do you sell goods via your website to individuals in Europe?
You’ll need to ask yourself who is picking up the import VAT cost. If it’s you, are you charging enough? If the customer is responsible for cost, FedEx/UPS or the postman will ask them to pay at least another 20% in cash before they get their goods. How are you ensuring a positive shopping experience?
4. Do you have a revenue share arrangement where goods or services are sold to Europeans?
Your share may be being eroded by any VAT that is payable along the chain. Perhaps you have a VAT compliance obligation – you can get caught for VAT even if you are not collecting the cash from the customer and even if you only get a share of the revenue.
5. Are you paying VAT to European vendors unnecessarily?
Not all purchases from a European vendor are subject to VAT and not all European vendors get it right. You may find that you are paying VAT unnecessarily especially on services. Incorrectly charged VAT is not refundable through European VAT refund arrangements for VAT paid on T&E.
If you answered “yes” to any of the above, you might need a VAT compliance review. Please contact us.