In the global e-commerce world, Europe has always been an attractive market with its large consumer base. However, businesses that want to enter the EU market must face a key challenge – VAT. As a core component of the European economic system, it is the key factor in determining whether a seller can establish a successful foothold there.
So, understanding Europe’s VAT is essential. It is not only a necessary step to ensure e-commerce compliance but also helps to avoid potential tax risks and improve business competitiveness. For newbie sellers, this article will walk you through everything about VAT in Europe, enabling you to enter the market successfully.
Overview of VAT in EU
So, what is VAT in Europe? Simply put, it is a tax levied on the added value of goods and services at each stage of their production or distribution. Each business in the supply chain pays VAT on the value they add, but ultimately, the consumer ends up paying the tax.
In the European Union, the EU VAT Directive sets the rules for VAT collection across all member countries. This helps ensure consistency and transparency. However, specific VAT rates and policies vary due to differences in economic conditions and policy orientations among member states.
Currently, EU VAT rates can be categorized into the following types:
- Standard rate: The standard rate applicable to most goods and services.
- Reduced rate: A lower rate applied to specific goods or services, often to promote certain industries or support social welfare, but cannot be lower than 5%.
- Zero rate: A special VAT rate where consumers do not pay any VAT, but businesses can still claim VAT refunds in Europe.
➜ VAT Rates
Due to different tax policies across EU member states, the standard VAT rates vary from country to country, but they are all no less than 15%. The following are the current standard VAT rates for some EU countries and the UK:
| Country | Standard VAT rate |
| United Kingdom | 20% |
| Germany | 19% |
| France | 20% |
| Italy | 22% |
| Spain | 21% |
| Austria | 20% |
| Poland | 23% |
| Czech Republic | 21% |
| Netherlands | 21% |
| Belgium | 21% |
| Slovakia | 20% |
| Sweden | 25% |
➜ VAT Return Deadlines & Filing Frequency
Similarly, their VAT filing requirements will vary. The table below will show the filing cycle of some major countries in detail for your easy comparison.
| Country | Period | Frequency | Deadline |
| UK | Quarterly | 4 | Initial report: Within 3 months of receiving the European VAT number.Subsequent report: Every three months. |
| Germany | Monthly/Quarterly + Annual | 13/5 | Monthly report: Due 10th of next month.Annual report: As per tax authority notice. |
| France | Monthly/Quarterly | 12/4 | The 24th of next month. |
| Italy | Quarterly/Monthly+ Annual | 5/13 | The 16th of next month.Annual report: As per tax authority notice. |
| Spain | Quarterly + Annual | 5 | Quarterly report: April, July, October, and January. |
| Austria | Quarterly + Annual | 5 | Quarterly report: Due 45 days post-quarter.Annual report: Due June 30th following year. |
| Poland | Monthly | 12 | The 23rd of next month. |
| Czech Republic | Monthly | 12 | The 23rd of next month. |
| Dutch | Quarterly | 4 | The 25th of next month. |
➜ VAT Registration
VAT registration is the process by which a business or individual registers with the tax authorities of an EU member state to obtain a unique European VAT identification number, which entitles them to carry on business and declare VAT in that country or region.
If you have goods storage facilities in EU countries and sell goods to EU consumers through these warehouses, then you will need to register for VAT. Additionally, if you have enrolled Pan-EU scheme, then VAT registration is required for all seven countries to ensure compliance.
To register for VAT in the European Union, you usually need to identify the target country first and then prepare the necessary documents, such as a business license, legal representative ID, Amazon store information, and so on. After that, you can move on according to the local tax regulations.
➜ VAT Number
After registration, VAT number takes 2 – 12 weeks depending on the documents you provide and the country you’re setting up VAT registration in. It is essential for VAT declarations, tax refunds, and other tax-related activities. Also, it can prove that you are legally conducting business in the EU.
An EU VAT identification number usually starts with the country code, followed by a sequence of numbers or letters. The specific format varies by tax authority. For example, Germany’s VAT number may be DE123456789.
Although the validity of an EU VAT number is usually unlimited, updates to tax regulations and changes to business registration information may make it invalid. It is advisable to check the validity of your VAT number regularly.
Ensuring VAT compliance often involves different tax rates and policies, making the process very complex. A little carelessness can increase operational costs. That’s why more and more global e-commerce sellers are opting for helpers like VATAi. As a leading VAT service provider, VATAi specializes in helping businesses simplify the compliance process and reduce tax costs, allowing them to focus on the core business. If you are also looking for professional VAT compliance services, don’t hesitate to reach out.
Special EU VAT Schemes
To adapt to the rapid growth of cross-border e-commerce and the diverse trade demands, the EU VAT system has introduced several special schemes. These schemes aim to streamline cross-border transaction processes, reduce tax loopholes, and offer businesses more flexible tax handling options, thereby supporting trade growth and fair market competition.
➜ OSS and IOSS
- OSS (One-Stop Shop): For businesses selling goods or services remotely within the EU. Just register once in one member state to declare and pay all relevant VAT in Europe.
- IOSS (Import One-Stop Shop): Mainly designed for businesses that import and sell goods worth no more than €150 from third regions to EU customers. With IOSS, sellers can collect VAT directly at the time of sale and declare it in one member state, simplifying import customs clearance procedures.
➜ Small Business Exemptions
This is a special VAT exemption scheme for small businesses in the EU to reduce the tax burden. Businesses with annual turnover below a threshold set by each member state can be exempt from VAT in Europe. The eligibility varies across countries.
➜ VAT Cross Border Rulings
Businesses can apply to the tax authorities of EU Member States for a pre-ruling on the VAT treatment before cross-border transactions occur. This helps to minimize uncertainty in transactions, provide clear tax guidance to businesses, and reduce tax risk.
How VAT Affects Your Businesses in Europe
VAT significantly affects businesses operating in Europe, for example:
➜ Compliance requirements
Businesses must understand and comply with the VAT regulations of EU countries. This may include timely VAT filings, proper record-keeping, and so on. Otherwise, you may face problems such as loss of VAT refunds in Europe, penalties, market access restrictions, etc. As EU VAT compliance requirements become increasingly stringent, enhancing internal tax management has become crucial for businesses to mitigate legal risks and ensure smooth operations.
➜ Pricing and profitability
VAT directly affects product pricing and profitability. When selling goods or services to consumers, you should include VAT in the price. In addition, the purchase of professional tax services and tax management to ensure VAT compliance can increase operational costs. Therefore, you need to consider the impact of VAT in Europe when pricing to ensure reasonable profits.
FAQs about VAT in Europe
Q1. What Is the Difference Between VAT in the UK and the EU?
Post-Brexit, the UK has established an independent VAT system, free from EU regulations. While there are still similarities between the UK and EU VAT systems, here are the differences:
- The standard tax rate in the UK is 20%, whereas EU member states have varying rates.
- The UK does not apply to OSS and IOSS schemes.
- EU member states adhere to the EU VAT Directive while the UK operates an independent VAT system.
Q2. What happens if my VAT number is invalid?
Successfully applying for a VAT number does not mean that it is done once and for all. Due to various reasons, the number may become invalid, thus affecting the business operations. Common reasons include:
- Failure to submit VAT returns or pay VAT tax in Europe on time
- Unsynchronized European VAT registration number within the system
- VAT number deregistered by tax authority due to tax evasion
Once a VAT number is invalidated, a series of problems will follow, bringing a negative impact on your business:
- Unable to conduct transactions normally
- Heavy fines
- Damage to the company’s reputation
Fixing an invalid VAT number can be costly, so it is crucial to regularly verify the validity of yours. EU’s VIES system can offer great help.
Final Words
Do you already have a general understanding of VAT in Europe? This article explores its basic concepts, compliance requirements, and effects on global e-commerce. However, the European Union VAT compliance process can be complex, especially for cross-border transactions, where businesses must handle tax regulations, rates, and filing requirements in different countries. In this case, it may be helpful to consider a professional service provider like VATAi to manage VAT tax in Europe and reduce compliance risks.