Heads up, US business owners!
Even if you’ve never missed a sales or use tax payment, there’s another tax you could be obligated to pay. If you sell to consumers in the European Union (EU), VAT payments need to be on your radar.
“VAT” stands for “value-added tax,” and it’s a consumption tax paid by EU consumers when purchasing physical and digital goods and services. If you’re a non-EU business selling to EU consumers, you may be responsible for collecting and remitting these fees.
What is a VAT Number?
Similar to your EIN or FTIN, a VAT number is the specific number used by EU state governments to track your business’s activities. You’ll use it to track VAT payments, file returns and earn tax credits.
You’ll receive your VAT number (or VRN, for “VAT registered number”) after registering for a VAT number to pay your digital tax. Don’t worry – registering is easier than it sounds!
When Do I Charge VAT?
If you’re a US-based business selling digital goods to EU customers, congrats! You get the honor of collecting VAT.
But if you’re selling to EU businesses or selling physical products to EU consumers, you can skip it. B2B sales will be covered by the reverse-charge mechanism, while the VAT on physical product sales will be paid on import through customs.
What Happens If I Don’t Pay VAT?
Failing to pay VAT is a lot like failing to pay the taxes you owe in the US. EU tax authorities probably aren’t going to come busting down your door (unless you really owe a lot!).
But you could find yourself subject to fines, back payments, and even fraud charges, if it turns out you deliberately ignored your obligations.
Penalties like these may not be a big deal for multinationals with highly-paid legal counsel on retainer. But if you’re a small company or solopreneur? Even modest fees could put you out of business.
There’s a moral argument here, too. You benefit from selling to EU consumers. Shouldn’t you be subject to the same taxation policies as EU sellers? Trust us. You’ll sleep better at night knowing you’ve correctly fulfilled your VAT obligations.
How Can I Get Help with VAT Compliance?
Registering for a VAT number is easy. But actually staying on top of invoicing, returns filing, and compliance? That’s where things get tricky.
If you’re a US-based business that owes VAT on the sale of digital goods, a partner like Quaderno can help you cut through the bureaucracy of EU distance selling regulations and stay on the straight and narrow.
Take Quaderno for a free test drive to see how easy VAT management can be.