What is VIES?
VIES, or VAT Information Exchange System, is a VAT number lookup service provided by the European Commission. It’s an online directory of all businesses in the European Union that are registered for VAT, or value-added tax. The VIES tool helps you verify that your B2B customer’s VAT number is valid.
If you’re still figuring out VAT and how it works, take a moment to learn about what a VAT number is and why it matters.
Why should businesses use VIES?
As an online business, we use the VIES tool for every single B2B sale we make in the EU. In our experience, this is crucial for our EU VAT tax compliance. Why?
Because we want to avoid unnecessary tax fees! Here’s a longer explanation:
B2B cross-border sales are taxed differently in the EU. In cases where both the seller and the buyer are registered for VAT, then no value-added tax needs to be added to the transaction. This is a process called the reverse-charge mechanism.
Using the reverse-charge mechanism, the seller doesn’t charge or collect VAT. Instead, the buyer pays it directly to the tax authority when they file their next VAT return. In this sense, the responsibility for the sale’s VAT is “reversed”.
The catch is that the buyer must have a valid VAT ID number! This is the only way the tax authorities know to expect the reverse-charged tax revenue from that business. Without a valid VAT number, the buyer gets away with not paying taxes – i.e. tax evasion.
And guess whose responsibility it is to check that the buyer’s tax ID is valid? That’s right, the seller’s. If your buyer submits a false ID number and doesn’t remit VAT for your sale, then your business must pay the missing taxes.
So it’s extremely important that online businesses check the VAT ID of their customers for every B2B sale, to avoid paying unnecessary tax fees. VIES is the free online tool for doing that.
How to use VIES
Luckily the VIES is quite simple and straightforward to use. Check tax IDs in 5 quick steps:
- Go to the VIES VAT number validation tool.
- In the first field, choose the origin country of the business in question.
- In the second field, enter the business’ VAT registration number.
- In the last two fields, enter your own EU VAT information.
- Click “Verify” and the results will appear on the page.
Does VIES check tax numbers from outside the EU?
Short answer: no. The VIES VAT number lookup tool only works for businesses that are registered for VAT within the 27 EU member states, plus Northern Ireland thanks to some post-Brexit trade rules.
If you need to check VAT numbers or tax IDs in other non-EU countries, some countries offer similar online tools. Learn how to check if a company is VAT registered in places like the UK, South Africa, and more.
Problems with using VIES
In our experience, VIES can be super helpful and convenient, but the tool has major shortcomings if you’re running an online business.
Here are the 5 potential problems with using VIES:
- The data can be inaccurate
- The data might not be available
- It slows down the point-of-sale process
- The process is extremely manual
- It doesn’t scale for growing businesses
1. The data can be inaccurate
Like any database compiled by humans, there’s room for mistakes! The VIES directory is compiled from the VAT registry databases of all the 27 member states. If the member states have errors in their data, then the EU Commission cannot fix it in the VIES. If this happens to you and it’s urgent, you could go directly to the national level tax authority to inquire about a business and confirm the VAT number.
2. The data might not be available at the time of your search
Because the EU-wide database must be updated with new information from the individual national databases, the tool might be down during these periods. You’ll get an error message, rather than a proper result. But the EU tries to keep this downtime to a minimum. If this happens to you, simply wait a few minutes and try again.
3. It slows down the point-of-sale process
The trick to validating VAT numbers is that it should be done before the transaction is complete. But can you imagine being available for each and every B2B sale in the EU, to stop and use the VIES tool while the customer waits at checkout? Of course not. This would threaten your conversion rate and could reduce sales.
The alternative is that you’re retroactively checking IDs and chasing down customers to get the correct tax number – which no one has time for either.
4. Extremely manual i.e. more manual work for you
Copying each VAT number and pasting it in the online tool is very tedious and time consuming. As a modern entrepreneur, you can’t afford to have such manual tasks in your business process.
5. Doesn’t scale for businesses selling across the EU in larger numbers
Not only is the VIES a manual process, but it can only check one VAT ID number at a time! If you’re selling to multiple businesses across Eu member states on a regular basis, this is a ton of work. And if you want to grow, this process will break down.
Good thing there’s a solution to these problems! 😊
Automatically validate Tax IDs with Quaderno
Feel overwhelmed by the work involved – or simply don’t have time for it? That’s where Quaderno can help.
Quaderno will automatically verify EU VAT numbers through our direct integration with the Commission’s VIES. If the tax ID is invalid, then the sale will not go through. This protects you from any consumption tax fraud, and ensures you won’t have to pay extra money out of pocket.
Quaderno is a tax compliance software that’s designed to take care of all these confusing, manual tax steps for you. And we keep your business tax-compliant as you grow. In addition to automatically verifying tax IDs, Quaderno also automatically calculates the correct tax on all B2C sales, and sends beautiful tax-compliant receipts that are customized to your brand. Plus, when tax deadlines roll around, you can file returns in just a few minutes using Quaderno’s instant tax reports.
Start a risk-free trial today. No credit card, no obligation. Just a quick setup to integrate your other business platforms, and we’ll start automating VAT, GST, and sales tax for you.
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the Tax Agency.