What is VAT?

According to the European Commission, the Value Added Tax or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the European Union. Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT. Conversely imports are taxed to keep the system fair for EU producers so that they can compete on equal terms on the European market with suppliers situated outside the Union.

How is it charged?

The VAT due on any sale is a percentage of the sale price but from this the taxable person is entitled to deduct all the tax already paid at the preceding stage. Therefore, double taxation is avoided and tax is paid only on the value added at each stage of production and distribution. In this way, as the final price of the product is equal to the sum of the values added at each preceding stage, the final VAT paid is made up of the sum of the VAT paid at each stage.

Registered VAT traders are given a number and have to show the VAT charged to customers on invoices. In this way, the customer, if he is a registered trader, knows how much he can deduct in turn and the consumer knows how much tax he has paid on the final product. In this way the correct VAT is paid in stages and to a degree the system is self-policing.

What is a VAT number?

Sometimes also known as a VAT registration number, this is the unique number that identifies a taxable person (business) or non-taxable legal entity that is registered for VAT.

Every EU country issues its own national VAT number. This means that business supplying goods or services in several EU countries might be liable to get a VAT number in each of these countries. 

What is a VAT Return?

A VAT return is a tax form you frequently file along the fiscal year to show how much VAT you are due to pay to the respective tax authority. Your VAT return should contain your total sales and purchases for the tax period, the amount of VAT you owe and the amount you can reclaim, and what your VAT refund is.

The submission of VAT returns is mandatory for all business that are VAT registered even if there is not VAT to pay or reclaim.

What is the mini One Stop Shop (MOSS)?

The mini One Stop Shop came into force on 1 January 2015 and allows taxable persons supplying telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons in Member States in which they do not have an establishment to account for the VAT due on those supplies via a web-portal in the Member State in which they are identified. This means you don’t need to register with tax authorities in every EU country you sell to, instead, you can register for VAT, file VAT returns and make payments in one single place.

Services covered under the MOSS scheme include: 

  • website hosting
  • supply of software
  • access to databases
  • downloading apps or music
  • online gaming
  • distance teaching

What is a EORI number?

An EORI (Economic Operators Registration and Identification ) number is a European Union registration and identification number for businesses which undertake the import or export of goods into or out of the EU.

Any business or individual established in the EU (an economic operator) needs to obtain an EORI number from their national customs authority before commencing customs activities in the EU. An economic operator established outside the EU needs to be assigned an EORI number if it intends to lodge a customs declaration, an Entry or an Exit Summary Declaration.

Click here to validate your EORI number online. 

What is Reverse Charge Mechanism?

The principle of the Reverse Charge Mechanism is that it shifts the liability to account for the VAT on a supply from the supplier to the buyer of a good or service. The main purpose is to avoid the need for the supplier to VAT register and account for VAT in a Member State in which he is not established. If the supplier incurs any local VAT on costs related to the service or goods supplied under the Reverse Charge, they may recover them through an EU VAT reclaim.

Reverse charges apply to all shipments of goods or services issued on a B2B (business to business) basis within the EU.

The EU created the concept of Reverse Charging VAT in the 1993 EU VAT tax system reform, in order to simplify trade within the Single Market and, in addition, to prevent VAT fraud.