The value added tax (VAT) is an indirect tax which has to be paid in all European countries whereas the rate of taxation differs from country to country.
Since we are talking about an indirect tax, the VAT does not reduce the income of a company because it is paid by the final consumers. However, it is you who has to pay it for the moment when importing your goods to Europe – the Import VAT. Therefore, the prevailing countries will expect you to get a European VAT registration number so the local VAT is paid.
In order to encourage companies to start trading across Europe there is a national VAT registration threshold set by each country and if the company is selling below these limits, there is no need to register for VAT. The other way round, if this limit is exceeded, you have to apply for an EU VAT number. Well, it is not just while importing goods that you need to pay VAT: selling from warehouses within the EU from a European warehouse (so-called “distance selling”) requires VAT payments as well. (For more information about distance selling and threshold limit click here)
Of course the VAT you paid on your import can be offset against the money you will get from your customers later. That is the reason why you have to take the VAT rates in account while pricing for the European market. Actually, it is normal to split prices shown to the customer into 3 parts one below the other: a+b=c
a) the net price + b) the vat = c) the gross price.
The remaining amount or repayment will be given to you by the tax authorities after they have received your tax assessment note – and that is not possible without having a valid VAT registration number. Furthermore, the tax authorities are likely to require a fiscal representative from Non-EU companies. This fiscal representative has to make sure that all filings for the tax authorities are prepared and submitted correctly, that the trader is properly registered with the local VAT office and that accounting standards are maintained to exacting local standards, being available at any time for inspection. For the registration procedure you need to present different documents like your proof of VAT Registration, a copy of the certificate of incorporation of your company, an extract from the national company registrar as proof of existence, et cetera.
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