What Is a VAT Invoice?
Detailed Guide On Vat Invoice
VAT is also known as value-added tax and is called the good and services tax used across the European Union and other regions. VAT invoice applies to goods or services as well as other taxable supplies. VAT is also a federal raised in almost 170 countries. A VAT invoice is paid by buyers when they purchase goods or services in the EU and other regions.
The Americans do not charge VAT, but each state is always to regulate tax at each inferior level. For this reason, businesses in the USA who sell to customers in the EU should understand how they utilize the received VAT.
Here, What you’ll learn about vat invoice:
- What is a VAT invoice?
- Charging VAT Invoice
- The Purpose of VAT
- Where does VAT apply?
- Difference Between VAT and Sales Tax
VAT Invoice: What Does VAT Invoice Mean and How it is Useful?
A VAT invoice is a document issued by the seller of the goods and services and is a detailed document that reflects the goods and services subject to the value-added taxes. According to the EU tax regulations, VAT invoice requirements have to be issued within 15 days of purchase.
A VAT invoice enables your company to charge EU customers the value-added tax and receive payments for them to remit to the government later.
For businesses in non-European Union countries who sell to customers in the EU, every good purchased into the EU countries should be charged a value-added tax. This is to ensure that every good bought into their country is taxed.
Charging VAT Invoice
In order to charges business value-added tax, you need to follow these steps:
Have a Registered Business For EU Vat
Registering your company so you can be assigned a VAT number in one of the 28 countries that are members of the EU. You can choose a preferred country where you’d like to operate.
If you understand English, you are advised to register with an English speaking country. A country like England has English as her official language. To get a Mini One Stop Shop with a tax authority, you choose to register your VAT online. This process saves time, especially if you have customers in more than one EU country.
Confirm Customer Details
If your transaction is a B2B type, there’s no need to charge value-added tax in a simplified invoice. The only exception for your accountant is to charge value-added tax is when you operate a business-to-consumer trade.
Every European union business should have an assigned number for VAT. If you’re dealing with an EU customer, request their VAT number and their proof of location, because the VAT rates may vary with countries. You’ll be provided with the rates of every country on the EU website.
Charge VAT Correctly to EU Customers
When you have a client with a valid VAT number, there’s no need for you to include a value-added tax in their invoice requirements. Every company with value-added tax in the EU will be charged, as they are responsible for their own VAT.
Issue a VAt Invoice
If you have a business outside the European Union and you’re dealing with a customer within the EU, you are expected to send them a VAT invoice. The contents in a full VAT invoice information may carry:
- Your business logo, business name and address, phone number, and email
- A unique invoice number
- Invoice Date
- Your VAT number
- Your customer’s name and address
- The customer’s VAT number if applicable, if your customer has a VAT number, there’s a need for you to include the text to issue a vat invoice “EU VAT reverse charged” on the full VAT invoice requirements
- Description of the goods (you can mention a brief or short description of the goods) and price per item
- The VAT rate and the total amount of VAT you’re charging for your goods or services
- The total amount you’re expecting from the customer
- Your preferred currency for the total amount including VAT
Do not be confused as VAT invoice requirements are somewhat similar but different from the sales invoice.
On Quarterly Basis, Submit Vat Returns
As a business owner, you’ll need to tender all VAT returns including VAT charged per item to the appropriate regulators every quarter of the year. You can submit them online, or whichever way you want it. You have a deadline of 20 days to pay any outstanding full VAT invoice from each last day along with the rate of vat charged. The quarterly dates for submitting VAT are:
Q1: April 20, ending March 31
Q2: July 20, ending June 30
Q3: October 20, ending December 31
The VAT should be paid in the currency of the tax authorities your business is registered with. For example, if you have a registered business in England, all your VAT returns will have to be converted to pounds. The European Central Bank has standard exchange rates for each foreign currency.
Purpose of VAT
Similar to the functions of other taxes, the purpose of VAT is to fund the government of the country through the raised revenue and also to facilitate another spending. The value-added tax must be issued on goods or services, and as such, it brings income to the government by charging on the rate at which a consumer spends. VAT is a federal tax of self-billing and is not easy for customers to evade, unlike some other taxes.
Where Does VAT Apply?
All countries that make up the European Union are mandated to pay value-added tax, though the rates can vary depending on the EU country. Value-added tax is also charged in other regions of the world. The USA is the sole OECD country that doesn’t charge value-added tax at a federal level.
If you need to issue VAT, check up the list of countries and the individual rates.
Difference Between VAT and Sales Tax
Value-added tax is taxable at every stage of the supply and is charged by every vendor, including manufacturers, distributors, and retailers. Sales tax is only charged by the supplier of goods at the end of supply when a customer receives their retail supplies. Only the end customer is responsible for paying the sales tax while everyone involved in the supply chain pays value-added-tax. The sales tax paid on the market selling rate by the customer is received by the supplier or retailer.