Being the most popular indirect tax globally, it’s unsurprising how seriously most countries take VAT (Value Added Tax). However, not all jurisdictions have this levy. And those that do have different rates and requirements, which may also vary based on the business type and goods/services. Hence you may wonder, what is VAT registration, and does my business need it? If so, how do I go about the process?
This guide discusses all aspects you should know about VAT registration. Find out the VAT-registered meaning, VAT number meaning, situations where VAT application is mandatory, what details you’ll need, and how to apply.
What Is VAT Registration?
VAT is the tax applied to certain goods and services at different stages of production and sales. Registering for this consumption tax involves supplying various documents and details to acquire a VAT number. This number is usually eight to 15 characters (letters and numerals), and it identifies your business in the VAT register. Registration ensures compliance with tax laws in countries requiring this levy and may be mandatory based on your business’s type and scale.
Since the requirements are often different for different entities and locations, many businesses, especially those dealing with cross-border transactions, seek VAT compliance services. VATAi is one such service that not only provides budget-friendly registration services but also ensures compliance with regulations by helping you file accurate returns quickly.
Whether you’re selling remotely to European consumers on platforms like eBay, Amazon, or Shopify, or navigating VAT requirements in countries like the UK, EU, UAE, Australia (GST), or Japan (JCT), VATAi VAT Compliance Services can help you complete applications online.
Who Is Required to Register for VAT?
Since each country has its own VAT regulations, understanding the local rules is crucial for ensuring compliance. To determine whether your business needs to register for VAT, start by checking if your country imposes this tax and whether you meet the necessary criteria. Here are some common scenarios that require VAT registration:
- Exceed turnover thresholds: If your company is based in EU countries and your sales surpass the VAT registration limit in your country, you are required to register. For example, in the UK, the limit is GBP 90,000, while in Germany, it’s EUR 22,000.
- Distance selling within the EU: If your annual sales to consumers in the EU go beyond EUR 10,000, VAT registration is required.
- Cross-Border Shipments and Storage Compliance: If you store taxable goods (including self-built, third-party, or FBA warehouses) or engage in cross-border sales in a VAT-collecting country, you typically need to register for VAT and fulfill related tax reporting and payment obligations in that country.
- Virtual events: If you organize virtual events, like trade shows or conferences, and sell tickets to customers in VAT-collecting countries, you will also need to register.
Businesses need to be aware of local regulations since thresholds can differ by country. Typically, exempt entities like banks and farmers only need to register if they are involved with VAT-taxable goods. For personalized guidance on VAT registration and compliance, it may be beneficial to seek out services such as VATAi.
Why Do I Need to Register for VAT?
The advantages of getting your business VAT registered are significant. That’s why many business owners don’t wait to hit turnover thresholds to seek value-added tax registration. Some of the top advantages of registering for VAT are:
- VAT reclamation: You can reclaim VAT from taxable goods you purchase. Some jurisdictions may also allow you to claim VAT on specific goods you bought before registering for VAT.
- More business opportunities: A good impression increases the probability of attracting business. Additionally, some buyers, suppliers, and lenders only transact with VAT-registered counterparts.
- Increased cash flow: VAT registration allows you to reclaim taxes on purchased goods and opens more business opportunities, raising income.
- Good impression: You’ll appear to be a trustworthy and authoritative business, as turnover thresholds are often high.
Conversely, VAT non-compliance results in several demerits, such as:
- Fines, interest charges, and/or imprisonment
- Banning the business from further operation
- Intrusive and time-consuming VAT inspections by governing bodies
- Reputational damage, especially for entities under inspection, as authorities may request to assess their trading partners, too
- Inability to do business on specific platforms and with companies that require compliance
How to Register for VAT?
It’s now time to answer the central question: How do I get a VAT registration number?
As noted, the process and required documents vary based on the country in which you want to do business. Nevertheless, most jurisdictions will need you to supply the following things:
- Unique Taxpayer Reference (UTR) or National Insurance number (tax identifier)
- Business-related information: This could include records of sales or business activity for the past two years, or details about the business if it was purchased.
- Articles of association and certificate of incorporation
- Business bank details
- Power of attorney or letter of authority if appointing a fiscal representative or local tax agent
- Business license, legal representative’s ID or passport, proof of address, and other store-related documentation
Once you have these details, you can register for VAT online or complete and send hardcopy documents to relevant authorities. However, not all businesses get the option for hardcopy registration, even within jurisdictions that offer this option. Hence, it’s easier to complete the process online.
Do note that different businesses may have different VAT registration forms, so pay attention to the particulars of the application. Depending on the country, it may take eight weeks or more to get your VAT number after you submit the required documentation.
FAQ about VAT Registration
Q1. Is VAT number the same as EORI number?
No. A VAT number is not the same as an EORI number, although there might be a connection between them.
- VAT Number: it is used for tax and financial transactions, mainly to collect or pay VAT at the country level. In many territories, separate VAT registration may be required.
- EORI Number: needed in the EU to be able to provide clearenace of goods, being a unique ID used by customs bureaus across the EU. It is valid in all 28 EU member states and is usually tied to the VAT number used in most of the European countries.
In summary, while a VAT number relates to taxation, the EORI number is essential for customs processes. Both are crucial for businesses operating internationally, especially within the EU.
Q2. How can I check if VAT number is valid?
You may use the following methods to verify if you have been issued with a valid VAT number:
- Use the VIES System:
- The European Union’s VAT Information Exchange System (VIES) allows you to check the validity of a VAT number issued by any EU member state or Northern Ireland.
- Enter the VAT number into the VIES portal. If valid, the system will display the registration details. If not, it will return an invalid status.
- Contact Local Tax Authorities: If the VAT number is not validated by the VIES system, you must contact the tax office in the relevant country for manual verification or further information.
If you don’t confirm a VAT number, it could lead to tax reporting mistakes, along with issues related to clearance and operations. This might also result in fines and harm your reputation with suppliers or platforms. Companies that regularly verify VAT numbers can stay compliant, reduce potential legal risks, and ensure smooth operations in the EU market.
Final Words
Each country has unique VAT registration requirements and processes. Once completed, you may or may not be able to use the same VAT number for multi-country trading, depending on the issuing country and trading region.
Though not a must for businesses under the turnover threshold, getting your business VAT registered improves your cash flow and enhances your reputation, among other benefits. Plus, you’ll avoid fines, restrictions, business revocations, and unwanted inspections that can cripple your enterprise.
Ready to maximize the benefits of having a VAT number but still unsure of the details and procedures specific to your jurisdiction? Try VATAi VAT Compliance, and we’ll help you adhere to tax regulations and maximize your profits as soon as possible.
