For entrepreneurs who are just getting started or those in the process of expanding abroad, VAT registration is usually one of the first regulative milestones in their journey. 1StopVAT team has collected five most frequent questions that emerge when setting up the business for selling across borders. Among these: when to register for VAT, how to become VAT registered and what happens upon the registration.
If you are selling digital or other goods and services to customers in Europe or in other countries where the Sales Tax applies, you will likely have to register for VAT at some point. Usually, sellers register for VAT as soon as their turnover passes a certain limit, set by the country where the store is established.
However, there are several kinds of goods and services exempt from VAT in most countries; therefore, before starting to charge VAT from your customers, you should doublecheck whether you are subject to partial or complete VAT relief.
You should register for VAT as soon as your cumulative turnover of the last 12 months exceeds the threshold that depends on the regulations of the country in which you are operating. It is important to keep an eye on the turnover on a monthly basis as the VAT taxable period is based on the sum of factual proceeds of the last 12 months instead of the usual tax year.
For instance, sellers of digital goods and services in the EU are subject to VAT after their turnover exceeds 10 000 EUR during the last 12 months. In case of selling other goods (services) within the EU, the registration should happen once the turnover exceeds the threshold in the range from 35 000 to 100 000 EUR, depending on the regulations of the selected country.
Merchants of digital services and goods outside the EU should be aware of different VAT or Sales TAX regulations across countries, which can hasten or postpone the registration deadline.
Very often, VAT registration in an online procedure during which a VAT account is created. In some cases, such as ‘distance selling’ to the UK or other markets, registration is carried via post by filling a printed form and shipping it to the responsible institution. To spare yourself the hassle, you can also appoint an accountant to submit your VAT registration details to the revenue authorities.
Sellers of digital goods and services in Europe register in the MOSS (Mini One Stop Shop) system.
You should not postpone registering for VAT as failing to submit your details in time could result in a late registration penalty.
Even if you have skipped the registration, you are supposed to start charging VAT from your customers as soon as you exceed the turnover threshold, which applies to your business. That is because once you finally register for VAT, regulators will expect you pay the cumulative amount for the period following the day when your turnover exceeded the VAT threshold.
From the effective date of your VAT registration, you become obliged to charge the right amount of VAT from your customers. In addition to that, once you are registered, you need to pay VAT in time and submit VAT returns to the appropriate authorities. You will also need to store information, such as VAT sales and VAT purchases. Companies usually create a separate VAT account which is helpful as the tax is collected fractionally, allowing to deduct VAT paid to other taxable persons from the VAT collected.