In the business world, VAT is usually a sensitive issue that must always be handled with appropriate knowledge and understanding.
It plays a fundamental role in the overall efficiency of carrying out business, both domestic and international.
In this guide, we will discuss several aspects of regarding VAT number.
You will thus find everything you need to know about VAT, structure, significance, and other related elements.
Meaning of VAT Number
This refers to a unique number used for identifying a taxable person, business, or non-taxable entity registered for VAT.
You can also describe it as a registered tax identification number in tax systems, which uses Value Added Tax (VAT).
Ideally, when you obtain VAT registration in a particular country, you receive a VAT number for their respective tax system.
However, it is essential to understand that VAT number is much different from local tax number or tax ID.
VAT number is used exclusively for the Value Added Tax scheme.
The VAT numbers often vary from one country to another.
Of course, this is occasioned by the different tax systems used in various countries.
The application for VAT number or registration is also different in various countries.
In many instances, you need to inquire from the relevant bodies in charge of issuing VAT numbers in a particular country.
This makes it easy for you to facilitate the process since it enables you to know the specific requirements for every country.
Is VAT Number Mandatory?
In many countries, VAT registration is mandatory.
And this is specifically if your business turnover exceeds or is likely to exceed the government threshold in a financial year.
Many governments require that you obtain a VAT number voluntarily at any point until your business turnover exceeds the threshold.
VATable turnover includes goods and services your business has transacted and is liable to VAT.
This can be a standard, reduced, and zero rates.
However, this hardly includes anything exempted or is outside the general scope of VAT.
In a nutshell, VAT number is a mandatory requirement in any country for businesses that meet stipulated VATable threshold.
Structure of VAT Number
Sample of VAT number
The structure of VAT number varies from one country to another.
Every county has different VAT systems, which are integral in determining the structure of VAT numbers in general.
Nevertheless, irrespective of the country, the VAT number must consist of a prefix and a suffix.
In many cases, the prefix usually represents the code of the particular country.
On the other hand, the suffix can either be letters or numbers used for identification.
Generally, the VAT number consists of 4-15 digits.
In essence, it begins with a country code then followed by a block of digits or characters depending on a country’s preference.
For instance, VAT Number for Germany would be something like DE123456789.
The sample VAT number for a business in Germany
The most crucial element to note, however, is that the VAT number for every business is unique in every country.
In other words, your business can never share a VAT number with a different company in the same country.
Who needs a VAT Number?
VAT number is an essential requirement for businesses and any other person carrying out a specific economic activity.
It is also a requirement for any registered profit-making organization.
In principle, though, the business or company is obliged to acquire VAT number on the following grounds;
- If it carries out supply of products or services taxed with VAT
- If it receives services for which it is liable to pay VAT under the stipulated directives
- If it supplies products or services for which the customer is liable to pay VAT
- If it makes the inter-country acquisition of products.
Role of VAT Number
VAT number is a vital component in both national and international business.
It plays an integral role in enhancing the efficiency of carrying out business in a country.
In principle, it connects your business with the government, particularly for taxation purposes.
Some of the roles of this unique number include the following;
· Tracking Business’ Input and Output VAT
One of the roles of VAT numbers is to help in easy tracking of your business’ input and output VAT.
You will always receive a VAT number for your business once you register it for the VAT tax system in a particular country.
This number comes in handy in tracking the value of tax your business pays and collects through expenses and revenue.
In principle, you, therefore, need to put your business’ VAT number on all your tax invoices and receipts.
· Filling VAT Returns
In many countries worldwide, it is a prerogative of the businesses to ensure that they file tax returns.
This usually happens after a financial year when you need to use the VAT number and VAT invoice records.
These two enable you to determine the amount of money in form of tax your business owes the company or vice versa.
· For Selling B2B
Whenever you sell to a VAT registered business, they also issue you with a VAT number for their business.
This makes it easy for you to always use the reverse-charge mechanism for the transaction.
More importantly, is to ensure you verify the validity of VAT number the specific country’s tax system.
When You need a VAT Number
When registering a business, in most cases, the VAT number is usually assigned directly at the tax office in most countries.
Numerous considerations take into account the moment you decide whether or not to register for a VAT number.
You need to envisage the possibility of your company having a turnover above the threshold set by the government.
Otherwise, it would be advisable to avoid registering the business yet to simplify your accounting responsibilities.
In any case, you must be careful when making this decision.
In principle, any period you exceed the threshold and fail to register for VAT, you may face financial consequences.
However, early VAT registration is advisable.
It prevents your business from the burden of administrative work related to changing the accounting system.
It also allows you to avert incidences of re-pricing products and services later as the business operations continue.
If you have invested massive capital in your business, it would also be ideal for getting VAT number as early as possible.
In this case, it means you can reclaim VAT paid on onset expenses.
If you sell items from a different country and exceed the distance selling threshold, you need a VAT number.
If you are a foreign entrepreneur, you may also need to get a VAT number in the respective country you are trading in.
Some of the typical incidences whereas a foreign investor you must obtain a local VAT number include the following;
- When a foreign business buys and sells merchandise in another country
- Storage of products in warehouses or based on consignment in other countries for customers
- Sale of commodities to buyers via various forms of online platforms or through catalogs
- When business imports goods from different countries.
- Having a live conference, training session, or exhibition with paid admission
- Supply and installation of equipment or machinery in a restricted number of circumstances.
Generally, non-resident companies are often required to register for VAT immediately.
As you can see, there are several situations, which require VAT registration to get a VAT number.
Therefore, it is always essential to do due diligence on the circumstances of getting this particular number for a specific country.
Where to Apply for VAR Number
Nowadays, many countries have integrated their tax systems with various online platforms.
In essence, it means you can simply apply the VAR numbers from the online platform of the respective tax office.
An online application usually requires filling all the required fields with relevant information.
You will also need to attach a few documents for the tax officials to review before issuing a VAT number.
Most tax offices across the world use different software systems
In some countries, however, you can apply for the VAT number through email.
In essence, you need to send an email to the respective tax office requesting VAT registration.
Response or feedback usually varies depending on the policies of different tax offices.
Information Required in VAT Number Application
Essentially, when registering for a VAT number, you must provide different types of documents and information.
And these usually vary from one country to another even though a few documents often remain the same.
Some of the important documents necessary for VAT number application include the following;
- Evidence of VAT or tax registration in the country of origin
- Copy of certificate of incorporation for the business
- An extract from the national register of companies demonstrating evidence of the existence
- Evidence of the planned trade such as invoices and contracts among others
Difference between Tax Number, Tax ID Number, and VAT Number
In different countries across the world, there are various kinds of tax numbers with varying functions and references.
In most instances, they come as tax number, tax ID number, and VAT number.
Tax number refers to a personal number, and it’s based on the taxpayer’s country of residence.
The abbreviations for tax numbers vary from one country to another.
However, once you move to a new location, you will receive a unique tax number for the respective location.
Tax identification number, on the other hand, is also more or less similar to a personal number.
The main difference here is that Tax ID number hardly changes even when you shift from location to another.
It remains the same for the rest of your life.
Entrepreneurs or business persons are the only parties that need a VAT identification number.
Employees usually never require a VAT number.
Persons or companies supplying goods and services in a country or regional economic bloc also requires a VAT number.
In essence, almost all products and services are usually subject to VAT.
Technically, Tax number and tax ID number are usually needed by employers for their respective employees.
However, the government must require a VAT number for all businesses and companies offering VATable products and services.
The Importance of VAT Number
VAT number is an integral component in business and companies.
Most governments depend on taxes as a source of funds for various operations within the country.
Therefore, having a VAT number facilitates an easier way of collecting and reimbursing money in businesses.
Nevertheless, VAT number is important in various ways, which include the following;
· Establishing Relations with other Businesses
When your company is VAT registered, it is easy for you to form business relations with other companies.
Most of the companies involved in relatively large transactions always prefer to deal with other VAT registered companies.
Technically, it creates an impression of the size and commitment of your company to its specific area of business.
· Helps in Identifying the Place of Taxation
VAT number makes it easy to determine the exact place of taxation.
Several companies carry out businesses from different perspectives.
Therefore, in some instances, it can be difficult to identify the place of taxation without a trail.
VAT number hence makes it possible to identify the place of taxation and consequently to enhance transparency in taxation process.
· Helps in Identifying Tax Status of the Business
It is easy to determine whether the business is up to date regarding taxation when you have a VAT number.
The VAT systems are always integrated, thus making it possible to identify your business’ status as far as tax is concerned.
The essence of this is it prevents you from accruing or overpaying tax.
You can always use it to monitor the tax status any time you in need.
· Helps in the Auditing Process
Sustainability and growth of a business are determined largely by the transparency and monitoring of the revenue and expenses.
This way, you can easily figure out the specific areas, which require fiscal attention at the right time.
VAT number thus plays a vital role in the overall auditing process.
You’ll easily determine the amount of money the company spent on tax.
Moreover, you can also identify the amount of money the government owes the business and how to obtain it.
As you can see from this guide, VAT number is a critical element in the business, both local and international.
Hopefully, you have understood a wide range of elements concerning this number.
Ultimately, you’ll make the right steps in making sure you attain and use it the right way for your business.
If you have any inquiries regarding different aspects surrounding VAT number, feel free to reach to us.
We will always assist you in matters to do with VAT number irrespective of the country you seek one.