Doing business in the European Union has a number of advantages. Extending the sale of products and services to many countries makes it possible to achieve much higher profits than just trading on the domestic market. However, international transactions can seem complicated, especially for newcomers to the trade
It is therefore worth taking a closer look at how VAT between EU countries is settled and what mechanisms are in place to encourage new businesses to enter the market.
Accounting rules for VAT in the EU
There are different tax laws and VAT directives in the various EU countries. In addition, there are agreements between countries, such as double taxation agreements, which need to be taken into account when expanding business activities. EU VAT directives are intended to standardize the situation by creating uniform rules across the EU. This makes it easier and clearer to carry out international transactions. The basic principle is that EU law takes precedence over national law. This is beneficial for entrepreneurs as it reduces the need to frequently familiarize oneself with dynamically changing tax rules.
Method of calculating VAT
VAT is applied in almost all countries in the world. Its operational mode is to eliminate double taxation. Input VAT is a tax that has been incurred at the stage of production or distribution of goods. VAT due, on the other hand, is the tax added to the price of a good or service that the customer pays at the time of purchase. VAT is charged at each stage and accumulated until it is fully recovered from the final purchaser.
Multiple VAT rates within the EU
European Union directives take precedence over national laws. This does not mean that the same VAT rates apply everywhere. In practice, the standard rate of VAT in the European Union varies between 17% and 27%. Reduced and super-reduced rates are also provided for, and in addition, some goods are subject to a 0% rate or may be exempt from VAT. This makes it necessary to familiarize oneself with the specific rules that apply in the various EU countries so that a company can do business in the most advantageous way.
Limit on accounting for sales as domestic
The general rule is that VAT for companies established in the EU is paid in the country where the goods are sold to the final consumer. If sales to private individuals in different countries do not exceed EUR 10,000, transactions can be accounted for under the domestic sales rules. Once this limit is exceeded, the taxpayer must register for VAT in each EU country where the sale has taken place. The second option is to register for VAT OSS (One Stop Shop) and account for all sales to other EU countries
VAT OSS and VAT IOSS systems
The VAT OSS was introduced to facilitate intra-Community transactions. Under it, it is possible to make supplies of goods and services in different EU countries and then settle them on a single EU VAT return in the country where the company is registered. A similar mechanism is the VAT IOSS (Import One Stop Shop), which applies to imports of goods from countries outside the EU. It can be used by companies trading in parcels not exceeding a value of EUR 150, which are not subject to excise tax.
Cooperation with a specialized tax office
How to account for deliveries to different EU countries can seem complicated, which is why many companies choose to work with a specialized tax office. This way, no matter how VAT between EU countries must be settled, they can ensure that they are not exposed to additional charges and can focus on developing products to best meet the needs of their customers.