What is a VAT invoice & How to Charge VAT to EU Clients?

What is a VAT invoice

VAT is the value-added tax that is applied on all products, services, and other taxable goods in all European countries. EU customers pay VAT on all products and services that they purchase. On the other hand, customers of the United States do not pay VAT rather they pay sales tax which is governed by individual states. But United States-based companies or business enterprises need to understand how they should charge VAT to their EU clients.

In this article, we will discuss more on VAT, its purpose, and how to charge it. Keep reading to learn more about this!

What is VAT Invoice

VAT is a federal tax that is chargeable for EU clients. A VAT invoice is a vital accounting document that gives detailed information about the products and services that are subject to value-added tax. This is issued by the business enterprise within 15 days of the end of the month in which the product or service was delivered. VAT invoice helps the business owners to collect the VAT from the government by charging the VAT to the EU clients. Similarly, non-EU countries also need to collect VAT on certain products that EU customers purchase to ensure the EU government receives tax.

How to Charge VAT on Invoice?

To charge VAT on invoices business owners must follow the below steps.

Register your business

You must register your business for VAT for one of the 28 EU member countries as per your requirement and convenience. If you have clients in more than one EU country then it would be easier for you to register online with your local tax authority. This helps you to get your tax return by submitting all your EU VAT together. For business owners from non-EU countries, one must research well to be aware of all the details regarding EU VAT.

Charge VAT correctly to your customers

Ensure that the customer has a valid VAT number so that you don’t need to charge on your invoices. Moreover, businesses with valid VAT numbers in the EU are applicable for reverse-charge mechanisms in which the VAT will be reimbursed to them for running their business.

Confirm your client’s details

Confirming client details is a must because charging VAT varies on certain factors. If it is a business-to-business transaction then you need to charge VAT. But if the transaction is between business and customer you would need to charge a specific VAT amount. Also do remember to ask your client about their location as the VAT amount varies from place to place.

Issue VAT Invoice

While you issue a VAT invoice keep in mind the below pointers. Add the following:

  • Business name and address
  • Your VAT number
  • Client’s name and address
  • Client’s VAT number (if applicable)
  • Invoice number and date
  • VAT rate and the amount charged in specific products
  • Total amount after charging VAT
  • Also, the currency applied

Submit VAT return quarterly

You will have to submit a single tax return for a specific quarter. Do remember that you will have 20 days to pay the VAT amount owing from the last day of each quarter. Besides, you need to pay the VAT in the currency of the local authority where your business is registered.

What is the purpose of Value-added TAX and where does it apply?

Value-added tax just like any other form of tax is meant to raise revenue for the government. It fills in the fund for the smooth functioning of the government and settles the expenses of various government programs. VAT is easy to monitor on a federal level as this is equally distributed over the jurisdiction. At the same time, VAT can not be evaded by the customers because this is applicable over all jurisdictions and is applicable on all consumer goods. Products sold to foreign consumers are not under VAT whereas imported goods are under VAT just to provide the EU producers with the fair competition with global markets.

VAT is applicable for all the 28 countries within European Union. VAT varies from country to country within the EU. Only the United States among all the OECD countries does not levy VAT federally.

What is the difference between VAT and Sales Tax?

VAT and Sales tax may seem similar but it is not. Value-added tax or VAT is levied at every stage of a supply chain. It is charged by suppliers, manufacturers, distributors as well as retailers. Whereas the sales tax is charged at the end when the sales are made to the end customer. In this only the retailer charges this tax to the end customers on their purchase.

VAT is quite common in European countries which is the consumption tax charged on all consumer goods and services that are sold and bought in the European Union. This article gives an insight into the VAT invoice and how it is done. Do remember the points before you create your VAT invoices for your EU clients from now on!

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