The 27 member States of the European Union all subscribe to the same rules of EU VAT compliance. Each state is required to follow these rules in support of the EC Single Market, established by the end of 1992. This was enshrined within the original Treaty of Rome.
Click here if you want to know about VAT registration requirements in each EU country.
EU VAT Law
The EU VAT rules are laid down in Directives, which should be implemented by each member state of the EU through their local legislative bodies. The principle VAT Directive is known as 2006/112/EC (formerly the 6th EU VAT Directive). This establishes the broad rules and rates for the management of VAT in the EU, and was key to the abolishing of tax frontiers between the member states.
Whilst the EU Directives should ensure harmonisation throughout the EC free trade area, in fact there remain many differences. Countries remain free to apply for certain exceptions or derogations, and can also be slow to implement some details of the Directives.
The key point is that companies operating in EU countries must still abide by the local VAT laws.
EU VAT Registrations
Foreign companies, both EU and non-EU businesses, may operate across the EC borders without the need to form local companies and branches - provided permanent establishments are not formed. In the case where taxable supplies of goods or services are involved, there may be the requirement to register with the relevant country tax offices, and charge local VAT. In this situation, companies may also offset any VAT incurred on their local costs. This is known as non-resident trading.
There are strict rules on the situations where a registration is permitted. Common scenarios for a foreign VAT registrations include:
- Importing goods into a country;
- Organising live events, conferences etc;
- Holding goods in a warehouse as stock for resale;
- Buying and selling goods within a country, or for resale elsewhere;
- 'Supply and install' services over 12 months; and
- Distance selling to private individuals, e.g. internet retailing.
EU VAT Registrations take different lengths of time. Some countries are very quick, e.g. 10 working days in Germany; others may take several months.
For an up-to-date listing of vat registration timings and information requirements, contact TMF VAT:
EU VAT Compliance
There are detailed rules controlling the recording and processing of European Union transactions for VAT purposes. Broadly, each EU state should follow the rules of the EU VAT Directive. This covers areas such as:
- EU invoice requirements;
- When to issue a tax invoice;
- Foreign currency reporting;
- Credit notes and corrections;
- Correcting entries and prior returns; and
- What records must be maintained.
EU VAT Rates
In general, EU countries are free to set their own standard VAT rates. However, this must be no lower than 15%, and no higher than 10% above this minimum, i.e. 25%. For details of the see our EU VAT Rates page.
In addition to this standard vat rate, there are many reduced rates in each country.
EU VAT Returns
Companies with an EU VAT number must complete periodic VAT returns. These can be quarterly, bi-monthly or monthly, depending on the country and the threshold rules. Some countries also have annual VAT return requirements, e.g. Italy and Germany.
Many countries still operate on paper returns, which have to be posted to the relevant tax office. However, increasingly, EU countries are moving over to electronic-only submission.
EU VAT Returns summarise the business' sales and acquisitions, plus the VAT. Usually, the tax office will expect an electronic transfer from a foreign bank account of any VAT due at the same time as the return is filed. However, there remain a number of countries which require payments through local bank accounts or via a local VAT agent. TMF can help with all of this.
EU Intrastat and EC Sales Lists
In addition to VAT returns, companies may be required to submit additional statistical information if they are trading in the European Union. Each EC member state has slight variations on these reporting systems, including differences in reporting thresholds.
The EU Intrastat, which lists sales (dispatches) and purchases (acquisitions) within the EU VAT region, must be filed monthly once the annual threshold of the respective country is exceeded. The EC Sales List is a quarterly report, detailing customers and sales. To learn more about EU Intrastat and EC Sales Lists click here.
In a number of countries, e.g. France, both reports are combined into one.
If you require EU VAT assistance in Europe, please contact TMF VAT. As part of the TMF Group, we have 35 offices in Europe, with VAT professionals who understand the local variations and requirements of the tax authorities. This is critical for successful and efficient EU VAT compliance.
Our EU VAT enquiries are centrally managed from our UK offices:
+44 (0)870 067 8881