Remember those simpler times when VAT was something SaaS businesses from Europe didn’t have to deal with?
It was not even that long ago.
Up until January 2015 we all went about our business, selling our services and being completely carefree about VAT - it was a non-issue.
Unfortunately, that all changed that faithful January first.
Value added tax became one more extra thing to fuss about for businesses selling digital services in Europe.
From that moment on, invoicing became more complicated - and not just a bit more complicated; a lot more complicated.
In fact, it became a pain in the butt, to tell you the truth.
Consider the following situations:
Let’s say you’re selling something that is worth € 100 and that your base of operations is France.
That’s how much you charge for your service across the board and you want to keep your price there for your customers outside of France.
Well, the European laws say you can’t, at least not in every situation.
Let's take a closer look at following situations:
- You’ve sold a service to a company based in France.
- You’ve sold a service to a company based in Germany but they don’t have a VAT number.
- You’ve sold a service to a company based in Germany and they do have a VAT number.
- You’ve sold a service outside of the EU.
Now, in these very distinct four scenarios you are going to handle VAT differently. In the first two cases, you are obliged to include VAT in your invoice.
All EU countries allow electronic VAT invoicing and tax people are pretty lax about it, as long as your method is safe and secure.
Your invoice, however, needs to include the following:
- Invoice number
- Seller’s name
- Seller’s VAT
- Customer’s name
- Type of service provided
- Total VAT in Euros or other applicable currency
Keep in mind that the VAT that you show on the invoice will reflect the VAT charged in your customer’s country of business.
In France, that is going to be 20 % but in Croatia it’s going to be 25 %, in Germany 19 % and in Ireland 23 %.
Tell us about it…
But don’t worry, we’ve prepared a cheat sheet for you at the end of this post.
In the last two cases, when you’re selling your service to an EU customer that has a valid VAT number or to a customer that is outside of the EU, the invoice will not show a VAT charge.
Your customers will have to account for VAT in their own country and through their own VAT self-declaration.
How to Know When To Charge VAT?
The first question that pops to mind is: how are you going to know who has a valid VAT number and who doesn’t?
The EU made that part easy, at least.
You’ll find that information by checking the VIES.
VIES stands for VAT Information Exchange System and it is a search engine, not a database. All businesses are required to register for a VAT number in their country and that data is pooled in VIES.
If your customer provides you with a VAT number VIES will easily show you whether or not that number is valid. If it isn’t you’re going to have to charge them VAT applicable in their own country on the invoice.
However, it’s going to happen that things don’t always add up. Your customer is going to insist that they do have a VAT number but VIES will not be spitting it out.
This can happen because of many reasons: change of legal name, address, or other data - or it can be an administrative error.
In this case, your customer is going to have to clear it up with their tax office.
In any case, dealing with VAT can be a hassle - and in most cases, it is going to be.
Luckily for us, there are many companies on the market that offer solutions that are going to make that task a lot less time-consuming and laborious.
Tools like Quaderno do all the heavy lifting for you, so you don't have to worry about VAT anymore when selling digital products or services.
Stay tuned for our next post when we’re going to introduce and briefly describe a number of those companies and the services they offer.
VAT Rates in EU Countries
|Country||VAT Rate (%)|
|The Czech Republic||21%|
|The United Kingdom*||20%|
*At this point, it’s anyone’s guess what is going to happen with the UK. However, until they officially leave the EU, you will have to either charge UK companies VAT or not depending on whether or not they provide you with their VAT number.