With the rise in ecommerce entrepreneurs using sites like Amazon to trade in foreign countries, governments have started to clamp down on companies who are dodging paying VAT in different territories. So if you’re an ecommerce entrepreneur, you need to make sure you’re not breaking the law when you import or export your goods across the globe. To help you, we consulted our resident expert in all things VAT, French chartered accountant Jacky Ling from Paris to get the answers to all the frequently asked questions on how to set up a VAT number for ecommerce entrepreneurs.
Euro Start: Why is it important for ecommerce entrepreneurs to set up a VAT number when importing and exporting their goods to different countries?
Jacky Ling: VAT is one of the main incomes of a government’s budget. For example, in France, it represents more than half of its income. So, the tax office is very strict about VAT - its liability, its calculation and its payment.
Today’s technology has made it easy for worldwide transactions and has allowed the development of the ecommerce entrepreneur market, whatever its activity or its size, so that a company or a simple person can buy or sell goods across the globe. During the last few years, various governments, especially in the European Union, adopted new laws in order to regulate these transactions and to apply VAT on them if need be. In the EU, there are 2 types of business relationship:
- Business to Business (BtoB)
- Business to Customer (BtoC).
For the first type, the supplier and the client both have a VAT number so the VAT is self-assessed. For the second type, the supplier has a VAT number, but not the client. In order to pay the collected VAT, the supplier must register themselves in this country if it passes the thresholds of revenue fixed by this country. So, the supplier must apply the VAT of the client’s country on its sales. That is why, a European ecommerce entrepreneur must set up a VAT number in the country in which it sells.
Why can you no longer just charge VAT from the country you are in? Has the law changed recently to make it harder for businesses to do that?
Today, there are a lot of web platforms on which you can buy and/or sell worldwide goods, like Amazon for example. These platforms ease transactions and their impacts are very important on the economy. In the EU, the governments agreed fiscal conventions between them in order to regulate ecommerce transactions: in a BtoC relationship, when the thresholds of revenue are passed, the supplier must apply the VAT rate of the client’s country and it must pay back the collected VAT. That is why it is important to set up VAT number, especially in EU countries.
New rules that will change things for people in the ecommerce business will be the simplification all VAT procedures where the European tax offices will create a one- stop-shop. But, although the tax office want to use it for many types of activities, for now, it concerns only virtual services like downloading music, video games, movies, etc.
How is the best way to set up a VAT number? Can you do it yourself or is it best to use an accountant? What are the advantages of using an accountant?
When a company or entrepreneur wants to set up a VAT number, they can contact the tax office in the country they intend to sell to. They must fill out a form and provide some documents which will be handled by the tax officers.
An ecommerce entrepreneur can do it by themselves if they like but if they don’t know the language or the procedure in that particular country, it is better to ask a local agent like an accountant. They can help because they have a better knowledge of the local laws and can discuss any issues with the tax office directly, as well as assisting the ecommerce entrepreneur with any future tax obligations, especially the establishment of VAT returns.
If you have a VAT number in a different country does that mean you have to pay other taxes in that country too?
No - if you do not have a permanent business structure in this country, you are not obliged to pay their other taxes. However, the entrepreneur must not forget to make sure they meet the tax obligations in their own country, especially establishing the trade of goods declaration.
What paperwork is involved in setting up a VAT number? What documentation do people need to show?
In addition to the VAT form, the tax office will ask for the following documents:
- Company incorporation
- Status of the company
- ID of the Director
- Certificate of registration in country of origin
- Certificate of the VAT number in country of origin
Are there any reasons why a company would be rejected from getting a VAT number and how long does it take to set up a VAT number?
Yes, there are several reasons a company or individual might get rejected, for example if the form is not correctly filled in or if some documents are missing. If all the documentation is correct however, it should only take about two to three weeks.
Is there any more information that is useful for people to know about this subject? Any website or links where people can go to get further information?
Each case and country is specific so it is better to have some local help from an accountant before starting a VAT set up. They can help with checking claimable invoices, preparing the applications, answering queries from tax offices, following up on claims or processing refunds and payments to your company. For France, you can visit the following websites to get information:
For any further information about VAT services in Europe and to get in touch with Jacky Ling, you can click on our VAT Services page, call us on 0033 (0)1 53 57 49 10 or email us from our contact page and we’ll be happy to help.
