Every company extending their activity abroad must consider the need for a VAT registration. Even when the business is not setting up a branch or having any physical presence in the country, a VAT registration may be required.
As a general rule, you need to register for VAT in a country when you are performing taxable transactions in that territory. There are special VAT rules for e-commerce businesses which you can read in our article VAT on drop-shipping. E-commerce VAT. For every other business without a permanent establishment, these are some of the transactions that will oblige you to register for VAT in a country:
- Imports: If you import goods into a country, you need to register and pay VAT and customs duties at the border. There are many simplifications around importation, but as a general rule you will need a VAT number if you want to import goods and sell them in any given EU country.
- Exports: Exporting goods will also oblige you to register and comply with all documentation requirements in order to zero rate your supply.
- Domestic sales of goods: Selling goods within a country would normally oblige you to register and pay VAT to the tax authorities on those sales. However, foreign companies need to consider reverse charge rules. When reverse charge applies, you do not charge VAT on the supply and the customer manually calculates the VAT in its VAT return. In those cases, a domestic sales of goods does not require you to register. Contact us if you want to know if reverse charge applies in any country (or if this whole paragraph sounds like Chinese).
- Intra-Community movements: When you supply goods from one EU country to another or when you receive goods sent from another EU country, you need to get a VAT number. You also need to get registered in the VIES system, which is automatic in some countries but it can take time and efforts in other member states.
Transactions that do not (usually) oblige you to get a VAT number
For the avoidance of doubt, the below transactions do not normally require a non-established company to get a VAT number. As it often happens with VAT, there are exceptions to the rule.
- Supplies of services: If you are supplying services from your home country to someone abroad, you do not have to register in the country of the customer. B2B rules will normally apply. Exceptionally, you will need to register and charge VAT on services related to immoveable property. Exceptions also apply to short term leasing, passenger transport services, catering services use&enjoyment and others.
- Domestic purchases of goods do not oblige you to register for VAT in any EU country. In a few countries, you still need to register for VAT due to purchases of goods when the domestic reverse charge applies.
If you are incurring VAT, recovering these amounts have different procedures depending on whether you are VAT registered or not. We explain the difference in EU VAT Refund. Recover VAT through the VAT return or separate refund claims?.
A few examples
A company buys goods in Poland and moves them to a processing plant in Germany. This company will need to get a VAT number in Poland due to the movement of these goods to another Member State (intra-Community suply). This same movement will require a VAT number in Germany (intra-Community acquisition). Although this is not a sale and the title of the goods remains within the same company, the transfer of goods between member states follows the same VAT rules as the sale of goods.
Let´s take now the example of a UK company leasing automotive machinery to a client in France. The machinery is purchased from a local French supplier and placed in the premises of the final customer, also French. Purchases of goods do not require a VAT registration. Leasing is a B2B service that is reverse charged by the customer and doesnot require a VAT registration neither. The leasing business will not be allowed to get a French VAT number. Regarding the VAT incurred on the domestic purchase, this will be recovered through the VAT Refund Directive.
And what about VAT registration thresholds?
If you are a foreign company not established in a country, registration thresholds do not apply. These thresholds are only applicable to small established businesses. Non-established companies need to register as soon as they make the first taxable transaction.
On top of this, you need to consider all the administrative obligations such as invoicing, bookkeeping, return preparation and ERP requirements. Feel free to contact us if you need any help with your VAT registrations or VAT obligations in any European country.