This blog was last updated on February 2, 2024
The Complexities of VAT
Simply put, the Value Added Tax (VAT) system is complicated. US organizations doing business in Europe are often exposed to significant risk if they don’t know how to handle VAT in each EU country. VAT might appear familiar given some of the superficial similarities to Sales and Use Tax, but it’s entirely more complex and can have drastic consequences on the success of your overseas operations.
EU governments have increased their focus on the transaction tax, putting more US organizations in the spotlight for VAT investigations. The legal obligations around VAT can be overwhelming and getting it right requires significant resources to:
- Research legislation and changes for each country,
- Know how to analyze the data, and
- Fill out local language VAT returns, Intrastat, and Sales and Purchase listings.
Whether your company is already operating in Europe, in the process of expanding, or still considering your options, Europe’s Value-Added Tax (VAT) is confusing for even the most seasoned financial professional.
Understanding all VAT requirements is essential to ensure compliance and a successful expansion in Europe. As rates are significantly higher, non-compliance penalties are also much higher than their sales tax counterparts. Penalties and fines can be up to 200% of VAT owed, plus the added possibility of goods being withheld in customs if VAT has not been paid correctly. Therefore, planning for VAT compliance is critical to your business.
When deciding to set-up operations in Europe or planning for further expansion, it is essential to set-up a system that will be ready for the first transaction and scalable as the business continues to grow. Many companies are well-prepared from a business perspective and even have European office space, but they struggle with the compliance needs in the European market as expansion continues.
The Solution
Software can help you keep track of your VAT requirements, whether from the US or in your regional European office, decreasing the need to invest in VAT consultants and specialists. Automating the VAT compliance process ensures that VAT is calculated and reported correctly, and allows you to focus your energy on other areas of your business.
Sovos VAT determination and calculation allows your organization to automatically keep track of VAT rates in all jurisdictions and calculate the correct VAT on your invoices. This eliminates the need for you to train your AP and AR team to manually research and maintain a list of VAT rates, and where/when they’re applicable. We offer a European presence in Amsterdam and London to provide you with the local insights to fit your unique requirements for VAT.
