Registering for VAT in the EU remains an overly complicated task, with each Member State having its own processes and procedures to obtain a VAT number.
The various One Stop Shop schemes that were introduced on 1 July 2021 show what the future could look like, with online application and a similar registration process in each country.
However, until this is widely adopted, specific country knowledge is required for VAT registration.
Place of supply rules
The first stage in the VAT registration process is determining that there is a liability to be registered in the country, which can sometimes be complex.
The place of supply rules which determine where VAT on a transaction is due need to be considered. Place of supply rules are different for goods and services and can also differ depending upon whether the transaction is B2B or B2C.
The first step is to establish the status of the parties and the nature of the transaction. Once this has been done the place of supply rules can be considered:
- For goods: the specific place of supply rule will depend on what is happening with the goods – are they being transported, are they being installed, are they being supplied onboard an aircraft or ship.
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For services: Both B2B and B2C supplies have a General Rule with a list of exceptions. The process is to determine if an exception applies; if it does these rules establish the place of supply. If there is no exception, the place of supply reverts to the General Rule. ‘Use and enjoyment’ rules can complicate matters so must not be forgotten; these can shift the place of supply either to the EU or outside the EU depending on what is being supplied and the status of the parties. ‘Use and enjoyment’ is not consistent around the EU so needs to be considered on a country-by-country basis.
Applying place of supply rules determines where the VAT is due. However, this does not create a requirement to be registered as it does not take into account who has the liability to account for VAT.
The default position is that the supplier has the liability but there are a number of exceptions to that default position which must be fully considered, again taking into account country specifics. This results in a situation where a business could carry out exactly the same transaction in two different Member States and have to register for VAT in one but not the other. If the supplier has the liability to account, they have to be registered in the country where the supply takes place in order to do so.
VAT registration
Once this has been clarified, the registration process can begin. This process differs in each country. The Covid-19 pandemic highlighted how manual many tax authority systems are, which proved especially difficult due to the requirement to have paper documents notarized and apostilled. Outside of a pandemic, these processes add delay to any registration application and need to be fully understood to avoid costly wait times; in some circumstances, a VAT registration number is required before trading can commence . Working with a partner who is experienced in the registration process in each country and has good relationships with the tax authorities is key to success.
Fiscal Representation for non-EU companies
A further complication arises for non-EU companies who will have to appoint a Fiscal Representative in order to register in many Member States.
Again, the process differs between Member States and there can also be differences in the requirements depending on where the business wanting to register is established. This is particularly the case with UK companies who have seen the obligation to appoint a Fiscal Representative removed in certain countries in light of the EU-UK Trade and Cooperation Agreement (TCA).
Having to appoint a Fiscal Representative may delay the process of registering so needs to be factored into the timescale from the beginning. It is also crucial to work with Fiscal Representatives who are able to guide you through the complexities of VAT locally.
VAT registration is the start of the VAT compliance journey and the time it takes should not be underestimated. Getting the process right can avoid delays in obtaining a VAT number which can be essential in order to trade in the country. Once the registration is in place, the ongoing compliance obligations arise, which we will look at in our next blog.
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