General VAT Concepts
Value-added Tax or VAT is a tax on goods & services similar to sales tax. However, while sales tax is only charged to the end- consumer, VAT is collected and remitted to the government each time a business in the supply chain purchases products.
What is VAT?
At first glance, VAT seems to be more inefficient than Sales Tax since it requires extra accounting to be done by each business in the supply-chain. However, where VAT shines is that, unlike Sales Tax, it does not need a complicated set of rules to determine who qualifies as an end-consumer. Hence, several countries have moved from sales tax to VAT-based tax in the last two decades.
How is VAT implemented?
- Each seller charges VAT on his output and passes the buyer a special invoice that indicates the amount of tax charged.
- Buyers who are subject to VAT on their own sales (output tax), consider the tax on the purchase invoices as input tax and can deduct
the sum from their own VAT liability.
- The difference between output tax and input tax is then paid to the government (or a refund is claimed, in the case of negative liability).
VAT Regulations for the European Union
The European Union makes it mandatory for all its member countries to implement VAT as per the EU VAT code.
Each member country decides its VAT rates for various categories of goods based on the EU directive. Further, in addition to the standard rates, member countries can choose to apply lower rates called reduced rates for certain categories. The rates can be seen here.
Digital goods such as Domains & Web Hosting fall under the "Standard Rate" bracket.
Rules for charging EU VAT- applicable from 1st Jan 2015
When the seller is within the EU & the buyer (receiving business/end-consumer) is in:
- Same country: VAT is to be charged at the local country's VAT rates.
- Another EU country and has a valid VAT ID: No VAT is to be charged.
(The "reverse-charge" mechanism is to be followed instead where the buyer has to self-declare the VAT amount in his country. That way it eliminates or reduces the obligation for sellers to VAT register in the buyer's country. If the seller incurs any local VAT on costs related to the service or goods supplied under the Reverse Charge, they may recover them through an EU VAT reclaim.)
- Another EU country but does not have a valid VAT ID: VAT is to be charged at VAT rates of the buyer's country.
- Outside EU: No VAT is to be charged.
When the seller is outside the EU & the buyer is:
- Based in the EU and has a valid VAT ID: No VAT is to be charged.
(Reverse-charge mechanism is to be followed.)
- Based in the EU but does not have a valid VAT ID: Must charge VAT in the EU country where the buyer belongs.
Listed below are some Frequently Asked Questions for EU VAT.
When did Resellerclub start charging VAT?
Although PDR solutions FZC is a Non-EU entity, we decided to charge VAT to all resellers registered in Europe from 30th April 2016.
How do I add my VAT ID to the profile?
- New EU Sign-ups: Any new customer/ reseller who has entered his country as one of the EU countries will see an additional field to enter his VAT ID.
- Existing EU resellers: All existing reseller/customer's whose country is mentioned as one of the EU countries can add his VAT ID from the Control Panel by clicking the human like profile icon at the top right corner of the page and then clicking on Manage Profile. You can then enter your VAT ID in the provided field.
- Existing Non-EU resellers: Any reseller belonging to Europe or not can add a valid EU VAT ID if he is charging EU VAT. A Non-EU reseller will only be able to add his VAT ID after he toggles the EU VAT button to ON. This can be done from the Control Panel by going under Settings>> Finance and Billing>> Configure Tax rules.
Are VAT ID’s verified by the system?
Every VAT ID entered in the system is verified from http://ec.europa.eu/taxation_customs/vies/
I have now provided my VAT ID, will I get a refund for the VAT already charged?
No, VAT once charged would not be refunded. However, you will not be charged the VAT once you have provided a valid VAT ID.
Can Invoices be modified?
All invoices in our system are real-time invoices which means, invoices are generated as soon as the order is placed. An invoice once generated by the system cannot be modified.