Most companies start their journey to VAT compliance by asking what is the VAT threshold limit in their country (or foreign jurisdiction should it call for it). That’s because the VAT threshold limit determines whether your business is in for a lifetime of VAT reporting, returns, and filing; and the complexities and administration that come with it. In this article, we lay out the definition of VAT thresholds and outline the international VAT thresholds in each country.
What is a VAT Threshold?
A VAT threshold is defined by a company’s annual taxable turnover concessions that determine whether a VAT/GST registration is necessary. Simply put, when your business hits a certain amount of revenue or turnover for the year, your business must start charging output VAT and reporting, accounting for and filing it with your local VAT or value added tax authority.
The below table shows each of the VAT thresholds across countries where a VAT/GST/JCT regime is in place. The difference between a collection and registration threshold is as follows: A registration threshold means that businesses are not required to register for VAT until they meet the VAT threshold. Whereas the collection threshold means that all businesses must register for VAT, but they don’t need to charge and collect VAT until they exceed the collection threshold.
Source: National OECD delegates - position as at 1 January 2021
Voluntary VAT Registration Before Meeting the VAT Threshold
From the table above, we can see that most VAT authorities allow for voluntary VAT Registration. There are a lot ofbenefits of a VAT registration before meeting the VAT threshold. Businesses may elect to register for VAT earlier to make importing and exporting more efficient, to claim back input VAT on early start-up costs, or to portray authority and longevity.
My Business Meets the VAT Threshold – Now What?
If your business meets the VAT threshold in the country in which your business resides, you will need a resident ordomestic VATregistration. If your business has met the VAT threshold within another country where it sells goods and services, then your business will need a foreign/non-resident VAT registration.
Sounds simple enough, but VAT compliance is not a once-off project. It requires consistent reporting, filing accounting of your output, and input VAT. This can get very complicated if your business requires VAT registrations across multiple jurisdictions. Once registered for VAT, your business will have to:
File VAT returns on a monthly, bi-monthly, or quarterly basis (depending on the country’s regulations) and declare the value added tax to your tax authority.
Charge output VAT on your sales invoices and ensure your invoices are VAT compliant and include your VAT number on all invoices.
Calculate and add the relevant VAT rate to all your invoices to the net charge of your sale invoice. For example, the VAT rate in the United Kingdom is 20%, which means you’ll need to add 20% to the net value of your goods and services.
Ensure that your accounting software can categorize your sold goods and services accordingly to various VAT rates that match corresponding goods and services sold.
Make sure that your expense management software or A/P department is capturing the input VAT correctly to maximise your input VAT returns.
VAT Thresholds for Distance Sellers, eCommerce, and Digital Services
In July 2021, the European Commission introduced an EU-wide VAT threshold of €10,000. The VAT registration threshold is applicable to eCommerce, distance sellers, and digital services companies. As soon as a foreign or EU company meets the EU-wide sales threshold of 10,000 (meaning the total sales to the intra-EU community), your company must register for VAT in each of the European countries that you make sales in. The EU Commission then introduced theOne Stop Shop (OSS)to make cross-border VAT compliance easier for businesses.
Avoiding multiple VAT registrations by using the Europan One Stop Shop
Looking for a way on how to pay less VAT? By taking advantage of the OSS, e-commerce, and distance selling businesses can account for VAT through a single digital VAT return. Simply put, you can register for value added tax in just one EU country or EU member state and then file a consolidated VAT return for all sales across the EU.
How to Avoid Overpaying Your VAT
Note that the OSS may not be the best solution for all companies. Your company may gain more benefits by having multiple VAT registrations in each individual country. Your company may stand a lot to gain from voluntarily registering forVAT. And you may not have the internal resources to correctly account for and claim any input VAT that saves you from overpaying. Therefore, it is vital to consult with one of our international VAT specialists who will understand the structure of your business, accounts payable, and your supply chain and advise accordingly.