A VAT number is a registered tax identification number in tax systems that use Value-Added Tax (VAT). When you register for VAT in a single country, you receive this identifier for their system. We’ll cover what exactly it’s used for in a section below.
Important note: This is not the same as a local tax number or tax ID. A VAT number is exclusively for the Value-Added Tax scheme.
What does a VAT number look like?
VAT numbers can vary from country to country, but there’s one general similarity. It can have between 4 and 15 digits. It starts with the two-digit country code (e.g.- DE for Germany or IT for Italy), followed by 2-13 other characters.
What is a VAT number for?
For tracking your business’ input & output VAT
You or your business receive this tax ID upon registering for the VAT tax system in a certain country. It's used to track how much tax your business pays and collects through purchases and sales (expenses and revenue). These amounts are also known as input and output VAT.
You should always put your identification number on all of your tax receipts and invoices.
For selling B2B
When you sell to a VAT-registered business, they will provide you with their business’ VAT number. Then you can often use the reverse-charge mechanism for the transaction.
With the reverse-charge mechanism, the responsibility for VAT moves from the supplier back to the buyer, so that the tax money goes directly from the buyer to the government. So you don’t need to add VAT to the sale in these types of transactions.
Important note: You should always verify that the VAT number is valid in that country’s tax system, since giving false IDs is a form of fraud.
For filing VAT returns
When it’s time to file VAT returns, you use the number and your invoice records to determine how much your business owes the government, or vice versa! Typically you must file VAT returns every quarter, but this could change (to monthly or yearly) depending on your annual revenue.
You should always file your returns on time to avoid any late fees. Plus, you might get a refund!
What is Value-Added Tax (VAT)?
Glad you asked! VAT is a specific kind of consumption tax, applied to the sale of goods and services.
With VAT, the consumption tax is charged at each stage of the production chain. At each stage, it’s assumed there’s an increase in the value of the good or service. That increase, the “value added,” is what’s being taxed. But the cool thing is that, as a business owner, you get back whatever VAT you’ve paid in the chain. Only the end consumer pays out of pocket.
The largest market using Value-Added Tax is the European Union, but it is also used in many other countries around the world.
Do I need a VAT number?
You need a VAT number if your sales surpass the tax registration threshold in a specific country. Threshold amounts vary depending on what types of products you’re selling.
If you need to get an EU VAT number but aren’t sure how, read on about how to get an EU VAT number if your business isn’t based in Europe.
Once registered for VAT, Quaderno can help you comply with VAT laws anywhere in the world.
Quaderno is a tax software that handles sales tax, VAT, and GST for your online business. Quaderno automatically calculates tax, verifies the VAT numbers in B2B sales, sends tax receipts and invoices, and provides instant multi-channel tax reports for sales any country.
Start a risk-free trail today!