The Value-Added Tax (VAT), known in some countries as a goods and services tax (GST), is a general, broadly based consumption tax assessed on the value added to goods and services and it applies almost to all goods and services that are bought and sold within the EU. Therefore, export goods which are sold abroad are normally not subject to VAT. The other way round, imports are taxed to guarantee an equal competition – on equal terms on the European market with suppliers situated outside the EU. As of 2014, 160 of the world’s countries employ a VAT, including all OECD members except the United States.
How is the value-added tax charged?
The VAT due on any sale is a percentage of the sale price but from this the taxable person is entitled to deduct all the tax already paid at the preceding stage. This way double taxation is avoided and tax is paid only on the value added at each stage of production and distribution. In this way, as the final price of the product is equal to the sum of the values added at each preceding stage, the final VAT paid is made up of the sum of the VAT paid at each stage, but every step in the chain pays only for the difference between the purchase price and the selling price.
Registered VAT traders are given a number – VAT number – and have to show the VAT charged to customers on invoices. In this way, the customer, if he is a registered trader, knows how much he can deduct in turn and the consumer knows how much tax he has paid on the final product.
EU VAT rules – Distance Selling
You have to do register for EU VAT when you are selling goods across EU borders, for example from you warehouse in the UK to a customer in France via internet – that is known as Distance Selling. Due to the fact that VAT is a tax on the final consumer, countries will expect businesses to register with them, charge and collect their local VAT if the annual threshold limit is reached.
There are no distance selling thresholds for electronic or digital services to consumers