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What is VAT? EU & UK Explained

What is VAT?

VAT is the first step to ensure your business is legally registered to sell in the EU.

Expanding to the EU and becoming VAT registered comes with some legal requirements, that we wanted to touch on in order for you to understand the importance of this step, staying compliant with tax regulations in every market that you serve in Europe is a big but essential task!

Just like the Internal Revenue Service in the U.S., tax authorities in Europe do not look kindly upon businesses that don’t follow the rules; your company may end up liable for severe penalties if you fail to accurately record and submit VAT information.

However, we understand that it is not in everyone’s power to ensure this compliance on their own, which is where we, or another UK VAT agency come in.

Import VAT


In the EU, you pay what is called ‘Import VAT’ which you pay for your goods to come into the country, this is calculated on:

Value of products + % of customs duty + shipping costs + insurance.

This usually works out at around 20% of the value of the shipment.

Standard rate


When you register for VAT in the EU, you have two choices of schemes, Standard Rate and Flat Rate.

The Standard Rate allows you to reclaim any Import VAT you pay, and you owe 20% VAT on each sale to HMRC (UK Governing body).

In most EU countries only the Standard rate scheme is available, but the VAT rates do vary from country to country.

Flat rate


The Flat Rate is aimed at small businesses and on this scheme Import VAT is not reclaimable. However, you pay a lower percentage of VAT to HMRC on each sale. 6.5% VAT is owed in the first year on the Flat Rate scheme which then rises to 7.5% after the initial year.

Once you exceed £230,000 in taxable sales you will have to move onto the Standard Rate Scheme.
Unfortunately, the Flat Rate scheme is only available in the UK

If you store, move or sell goods in multiple EU countries you may be required to register for VAT in multiple countries.

Once you have products stored in any European country, you will need to ensure you are VAT registered there.

You can have your products in one sole country and then fulfil orders to consumers in other European countries, however, you will need to keep an eye on distance selling thresholds because once they are
exceeded you will need to get VAT registered in that country.

The selling thresholds vary between each country but for Germany it is 100,000 euros and for France, Italy and Spain it is 35,000 euros.
There are also different VAT rates for different products types. There is always a standard VAT rate and usually
a reduced rate and zero rate.

If you need assistance with your VAT, please contact us today!

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