Benefits of registering for local VAT abroad for e-commerce companies

With the global growth of e-commerce, more and more companies are choosing to sell their products abroad. One important step they can take is to register for local VAT in the country to which they export their products. However, with the growth of this sector, there are also new tax regulations that aim to control the taxation of online transactions. One of them is the obligation to register for local VAT abroad. In this article, you will learn what benefits local VAT registration can bring to your e-commerce business and in what situations it is necessary.

Understanding the concept of local VAT abroad

Before we get into discussing the benefits of registering local VAT abroad, it’s worth first understanding exactly what local VAT is. VAT, or value-added tax, is a tax charged by the state on the sale of goods and services. For e-commerce companies, local VAT refers to the obligation to register and tax sales in the country where the customer makes the purchase.

So why can registering local VAT abroad be beneficial for e-commerce companies? First of all, it facilitates access to the local market and reduces the bureaucracy involved in handling taxes. In addition, it eliminates cultural and language barriers, which translates into greater consumer confidence and increased sales. Removing tax barriers can also save money and speed up VAT refunds. As a result, companies can focus on growing their business instead of getting involved in complicated tax procedures.

When e-commerce companies should register for VAT locally abroad

1. Exceeding the turnover threshold: The European Union has a B2C sales limit of €10000 net turnover per year. This limit replaced the individual limits of European countries as of July 2021. If it is exceeded and not registered for the VAT-OSS procedure the entrepreneur is forced to register VAT locally in the countries where the goods were shipped to individuals (B2C transactions).
2. Storage of products: If a company stores its products in warehouses in another country, this imposes an obligation to register for VAT in that country. It is important that such registration for VAT locally take place before the goods are sent to the foreign warehouse, that is, before the goods are moved.
3. Sales outside the company’s country of establishment and outside the EU: If the company sells its products to a specific foreign market, it may be necessary to register for VAT in that country. Such a scenario is worth consulting with a tax advisor.
4. Importing goods abroad: In a situation where a business decides to import goods into a country other than the company’s home country, it too should register for VAT locally in the country where the goods are imported.

Business benefits of registering for local VAT

Local VAT registration abroad can bring a great deal of benefits to e-commerce businesses. Here are some of them:

1. Facilitated access to the local market

By registering locally abroad, an e-commerce company becomes more accessible to local customers. This not only eliminates language and cultural barriers, but also makes the purchasing process faster. Registering for VAT locally abroad allows the company to stock goods there, and thanks to that reduce the time it takes to deliver the product to the end customer. When customers see that they can easily make a purchase and pay with local VAT, it increases their confidence and inclination to buy.

2. Flexibility in deliveries

Registering for local VAT allows e-commerce companies to be flexible in delivery issues, returns and other logistics processes, which can help improve customer satisfaction.

3. Increased sales and customer confidence

As mentioned above, registering for local VAT abroad translates into greater customer confidence and increased sales. When customers see that a company is locally registered and pays local VAT, they have more confidence that the transaction is legitimate and secure. This, in turn, translates into a greater willingness to buy and a greater belief that the company cares about its customers.

4. Increase competitiveness

Local VAT registration can increase a company’s competitiveness in a given market, as customers may prefer local sellers due to lower prices and faster delivery. When an e-commerce company is registered for VAT locally, it can adjust its prices to meet local tax standards and competitiveness. This translates into more attractive pricing and more willingness of customers to buy.

5. Easier customer service

Having a local VAT registration makes it easier to provide customer service, including faster processing of complaints, refunds and resolving tax issues.

Tax benefits of local VAT registration

In addition to the business benefits, don’t forget that registering local VAT abroad can also bring many tax benefits to e-commerce businesses. Here are some of them:

1. Tax Optimization

Local VAT registration allows companies to take advantage of local tax credits and exemptions, which can result in significant tax savings.

2. Ability to deduct local VAT

Once registered for local VAT, an e-commerce company is able to deduct input VAT on goods and services purchased. This means that the company can deduct the amount of VAT it has to pay for sales. This translates into lower costs and greater competitiveness in the market.

3. Faster VAT refunds

Local VAT registration abroad can speed up VAT refunds for e-commerce companies. When a company is registered locally, the VAT refund process becomes simpler and more automated. This means the company can get back the money it spent on VAT faster.

4. Avoiding double taxation

Registering local VAT abroad allows e-commerce companies to avoid double taxation. When a company is registered locally, it only pays local VAT on sales in the country. This eliminates the risk of paying double VAT, which translates into financial savings for the company.

5. Reducing the bureaucracy involved in handling taxes

Registering local VAT abroad allows e-commerce companies to avoid complicated tax procedures. This reduces the amount of administrative work and reduces the risk of tax errors, thereby reducing the risk of penalties or interest.

Steps for registering local VAT for e-commerce companies

Local VAT registration abroad may seem complicated, but with the right knowledge and planning, it can be done successfully. One of the key elements of it is to plan it well in advance, as the procedures for registering for VAT locally in European countries can take anywhere from a few weeks to up to 5 months.

Here are some steps you should take to register for local VAT:

1. Research local requirements

The first step is to thoroughly research the local requirements for VAT registration. Each country has its own unique regulations and requirements, so it is important to understand what documents and information will be required for registration.

2. Consult a tax expert

Local VAT registration abroad can be complicated, so it’s worth consulting a tax expert. An expert will help you understand the registration process and provide support and advice on difficult tax issues. It is also useful to have support in the native language of the country where the company wants to register, so it is advisable to choose experts with support in the local language.

3. Prepare the necessary documents and information

Preparing the necessary documents and information is crucial for a successful local VAT registration. Collect all documents related to the company, such as identification number, contact information, product or service information, and other documents required by the local tax authorities. Also keep in mind that many documents or information will need to be translated into the language of the country.

4. Register directly with the tax authority abroad

After gathering the necessary documents and information, register directly with the local tax authority dedicated to foreign companies. The registration process may vary from country to country, but usually involves filling out a registration form and providing all required documents.

5. Monitor and manage your local VAT

Once you have registered for local VAT, it is important to monitor things on an ongoing basis in your country. Keep track of sales, VAT calculations, VAT deductions and other VAT-related activities. Keep an eye on deadlines for filing VAT returns, reporting movements and responding to letters from tax offices in the countries concerned. In this way, the company can be sure to comply with all local tax regulations.

The most common challenges of switching to local VAT abroad

Transitioning to local VAT abroad can present some challenges. However, with proper preparation and planning, you can overcome them. Here are some of the most common challenges and how to solve them:

1. Language and cultural barrier

One of the biggest challenges is communicating in a new language and cultural environment. The language of business may be different from the one with which you are familiar, which can make it difficult to negotiate and communicate with local tax authorities. Additionally, cultural differences can affect the way we keep records and handle tax paperwork.

2. Lack of knowledge of local tax laws and regulations

An inadequate understanding of local tax laws can lead to serious financial and legal consequences. Each country has its own requirements for tax registration, tax returns and payment deadlines. Lack of knowledge of these regulations can lead to financial penalties and loss of customer confidence.

3. The registration process for local VAT

The registration process for local VAT can be complicated and demanding. Many documents may need to be gathered, translated and delivered to the relevant institutions. Additionally, differences in registration procedures between countries can lead to delays and lost time.

4. Tax auditing and reporting

After obtaining local VAT registration, companies must comply with local regulations on tax auditing and reporting. They must systematically collect, store and report tax data as required by local tax authorities. To this end, it is worth investing in ERP systems or accounting software to facilitate tax management and reporting.

5. Managing VAT rates

VAT rates can vary from country to country, which can create confusion in product pricing and tax calculations. E-commerce companies must meticulously check and update VAT rates for each country in which they operate. It is also important to monitor changes in tax laws that may affect VAT rates.

6. Risk of tax errors

Introducing local VAT abroad carries the risk of making tax mistakes that can lead to financial penalties and interest. E-commerce companies must ensure that tax processes are carefully monitored and audited to avoid errors and irregularities.

Overcoming these challenges requires careful analysis, planning and collaboration with tax experts. It is also important to take a tax-conscious approach and continuously improve processes and systems to meet the requirements of local tax laws and achieve success in the expansion of overseas e-commerce operations.

So, to overcome the challenges of changing the local VAT rate abroad, it makes sense to enlist the help of local tax specialists or outsource VAT services. Such specialists have knowledge and experience in local tax laws and can help you understand and implement the necessary changes to your accounting and financial systems.

In addition, the use of technology and automation can make managing VAT easier. Specialized software exists that can help with monitoring, reporting and compliance with local VAT regulations. Automating processes can also reduce the risk of errors and make it easier to do business abroad.

Summary

Switching to local VAT abroad for e-commerce companies can bring a number of tax and business benefits. This is especially true for companies expanding their operations in international markets. Registering for local VAT allows companies to comply with local tax regulations, increase competitiveness, improve customer service and optimize taxation. It is therefore worthwhile to carefully analyze your situation and register for local VAT where it is necessary and beneficial for business development.

Of course, such a changeover to the local VAT rate abroad can be difficult, but achievable with proper preparation and the help of tax experts. Understanding local VAT regulations, managing compliance and reporting, and using technology and automation are key factors that will help overcome the challenges of changing the local VAT rate abroad. Overcoming these challenges can lead to success and open up new business opportunities.

If you are running an e-commerce business and are looking for a comprehensive and unique VAT Compliance service, we invite you to contact our experts: Contact – amavat®.

This article was prepared in cooperation with amavat®.

The amavat® law firm is part of the getsix® Group, offering comprehensive tax services in the field of e-commerce and VAT Compliance. amavat® combines accounting with IT solutions, facilitating integration with the largest marketplaces and optimizing accounting processes.

If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.

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