VAT and tax when invoicing

A lot of countries demand that companies invoice with value-added tax (VAT). VAT is a tax your company adds when selling goods or services. In this article we'll take a look at what it means. 

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A lot of countries demand that companies invoice with value-added tax (VAT). VAT is a tax your company adds when selling goods or services. In this article we’ll take a look at what it means. 

Most businesses in countries that operate with value-added tax, have to register in a VAT register. When you are registered, you have to include VAT on all invoices, even on invoices you send to private individuals or small companies who are not registered.

VAT is not money you earn even though it is included in your outgoing invoices: You claim VAT on what you sell, and reclaim VAT you have paid to other companies. If you have sold more than you have spent, you will have to pay the surplus to the government. 

Who has to invoice with VAT? 

Value-added tax is used by more than 170 countries all over the world – not including the United States – and is added to goods or services at each stage of the supply or import chain. All countries in the EU have to include VAT on their invoices.

Some countries, for example India and Australia, use a similar tax called Goods and Service Tax (GST). 

Not all countries operate with VAT. However, there are often other tax rules applied. There is no value-added tax in the United States, instead they have a tax rate that varies between 2,9% and 7,25%. 

In this overview from 2020, you can see a list of VAT rates in all countries

How to pay VAT

Different countries may have different routines when it comes to how you report VAT and how often you need to report it.

However, in most countries you have to fill out a report or export a statement from your accounting software, showing what value-added tax you’ve collected and paid. This report will show if you owe the government money or they owe you. If you owe the government money, you will receive an invoice. Remember that if you owe VAT it means you’re making money! 

Value-added tax on international invoices

Are you going to send invoices across borders and are wondering if you need to include value-added tax? 

Most sale of services and goods outside your country are considered as export and therefore VAT exempt. However, there are some exceptions. For example, EU businesses have to pay VAT on services and goods imported and exported within the EU. It may vary from country to country, but in general the rate is between 15 and 27 percent. 

As mentioned above, sale of services and goods across borders are considered as export and therefore often VAT exempt. If you receive an international invoice with VAT included, make sure to check if that’s something you can write off in your accounting. 

If you’re unsure, do some research on what rules apply for export and import in your country. It’s your company’s responsibility to know the rules before you do business across borders.