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VAT filing

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Brexit has changed how EU member states interact with the UK. Please consult with your tax adviser on how Brexit has impacted your tax situation.

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Note

Avalara AvaTax is a tax compliance solution that automates the complexities of calculating sales tax, VAT, and GST. Please ask your Customer Account Manager about Avalara AvaTax and how it can help with your VAT calculations.

Once your business is VAT registered and issuing VAT compliant invoices, the next step is the regular filing of VAT returns to ensure your business remains VAT compliant.

Note 

Note

  • Once your VAT number has been issued, certain tax authorities require you to file a VAT return even if you do not meet their usual VAT thresholds or filing requirements.
  • Certain countries allow businesses to backdate VAT filings. There are however often still penalties involved.

The VAT Filing Process

VAT returns form the cornerstone of the VAT filing process. VAT returns are official tax documents that contain the details of transactions, including what you purchase and what you sell. The returns declare all of your organization’s VAT transactions and any applicable taxes, and they calculate what VAT you owe, or what should be refunded to you.

Information frequently included in VAT returns includes:

  • The net sum of all taxable transactions, sales and purchases.
  • VAT charged on all taxable sales and purchases, including all applicable rates.
  • Exempt transactions such as intra‐community supplies. Shown separately.
  • The total VAT due or refundable to you.

Regional differences

While tax authorities within the EU generally use a standard VAT return format, outside of the EU, the format of VAT returns can vary greatly. Common differences include:

  • Selectable options: The Irish return only has half a dozen boxes, whereas the German return has several dozen.
  • Language: It’s the language, or languages, of the country in question.
  • Electronic file format: Each Member State handles it a bit differently.
  • Electronic submissions: This is permitted in some cases, but not in others. Some call for direct submission in real-time, others want submissions keyed into a portal.
  • Supplementary and additional filings: These might include Intrastat and EC Listings.
  • Foreign exchange rates: You’re likely to need to use exchange rates, as all tax offices would like you to file and pay VAT in the local currency. Countries have varying processes but most require you to use the exchange rates of the national bank of that country or the European Central Bank.

Filing timeline

Just as different countries set different rules for VAT and have vastly different VAT returns, they also establish different schedules for when businesses must file those returns. Here are some of the options businesses might face:

  • Monthly reporting: This is the most common cycle, because it’s more frequent revenue and many countries believe it’s the best approach for keeping tabs on the growing problem of VAT fraud.
  • Quarterly reporting: This is the chosen predominant frequency of some countries, but the main reason they have quarterly reporting is to benefit companies that have smaller turnover.
  • Annual reporting: This is often required in addition to your standard monthly or quarterly reporting, but in some countries you have the ability to file one annual return per year under certain conditions.

The deadline systems vary, as well. Germany, for example, requires VAT filings within 10 days of the end of the reporting period. The Netherlands, however, typically allows two full months to file. Whatever the particular country requires, keep in mind that you’ll have to file VAT returns in each of the countries in which your organisation is registered.

What to File

This is starting to seem like a menu at a very diverse restaurant. Lots of choices for you to peruse. There’s a key difference, however. In that restaurant, you may feel like there’s only one choice that’s right for you, and the chef will gladly prepare it and send it to your table. With VAT, it’s the chef (the taxing authority, that is) that may feel like only one choice is the right one for you. It’s your job to figure out which choice it is, and deliver it.

VAT returns

By now you know that the VAT return is a must, and that it has to be completed as often as the country in question requires, and delivered by the deadline in the manner specified.

Whilst VAT returns vary greatly from Member State to Member State, the European Commission is making strides in simplifying reporting on some cross‐border transactions through consolidated returns in certain industry sectors.

In 2015, the Mini‐One‐Stop‐Shop (MOSS, see Chapter 4) return became effective for supplies of B2C digital services, allowing businesses to report all EU sales on a single return filed with the tax authority in their own country of establishment. If the business is based outside of the EU, then it can elect the country to which it wishes to declare its EU sales. It should be noted, however, that there are plans to extend this to distance selling.

Intrastat

VAT‐registered companies that move goods cross‐border in the EU may be required to file Intrastat reports. These separately list goods movements between EU Member States. There are individual thresholds for the reporting of both dispatches and arrivals, which are set independently by the Member State.

Governments rely on this kind of reporting to monitor their balance of trade and keep tabs on their economic health. 

They use the reports to follow trade trends and make policy decisions, including the establishment of interest rates.

Each Member State decides what should be reported on the Intrastat report, but this typically includes a list of dispatches and acquisitions with the related commodity code, mode of transport, nature of the transaction, weight, volume, value, and more. Column headings are required in the local language. These reports must be submitted electronically, and some countries require the use of XML format, while others accept CSV.

EC Listings (recapitulative statements)

These statements declare total B2B cross‐border activity of goods and services, which are subtotalled by supplier or customer VAT number. Member States determine the details regarding how these are filed, and how often.

Each Member State sets the layout and field requirements, and the column headings are in the local language. These must be submitted electronically, sometimes in XML, though some states allow CSV.

If your company supplies only a ‘modest level’ of goods to VAT‐registered customers in other EU countries, you might be allowed to file what’s known as a simplified European Sales Listing. If you’re allowed to do so, the good news is that you don’t have to file as often, and your filing is much less detailed.

Some Member States, such as Spain, require European Purchase Listings. These are mandatory lists of all purchases made by VAT number in the EU.

Control statements

Taxing authorities may require the filing of VAT control statements, intended to cut down on unauthorised tax deductions. It’s a way to automate the processing of data and allow more effective analysis to uncover such things as carousel fraud, fraudulent invoicing, failure to invoice, or double‐dipping of deductions.

Reverse charge sales listings

This is a highly specific situation encountered only by businesses in certain product and service segments, such as mobile phones and computer chips. Taxing authorities such as Her Majesty’s Revenue and Customs (HMRC) in the UK have established a system for reporting such sales, and you typically must submit a reverse charge sales list for each VAT return period. The information submitted includes the VAT number of each customer and the total net value of the reverse charge sale to that customer.

How to File

Just as there are various means for registering for your VAT number, there are also a variety of ways you can (or must) file your VAT returns. The choices basically boil down to electronic means or on paper, submitted through the post.

The correct method depends entirely on the specific situation, including what you’re filing and where. Some taxing authorities allow electronic filing, some require it, and some don’t allow it at all.

Needless to say, the more automated the filing option, the easier it is to file. Filing from your computer through an online portal is convenient, and can reduce errors. One thing to note, though, is that, like paper forms, online portals are usually in the local language.

Paying VAT liabilities

Deadlines for VAT payments will vary by country. The relevant tax authority will be able to tell you when the payment must clear their account and what payment methods they accept. Most tax authorities will accept international bank transfers but some require payment in the form of a local direct debit or from a local bank account. Remember to allow sufficient time for the payment to process and reach the tax authorities' account in time, prompt payment of taxes is vital to ensure you avoid any penalties or late payment charges.

Payment deferment and installment schemes

Certain tax authorities do offer alternate payment plans for VAT payments, for example, UK offers the VAT Annual Accounting Scheme. Tax authorities will occasionally also offer VAT installment or deferment payment plans during times where businesses are likely to be experiencing economic hardships.

Non‐compliance and Penalties

VAT is complicated, VAT is confusing, VAT is no fun. VAT is also very serious business, and the taxing authorities are not kidding about the rules.

There are, most certainly, penalties for failing to comply with VAT requirements. As with everything else, the consequences of non‐compliance vary from one place to another, but avoiding the consequences is worth all the trouble.

Countries often penalize late registration, late filing, and late payment of VAT. This can also be accompanied by compound interest, so sorting problems in the quickest fashion is in the interest of every business.

The future of VAT filings

Digitization and realtime VAT calculation

A number of tax authorities are currently rethinking how VAT is calculated and collected. Initial efforts have included digitizing the VAT registration, filing, and payment process. An example of this would be the UK HMRC's Making Tax Digital (MTD) initiative. Future plans include live VAT calculation and real-time transaction reporting. This will negate the need for regular VAT filings as businesses will maintain VAT compliance in near-realtime.

EU: One Stop Shop (OSS) VAT returns for e-commerce

From July 2021, B2C sellers dispatching their goods from a single country within the EU will no longer be required to register or file multiple VAT returns in the other EU countries where they are selling goods. Instead, they may opt to complete and file a new OSS filing alongside their regular domestic VAT return, this will list all of their pan-EU sales. See the Avalara VATLive article, EU 2021 One Stop Shop (OSS) VAT return for e-commerce for more information.

See also

Learning VAT Home
VAT Product Home

EU VAT Directive

 

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