Sometimes you make more purchases than sales. Input VAT is greater than your Output VAT This is a typical situation for businesses, and it simply means that the company will have to pay and report the total amount of VAT due (Output VAT – Input VAT) to the relevant tax authorities via their periodic VAT returns. In this situation, the VAT due on the net amount of sales of goods or services is greater than the VAT to be deducted on company purchases. In the following scenarios, we assume that the business is VAT registered in the country where they have incurred input and output VAT and they will be reporting this activity on a VAT return. Let’s now look at various situations for a VAT registered business in order to fully understand what is the input VAT and the output VAT. What is input VAT and output VAT? : Different scenarios The European Union made an online database available to check the applicable VAT rate on each product in all European countries. We published several articles on e-commerce rules in Europe that explain the regulations for online sales.

You do not have to register in your client’s country even if you charge VAT applicable in that country. In general, if a company is carrying out distance sales in another country, you should charge VAT at the rate applicable in your client’s country. So, what is the correct VAT rate to be used in e-commerce sales?

It is important to understand the applicable VAT rate on these transactions, as any mistakes could lead to penalties and audits from the relevant tax authorities. Non-EU established businesses may be able to recover VAT in EU countries through the 13th Directive, as long as the countries in question have a reciprocity agreement in place.ĮU-established companies that make purchases in other EU countries in which they do not possess a VAT number may be able to claim their VAT refund through the EU refund mechanism for VAT refunds.Ĭheck out our dedicated articles on reverse charge and EU B2B services for more detailed information about reverse charge and its exceptions.įor standard distance sellers carrying out B2C transactions, VAT must always be charged and in this sense, output VAT will always be incurred.

In case the company is not VAT registered in the place where the transaction is taxable, certain aspects should be considered to find out if this input VAT is refundable. Deductions are normally possible on a VAT return provided that the business is VAT registered in the country where the transaction is taxable. Essentially, this is VAT that was already paid by your business on those transactions and can be later deducted on your VAT return. When talking about what input VAT is, it is defined as the VAT applied to company purchases of goods or services by your business. So, your VAT paid to the tax authorities in each country will be the difference between these two. It is important to note that i nput and output VAT cancel each other out in your VAT return. Confused about the difference? Let’s take a closer look at the definitions of the two terms, as well as how both are normally accounted for when the business has a VAT number in the country where the VAT was incurred or not. When it comes to standard VAT reporting, businesses must take into account two types of VAT: input VAT and output VAT. You don’t know what input VAT and output VAT are? Let's find out!

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