As a US seller, do I need to worry about VAT?

What is VAT? 

Value Added Tax (VAT) is a consumption tax that is often compared to U.S. sales tax but is actually considerably different. The main difference between VAT and Sales Tax is how they are structured and how they are handled by the business, even if they may seem similar to the consumer. VAT was initially created to unify the different indirect tax systems in place across different countries. It applies to almost all sales of goods and services that are bought and sold for use or consumption. Goods and services are typically treated differently. 

VAT is due to the tax authority, and businesses have the job of acting as‘tax collectors’ on behalf of the tax authority. The payment is ultimately imposed on the end consumer of the goods or services and is not meant to build in costs for VAT registered businesses. 

Find more information about VAT terminology here 

Which countries have VAT? 

There are separate VAT systems across the world, and this is the most common form of indirect tax. Most of the world other than the United States imposes a VAT as their consumption tax. See countries filled in gray below:  

Can I get taxes refunded for tourism purchases in countries with VAT? 

If you are a visitor to a country that imposes a VAT, you may qualify for a refund of VAT paid on goods that you will be removing from the country. There are thresholds that can apply to minimize the administrative burden of processing the refunds and administrative fees can be charged by the merchants for their participation in the program.    

To learn more about getting your VAT refunded in the European Union, look here. 

As a US seller, do I need to worry about EU VAT? 

If you work for a business selling into or operating in multiple countries, there is a good chance that you have VAT obligations and need to manage this compliance as a part of your business obligations. And if you’re not well-versed in VAT, you’re creating tremendous risk for your company. 

In today’s marketplace, many businesses are operating on a global scale and not just in a single country. Businesses often have a complex supply chain that allows them to support customers beyond their borders. Many countries operate on a Value Added Tax (VAT) system, which is considerably different from the U.S. sales tax system. VAT varies from sales tax in the terminology that is used, what triggers collection/remittance obligations, administrative duties, and much more.  Different obligations apply for sales to end consumers than to VAT registered businesses.  For companies selling digital goods or low value goods to individual consumers, registration and collection can be required on the very first sale into a country.   

With VAT rates as high as 27% in Hungary (the average EU VAT rate is 22%) you need to ensure that you understand how it works so you don’t make any costly mistakes. 

In our upcoming live webinar, European Value Added Tax: What US Sellers Need to Know, sales tax expert Diane Yetter of the Sales Tax Institute and Florian Hanslik, Partner at terraVAT, will teach you what you need to know about Value Added Tax. Learn how VAT differs from the U.S. sales tax system, how to determine if you have an obligation to register for and collect VAT, how to comply with VAT requirements, and much more. Register today!