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Filing an EU VAT return is a relatively simple process, but you must make sure to calculate your input and output taxes correctly. This determines how much you owe the government, or how much they own you as a refund.
Particularly for entrepreneurs using the EU’s One-Stop Shop (OSS) for e-commerce, SaaS, and other digital businesses, declaring VAT is a standard routine. You file online every quarter.
So it’s even more important that you learn the basics and get it right! Once you have the best practices down, you don’t need to stress about the reporting deadline every three months.
Before we begin, you should know that how you calculate your tax declarations could depend on your accounting practices or special tax schemes for certain products. Such as:
- Flat Rate Scheme for small businesses
- cash accounting
- annual accounting
- margin schemes for second hand goods, works of art, antiques and collectors’ items
- payments on account
- reverse-charge accounting
Calculate input VAT
What is input VAT?
Input VAT is the total amount of value-added tax you’ve paid on certain business purchases, which you can later get back from the government. This is also referred to as VAT deductions.
For example, you need a cloud-based storage solution for your business data. You choose a SaaS product from another EU company. The tool costs €200 per month before tax — subject to a 20% VAT rate.
Each month, your input value-added tax is €200 * .2 = €40
What counts as a VAT deduction?
It’s important to know what qualifies as a VAT deduction and to keep all receipts, invoices, and records related to these purchases.
You can reclaim VAT if you:
- have paid through the reverse-charge mechanism
- pay on imports (as long as you’ve got the relevant import VAT certificate)
- pay on removals from a warehousing regime or a free zone
Do not include VAT you paid on the following:
- goods bought wholly for your personal use
- business entertainment expenses
Check with your local tax authority for a complete list of what’s eligible or ineligible. After that, there are all sorts of tactics to maximize your tax return refund!
Other tips:
- You should deduct VAT on any credit notes issued to you
- You can sometimes include VAT that was underdeclared or overdeclared on earlier returns. Check with the tax authority!
- Typically you should leave out any amounts paid on separate tax assessments, or amounts that the tax office already owes you. These will be resolved separately.
When can you deduct VAT?
You’ve earned “the right to deduct” when:
- For domestic purchases, the supply of goods or services is made
- For intra-EU purchases, you’ve received the invoice
- For imports, when the goods are imported.
Why does the right to deduct matter?
When you earn the right to deduct determines in which return period you should claim to deduct the input VAT.
This may be before payment of the VAT has actually been made. For example, you receive an invoice but won’t pay it for a few weeks.
Or it would be well after the VAT has already been paid. For example, you paid to import goods, but they won’t arrive for a few weeks and so you must wait for them to be considered “imported.”
Calculate output VAT
What is output tax?
Output VAT is the total amount of value-added tax you’ve charged and collected through business sales, which you’re expected to remit to the government. This is the standard part of complying with EU VAT.
For example, you sell subscriptions to your online courses for €30 per month before tax — subject to an 18% tax rate.
Each month, the output value-added tax for a single membership is €30 * .18 = €5.40
The total sum of output value-added tax is then the base of what you owe in your tax declaration. But then input value-added tax will be subtracted. The OSS portal does this automatically.
Of course, if your input is higher than the output, then you’ll get the difference back in your bank account!
Have invoices and tax records ready
For some EU member states, and for intra-EU purchases, you must have certain evidence of a VAT transaction, i.e. you need to have a tax-compliant invoice.
If you want to declare a VAT deduction, some of the details purchases must be included when you file. The European Commission even says, “Business must hold a valid VAT invoice and provide the information required in its VAT return.”
However, some countries may choose to override this rule and allow you to make the deduction even if you don’t have a valid invoice. Check with wherever you’re OSS registered.
How to prepare for an EU VAT return
Once you have your calculations and records ready, you can file an EU return pretty quickly. But it’s the preparation of all these numbers that is actually time-consuming!
The best solution is Quaderno tax reports. We help you prepare taxes for the US and other countries, too. We won’t file the return for you, but we do make it possible for you to fill out the forms in mere minutes. Because all the data you need is at your fingertips.
Quaderno EU VAT Tax Report
Basically, when it’s time to fill out the return, you can just click on a certain country in the app, and a tax report is produced for you instantly. All the information you need to file is there in one, easy-to-read place. Give it a try with a 7 day free trial.
* At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or accountant.
