What Is a VAT Number in the USA and Do I Need One?
Understand US tax IDs. Learn why the USA doesn't have VAT numbers and how its distinct identification system applies to domestic and global business.
A Value Added Tax (VAT) is a consumption tax applied incrementally at each stage of a product’s production and distribution, based on the value added at that stage. Many countries worldwide implement a VAT system, requiring businesses to obtain a VAT identification number for tax compliance. However, the United States does not operate a federal VAT system and, as such, does not issue “VAT numbers” in the way other countries do.
The Absence of a VAT Number in the US
The United States tax structure differs significantly from those countries employing a VAT system. The US primarily funds its federal government through income taxes, while state and local governments largely rely on sales taxes and property taxes. This decentralized approach means there is no national consumption tax like VAT.
While sales taxes exist at the state and local levels, they are distinct from a VAT. Sales tax is collected only once, at the final point of sale to the consumer, rather than at each stage of the supply chain. The Employer Identification Number (EIN) serves as a primary federal tax identification for businesses.
US Tax Identification Numbers
The US uses several tax identification numbers for different purposes. The Employer Identification Number (EIN) is a nine-digit number assigned by the Internal Revenue Service (IRS) to businesses. Businesses need an EIN for various federal tax purposes, including reporting income tax, withholding taxes for employees, and opening business bank accounts. It is mandatory for corporations, partnerships, and most businesses with employees.
Individuals primarily use a Social Security Number (SSN) for tax identification. For non-resident aliens and others who need a US taxpayer identification number but are not eligible for an SSN, the IRS issues an Individual Taxpayer Identification Number (ITIN). These numbers are essential for tax administration within the US, but none of them function as a “VAT number.”
US Businesses Interacting with International VAT Systems
US businesses often encounter VAT systems when engaging in international trade. If a US business sells goods or services to customers in countries with a VAT system, such as those in the European Union (EU) or the United Kingdom, they may be asked for a “VAT number.” In such cases, the US business should provide its Employer Identification Number (EIN) and clarify that the US does not have a VAT system.
A US business might be required to register for VAT in a foreign country if its sales into that country exceed specific thresholds. Once registered, the US business would be issued a foreign VAT number by that country’s tax authority and would be responsible for collecting and remitting VAT. US businesses may also need to understand VAT to reclaim VAT paid on business expenses incurred while traveling or operating abroad.
Foreign Businesses Interacting with US Tax Systems
Foreign businesses accustomed to VAT numbers may be uncertain about US tax identification requirements. When a foreign business interacts with US entities, particularly when earning US-sourced income or establishing a US presence, they may need to obtain a US tax identification number. This is often necessary for tax withholding purposes or to fulfill US tax reporting obligations.
If a foreign business establishes a physical presence in the US, such as an office or employees, or engages in a US trade or business, it will need to obtain an Employer Identification Number (EIN) from the IRS. Foreign individuals earning income in the US who are not eligible for an SSN may need an Individual Taxpayer Identification Number (ITIN). These US tax IDs are distinct from VAT numbers and are used solely for US tax administration.