When Do US Companies Need a VAT Number?

Value Added Tax (VAT) functions as a consumption tax imposed in numerous countries globally, differing significantly from the sales tax system prevalent in the United States. Unlike sales tax, which is typically added at the final point of sale to the consumer, VAT is generally applied incrementally at each stage of a product’s supply chain. This article clarifies when a US company might need to understand or register for VAT.

When US Companies Encounter Value Added Tax

The United States primarily uses a sales tax system, levied at state and local levels on goods and services sold to consumers. While the US does not have a federal VAT system, US companies frequently encounter VAT in international commerce. This occurs when importing goods into VAT-imposing countries, where import VAT is typically paid at customs. US businesses also encounter VAT when selling goods or services to customers in VAT jurisdictions (B2B or B2C), or when procuring services from VAT-registered suppliers abroad. Simply encountering VAT does not automatically require a US company to obtain a VAT number; registration depends on the specific nature and scale of transactions.

Scenarios Requiring VAT Registration

A US company needs a VAT number for specific activities and transaction types within a VAT jurisdiction. One common trigger is “distance selling,” involving B2C sales of goods directly to consumers in VAT countries. For example, in the EU, if a US company sells goods directly to EU consumers and its annual sales exceed the €10,000 EU-wide threshold, it must register for VAT, often via the One Stop Shop (OSS) scheme.

B2C sales of digital services, like software subscriptions or e-books, also trigger VAT registration. “Place of supply” rules for digital services typically dictate VAT is due in the consumer’s country of residence. This often requires US companies to register for VAT there, or use simplified schemes like the EU’s OSS for digital services, or similar systems in countries like the UK or Australia. These schemes simplify compliance by allowing registration in one member state for all EU sales, for example.

A physical presence or “fixed establishment” in a VAT country almost always triggers VAT registration. This includes maintaining an office, a warehouse, or having employees regularly conducting business there. For example, a US company establishing a subsidiary or branch office in Germany would generally need to register for German VAT from the outset.

Storing inventory in a VAT country, especially for fulfillment services, is another trigger for VAT registration. If a US company uses fulfillment centers, like Amazon’s FBA, to store goods in a VAT jurisdiction (e.g., France or Germany) for sale to customers, it typically needs a VAT number where the inventory is held. Holding stock constitutes a taxable supply for VAT.

While the reverse charge mechanism often shifts VAT responsibility to the B2B customer, certain B2B service types still require a US supplier’s VAT registration. Services related to immovable property (e.g., construction, architectural services on a building in a VAT country) or events held in a VAT country often require the US supplier to register there. The place of supply for these services is fixed where the property is located or the event takes place.

Finally, if a US company imports goods into a VAT country for domestic sale, it generally needs to be VAT registered. This is common when a US business acts as the importer of record and sells goods to local businesses or consumers, as the domestic sale requires a local VAT number. Specific conditions and thresholds for VAT registration vary significantly by country, requiring thorough assessment.

Steps for VAT Registration

Once a US company needs to register for VAT, the process involves several steps. First, identify the correct tax authority in the relevant country or region. For example, EU One Stop Shop registration is with a chosen EU member state’s tax authority, which handles reporting for all EU sales.

Required information for VAT registration includes the company’s legal name, registered address, and its US tax identification number, such as an Employer Identification Number (EIN). Applicants must provide a detailed description of business activities and the anticipated effective registration date. Some cases may require proof of non-establishment within the VAT country.

Application methods vary by country; many tax authorities offer efficient online portals. Some jurisdictions may require paper applications or the appointment of a local tax representative for complex cases. This agent handles registration and ongoing compliance, acting as a liaison with local tax authorities.

Upon successful review, the company receives its unique VAT identification number from the tax authority. This number is used for all VAT-related transactions, including invoicing, reporting, and claiming input VAT. Obtaining this number allows the US company to comply with local VAT regulations and operate legally.

VAT Implications for Unregistered US Businesses

Even if a US company doesn’t meet VAT registration criteria, it must understand VAT’s impact on international transactions. For many B2B services, the reverse charge mechanism applies, shifting VAT responsibility from the US supplier to the VAT-registered customer in the destination country. The US supplier does not charge VAT, and the customer accounts for both output and input VAT.

Import VAT is another consideration for US companies, even if not VAT registered in the destination country. When goods cross borders into a VAT territory, import VAT is typically levied at customs. This VAT ultimately affects the cost of goods, borne by either the importer of record or the customer.

For international trade with the EU or UK, an Economic Operators Registration and Identification (EORI) number may be required for customs. This unique number is necessary for businesses to import or export goods to or from the EU and UK, even without full VAT registration. An EORI number facilitates customs declarations and is distinct from a VAT number, though often linked if VAT registered.