VAT mapping

What is VAT?

Value-Added Tax, or VAT, is a tax collected by all sellers on all products and services at all points in the supply chain where value is added. On taxable sales, suppliers, manufacturers, distributors, and retailers are all required to collect VAT. In other words, the amount of VAT applied is equal to the cost of production, less material costs that have been taxed in a previous phase. Many countries impose this tax, but the United States does not. However, US sellers who ship internationally and cross borders are subject to VAT. The tax is most commonly found in the European Union. Depending on the seller's location, the customers' location, the type of products being sold, how the products are delivered, and the number of sales, the VAT rates may differ.

Registering VAT

VAT payments are registered by the Import One Stop Shop (IOSS) in the EU, but international sellers have a different process in the UK. Businesses charge and collect VAT from their customers and then register it separately for each country. Registration for a VAT number and the creation of an online account with HM Revenue and Customers (HMRC) are required. In addition to the purchase price, VAT will be collected and paid to HMRC each quarter. Reviewing your quarterly VAT returns can also help obtain information about your UK sales.

VAT Mapping

For a seamless international shipping process, it is pertinent to consider all the revised VAT and customs requirements. To begin VAT mapping, customers are assigned to a VAT zone, usually represented by their location within a country or state. Each VAT group corresponds to a particular type of goods or services. The VAT code specifies the actual type of VAT applied to the invoice. To determine which VAT code will be applied at what time, VAT mapping considers all of these elements. Unmapped transactions may result in late fees or compliance costs.

Verification

In countries that use VAT, such as the EU, the VAT number verifies that the customer is who they claim to be. By doing so, VAT can be charged correctly. Shippers can use a VIES validation tool to verify the number. Additionally, the VAT rate added to the sale will need to be verified on location. VAT rates differ per country, so using a tax invoice will enable you and the customer to see the amount and rate of VAT on each sale.

Conclusion

The performance of your business may be negatively affected if you do not understand how cross-border shipping is taxed. To remain compliant with VAT regulations, you must charge the correct VAT amount to your customers, pay each country through each specific registration site, and maintain accurate records. ShipWise makes it easy to follow VAT instructions and keep your shipments in compliance.

Stay updated on VAT changes to ensure no mistakes occur during the shipping process.

To understand how to set up your ShipWise account to ship orders with (or without) EU-required IOSS/VAT Tax Registration ID, click here.