Going global into Europe can be an enormous boost to your business. The EU is also among the largest markets with more than 440 million consumers in 27 member states. However, one thing that most non-EU businesses have to stumble over is VAT compliance.

The regulations are sometimes complicated, and minor errors commonly cause time wastage, fines, or dissatisfied buyers. We will examine the most perilous traps and how you can evade them.

Disregarding VAT Obligations

Some business people think that they are not liable to VAT since they are not located in the EU. That’s not true. VAT is due if you sell goods to EU consumers.

Avoidance: Do your homework first before getting into the market. Determine whether your sales are:

·      Subject to IOSS (Import One-Stop Shop)

·      Whether to use traditional VAT registration.

The sooner you prepare, the more convenient it becomes to remain in compliance.

Failure to Register Under the Right System

The other mistake is most times registering VAT incorrectly, or worse, not registering at all. The IOSS scheme can be the easiest way to go when dealing with low-value goods (less than €150). Otherwise, your customers will incur surprise costs on delivery. This might result in complaints or even abandoned carts.

Prevention: Evaluate your business model. In case most of your sales are low-value direct-to-consumer, then IOSS is appropriate. Otherwise, traditional VAT registration can be a more appropriate way. In any case, you should ensure that your setup suits your product range and your customer base.

Miscalculating VAT Rates

VAT rates are not evenly spread in the EU. Luxembourg has the lowest standard rate of 17% but Hungary reaches highs of 27%.

How to prevent it: Rely on tax software that works, or hire professionals who will update the rates on your behalf. Do not attempt to guess or use a simple rate. It will undoubtedly lead to compliance problems or eat into your margins.

The Failure to Collaborate With an Intermediary

Since you are a non-EU seller, you do not normally have the option of registering for IOSS by yourself. You should have an intermediary based in the EU. Other companies attempt to bypass the process, resulting in compliance lapses and unaccepted filings.

How to prevent it: Consider factor intermediaries as part of your VAT strategy early. With this company, your compliance will be assured. It will also make the process of reporting easier, and thus, you have time to work on your own business.

Poor Record-keeping

You should also maintain proper records of sales, returns, and filings. Lots of companies dismiss this, and it results in disorderly audits and even fines.

How to prevent it: Establish strong systems early on. Retain electronic documents for a minimum of ten years. You should also ensure that your invoices, as well as reporting, comply with EU standards.

Summary

The effect of VAT compliance on the EU can be daunting, but the majority of errors are reduced to the same categories: bad planning, bad systems, and bad interpretation of the regulations. Some initial work, such as selecting the correct registration pathway, calculating rates well, engaging an intermediary, and maintaining sound records, will help you prevent expensive mistakes.