How to Check and Validate EU VAT ID Numbers
Digital products are exempt from VAT if you sell to EU customers that are businesses themselves. A wrong VAT ID number submitted by your customer may invalidate your invoice. This will result in your business owing VAT to the corresponding EU tax authorities.
Validating VAT ID Numbers is an Online Business’ Responsibility
Online businesses are unlike brick and mortar stores. If a physical product enters the EU, it is taxed at the customs. Digital products obviously don’t cross any borders that can pass through customs, so they have VAT added. Digital products are any Telecommunication, Broadcasting and Electronic (TBE) services, or collectively called electronically supplied services. We’ve written more information about such electronically supplied services.
If foreign businesses didn’t have to charge a VAT, imagine how disadvantaged EU-based businesses would become. Their products and services would cost more to the consumer.
Lawmakers have therefore decided that businesses themselves will be held accountable for charging the correct VAT for all EU customers. This is regardless whether the business is operating from within or from outside the EU.
Customers entering a VAT identification number fraudulently in order to evade taxes results in you owing the VAT to local tax authorities that you weren’t able to collect in the first place. Such situations will put your business at a financial disadvantage.
Ways to Validate the VAT ID Number of Your Customer
There are two ways to validate VAT ID numbers:
The validity of a VAT ID number issued by any EU country can be checked via the VAT Information Exchange System (VIES) of the European Commission. VIES checks the validity of VAT identification numbers against the records maintained by the respective EU member state.
The VAT ID number is a unique code which a business is given when it registers itself with a tax authority in Europe. Using the VAT MOSS scheme, you can pick a EU member state of your choice with which you want to register your business at. The member state will process your request and issue you a VAT ID number. The number will be displayed on the VAT registration certificate.
This method is simple and all you have to do is fill in a short form online. The website can then inform you if the VAT ID number is registered and to which business.
Some member state databases do not disclose the business’s name and address for privacy reasons, so you’ll have to trust that your customer is providing its own VAT ID number.
Before you can automate VAT ID number checks, you have to look for an API. Most online businesses selling digital products have implemented an automated process to validate their customer’s VAT ID number during checkout. This gives customers immediate feedback when they enter an invalid VAT ID number, and saves themselves a pile of paperwork as they have to apply, collect and remit VAT every quarter.
If your customer is a business like you, they’ll likely already have a VAT ID number. All you need to do now is verify if they are really a business. This is because they can pretend to be a business just to avoid taxes, and you will end up paying the VAT to tax administrations.
When you check a VAT ID number, it is the database of that EU member state that is being checked. If the number appears invalid, you should either reject it or contact your customer to rectify the situation. A customer’s valid VAT identification number is a formal requirement for applying the zero VAT rate to intra-community supplies of goods.
Customers who cannot provide a valid number, must be charged a VAT at the rate applicable in their location. Note that the chargeable event for digital products takes place at the customer’s location, not your business’s location. We’ve written extensively about the VAT rules in the European Union for your perusal.
As the supplier you must state your customer’s validated VAT identification number on the invoice. This means that you should re-validate VAT ID numbers whenever a scheduled charge becomes due (for example on a subscription model). It will no longer be possible to apply the zero VAT rate as of January 1, 2020 without a validated VAT identification number of your customer stated on the invoice.
Vatstack processes thousands of VAT ID number validations each month. Create your API access key to get started within minutes. With an easy-to-use REST API, businesses of all sizes can automate their quarterly tax filing obligations.