What is a VAT number
A value-added tax (VAT) number identifies a taxable person (business) or non-taxable legal entity for VAT-related purposes.
For example, tax authorities can use this number to track your VAT filings and compare them with the data reported by your customers and suppliers, to detect mistakes and identify fraud.
In this article, we’ll focus on VAT numbers within the European Union (EU), although every country with VAT has an equivalent to VAT numbers.
When do I need a VAT number?
Generally, you need a VAT number in every jurisdiction where you’re liable for paying VAT, but there may be scenarios where you’ll need it even if you’re not liable for paying VAT.
For example, in the EU, a VAT number is required when a legal entity is interested in conducting an economic transaction in another jurisdiction of the EU. Without one, a business cannot supply goods or services across borders.
More specifically, the EU states that a business must have a VAT number in the following cases (see Article 214, 2006/112 - EN - VAT directive - EUR-Lex):
- When it carries out the supply of goods or services taxed with VAT.
- When it makes an intra-EU acquisition of goods.
- When it receives services for which it is liable to pay VAT.
- When it supplies services for which the customer is liable to pay VAT.
Here’s an example of how a VAT number works: Business A, located in France, acquires a machine from Business B, located in Germany. Each business has a VAT number duly registered with the appropriate tax authority. The invoice that Business B issues to Business A must include both VAT numbers.
Is a VAT number the same as a TIN?
Unfortunately, the answer depends on the context. Tax Identification Numbers (TINs) are used in many countries to identify businesses for tax purposes. But how each country defines what a TIN is varies greatly. The OECD maintains an amazing page with the TINs used in every country.
For example, since VAT doesn’t exist in the United States, businesses use TINs unrelated to VAT, such as SSNs, EINs, and ITINs.
However, in countries under the VAT scheme, the tendency is to simplify things and have only one identification number for every procedure, making TIN and VAT numbers essentially the same.
In Europe, most countries had some type of TIN or company ID before the EU VAT directive — for instance, France had SIRET and SIREN numbers, and Spain had CIF numbers. They used these as their VAT numbers, adding a country code as a prefix. For example, a French company with a SIRET of 12345678901 would have a VAT number of FR12345678901.
What is a VAT number for?
As we’ve explained, a VAT number is generally used to identify a business in any VAT-related procedure. For example, here are some uses of VAT numbers:
- Businesses use them to track their input and output VAT.
- In B2B transactions within the EU, a reverse charge mechanism can be used. However, businesses must verify that the customer VAT number is valid.
- Filing tax returns.
- Identifying the country of taxation.
Who can issue a VAT number?
To prevent VAT fraud, the EU legislation allows only tax administrations to provide VAT numbers to businesses.
Is there a unique VAT number for all of the EU?
No, each government issues its own VAT number. If a business supplies goods or services in different jurisdictions, it might be required to request a VAT number in each one depending on the tax legislation of each jurisdiction.
Here’s another example: Business A (located in Spain) sells goods to Business B (located in France). Business A is not obliged to request a VAT number in France; it's enough to have a Spanish VAT number duly registered. However, French legislation may establish that if Business A surpasses a yearly sales threshold in France, then it will need a French VAT number.
That is why reviewing VAT legislation is always recommended before selling into a new country.
VAT number formats in the EU
In the EU, all VAT numbers have several digits, starting with a two-letter country code.
These are some examples of VAT number structures, depending on the country:
How to obtain a VAT number
Even though VAT is almost standardized in the EU, each country has its own system. All governments publish instructions on how to get a VAT number in their territory on their website.
Each country establishes the mandatory information businesses need to submit in order to obtain a VAT number. In some cases, the information required is different for legal entities than for professionals or taxable but not legal entities.
Usually, the person concerned completes an electronic form with the business’s general information. This tax form needs to be signed and submitted electronically. After several weeks, the tax authority supplies the VAT number.
This is an example of a tax form used by the Spanish tax authority:
How to check whether a VAT number is correct
In a B2B transaction, businesses should verify that their customers' VAT numbers are valid. For this purpose, each country has a national database with VAT numbers provided by the relevant tax authority.
Businesses can check the national database to find out whether a given VAT number is currently valid or invalid. Information on historic VAT numbers is not available; in other words, you cannot find out whether a business had a valid VAT last year. Only current VAT numbers are available in the database.
What is VIES?
VIES is the acronym for the VAT Information Exchange System. It's a web form that allows companies to validate the VAT numbers of economic operators registered in the EU. VIES is owned and operated by the European Commission and is available in different languages.
In most jurisdictions, businesses will find an option for appearing in VIES on the same tax form used to request a VAT number This box needs to be ticked. However, some countries require a separate request for intra-EU transactions.
When you check a VAT number on VIES, one of two outcomes is possible:
- EU VAT information exists (valid).
- EU VAT information does not exist (invalid).
Due to EU data protection legislation, VIES will never provide a business's name or contact details, but if you know them, you can include them in the request to ensure they are valid.
Here’s an example validating Invopop’s VAT number on VIES:
So, how can VIES help you? If Business A (located in France) supplies goods to Business B (located in Germany), and both are registered in VIES, as it’s an intra-community transaction, Business B should check VIES to see whether Business A has a valid VAT number.
If the VAT number is invalid, conducting any transactions with this customer is not recommended, at least until you find out why they’re not in VIES. It's also possible to contact the customer's tax authority to verify this VAT number.
There are different explanations for this:
- The customer still needs to enable the VIES option in its tax form or request a different option for intra-EU transactions.
- The tax administration has not yet provided the VAT number to the customer.
- The customer has not requested a VAT number.
- The national database is down.
The results given by the VIES tool are taken from national databases and are updated regularly. Countries are responsible for maintaining their databases and keeping them updated. If there is any error in VIES, the EU Commission will not accept any responsibility.
What can be done if an error is detected? If a business detects any error in VIES, it should immediately contact its own tax authority to fix the problem.
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