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The VAT invoice is one of the more specific types of invoices, and it’s used in many countries. If you own a business in the U.S. and want to sell goods to clients in the European Union, the VAT applies.
So, you will find the information in the guide below extremely useful. We will answer the question ‘what is a VAT invoice?’, show you when and how to use it, and go over all the essential aspects connected to VAT billing.
First, let’s see what VAT represents. VAT, or value-added tax, is a consumption tax that businesses use in the EU but also in other countries. This particular tax applies to goods but also services and any type of taxable supplies. If you live in one of these countries, you pay this federal tax with every purchase.
What Is a VAT Invoice?
A VAT invoice is a document a company needs to issue to present in detail the goods or services that they provide and that are subject to VAT. The goal behind this tax is to ensure that EU governments receive the due taxes for the goods and services that people buy. So, you only need to issue such an invoice if the transaction is subject to VAT sales tax.
VAT invoicing is mandatory in the European Union. The law forces the seller to invoice VAT and sets the deadline within 15 days of the end of the month when the purchase happens. Therefore, the VAT bill is the accounting document that a business can use to charge this tax to their clients. They will need to collect those amounts so they can pay them to the government at a later point.
There is one important aspect to underline. VAT charging doesn’t concern the EU businesses exclusively. The EU governments will need to collect these taxes for all the goods and services their residents buy. That means that even if your business is located outside of the EU, you still need the VAT invoice.
What Are the Differences Between an Invoice and a VAT Invoice?
At a superficial glance, the two documents may look the same. And the truth is they resemble in many ways. They are both billing documents, but there are also some key differences between them.
The first difference is related to what businesses need to issue each of these two documents. The regular invoice is necessary for all transactions and is used to notify your clients of the amounts they owe you. On the other hand, the VAT invoice is only required if the transactions you handle are liable for VAT. Only VAT-registered companies issue this type of invoice to collect the tax that they will later redirect to authorities.
Anyone can easily issue a regular invoice, but when you also need to include this extra tax, it gets a bit more complicated. VAT invoicing isn’t as difficult as it sounds, but there are a few elements to consider and steps to take to issue a correct invoice.
The first step is to register your business for EU VAT. You will have to use one of the EU countries, and once you register, you will receive a VAT number. It’s important to know that even if your clients are in different EU countries, a single tax return can include all your EU VAT to save time and make things easier.
As for their appearance, the two collection documents have many sections in common, those related to identifying the two parties involved in the sale and the goods or services provided. But VAT invoicing also needs a few specific elements, which we will cover in the next section.
Both regular and VAT invoices are essential for accounting purposes and need to be kept organized. There is a small difference in this sense as well, as you need to keep a VAT bill for at least six years, while the minimum period for regular invoices is five years.
What Is Included in a VAT Invoice?
Once you registered as a VAT user and have verified your client’s details, it’s time to issue the VAT invoice. To make things easier, you can do it with a VAT invoice template. As we mentioned above, it has a few extra elements, so here is the complete list to help you create an accurate document:
- Your company’s name and contact information
- Your VAT number
- The invoice’s issue date
- The invoice number
- The client’s name and contact information
- The client’s VAT number, if a reversed charge is involved
- A detailed list of goods or services provided, along with the VAT rate and the amount for each item
- The total amount due, including VAT
- The currency used
VAT invoicing may seem a bit odd at first, but once you understand this tax cycle, it will get easier. But it’s still essential to create every VAT invoice as accurately as possible. As you saw above, the difference from a regular invoice isn’t that significant.
Still, to make sure you include all the relevant parts, try writing it with a VAT invoice template. You will find an excellent one on the WeInvoice website, along with other handy templates and invoice generators that will save you a lot of time and effort.