How to Create an Invoice with VAT
What is VAT, and what is a VAT invoice?
VAT is a consumption tax imposed wherever value is added at each stage of the supply chain, from production to the point of sale.
Therefore, a VAT invoice is an essential document that enables businesses to charge VAT on the taxable supply of goods and services.
When a business issues a VAT invoice, it's critical to delineate the total amount due along with the amount of VAT included. Such invoices should prominently display the invoice number, as well as details like the business and customer's name, VAT number, and detailed description of the goods or services rendered. Knowing the difference between the types - a full (standard) VAT invoice, simplified VAT invoice, and credit note and debit note - ensures VAT compliance with tax rules, as the required content for each document differs depending on the type of invoice issued.
There are no strict invoice requirements for sales tax invoices in the US (read more about the VAT vs Sales Tax differences and the VAT vs Sales Tax similarities). These requirements focus more specifically on value-added tax invoices.
Who is Required to Include VAT on an Invoice?
In countries where VAT is implemented, businesses that are registered for VAT are required to include VAT on their invoices when they sell goods or services. The requirement to register for VAT depends on the turnover of the business; there is usually a threshold below which a business is not required to register for VAT but may choose to do so voluntarily.
Collecting VAT for Goods/Services Sold to EU Clients/Customers
For non-EU countries, the rules on collecting VAT for goods and services sold to EU clients/customers can be complex and vary depending on the nature of the goods/services and whether the customer is a business or consumer.
Business to Consumer (B2C) Transactions
Non-EU businesses selling digital goods or services to consumers in the EU are required to charge VAT at the rate applicable in the customer's EU country. This means the business needs to register in the VAT Mini One-Stop-Shop (MOSS) scheme of any EU member state or register for VAT in each EU country where they have customers.
E-Commerce and Goods
For goods sold online and shipped to customers in the EU, VAT is applicable, and the responsibility to collect and remit it can fall on the non-EU seller, especially for consignments not exceeding a certain value (established by EU's e-commerce VAT package). Above this value, VAT and customs duties might be handled by the customer upon import.
Business to Business (B2B) Transactions
When a non-EU business sells to EU businesses, generally, the responsibility to account for VAT shifts to the EU-based business customer under the EU reverse charge mechanism. This means the EU business self-accounts for VAT, and the non-EU supplier does not need to charge VAT.
What type of information must be included in a VAT invoice?
Content Requirements
For a document to qualify as a valid VAT invoice, it must adhere to specific VAT invoice requirements. The content of a VAT invoice is regulated by each country and differs from country to country. However, these requirements generally include displaying the business's VAT registration number, the date of issue, and the applicable VAT rate and amount.
Invoice requirements may differ depending on the type of transaction. For example, special invoicing rules apply for reverse charge transactions and self-billing agreements. In some industries, there are specific requirements for zero-rated supplies. Although these are taxable at a 0% rate, a VAT invoice is required.
In addition to content rules, countries impose strict requirements regarding invoice language. In some countries, invoices must be issued in English or the local language. Local currency rules and other rules, such as unique numbering, are also regulated.
Businesses must be aware of and issue compliant VAT invoices to ensure input VAT deductibility. VAT-registered businesses should ensure that the invoices they issue and receive are compliant with local law.
Adjustments to VAT invoices
Adjustments to VAT invoices are done through the issuance of other documents. Businesses may need to create a credit note linked to their invoices for returns, cancellations, or any other change to an invoice that reduces the original amount. Debit notes may be issued to increase the original invoice amount. In some countries, a corrective invoice is issued instead of credit and debit notes.
Method of issuance
Some countries require compliant VAT invoices to be issued electronically and do not allow paper invoices, whereas some countries only permit paper invoices. Therefore, the form of an invoice can also be regulated.
Streamline VAT Invoices with Fonoa
Fonoa’s invoicing software can be a trusted ally in this task. Fonoa offers streamlined functionality to help produce compliant VAT invoices that meet tax authority requirements globally. Whether you’re generating a full VAT invoice or a simplified one, Fonoa's invoicing software can help by ensuring that your invoice template includes all necessary details like the identification number, taxable amount, and business name, depending on the country.
The types of VAT invoices can be challenging to navigate, but with Fonoa's tools and features, you can automate the process. Fonoa simplifies invoicing by automatically validating the appropriate VAT amount based on the transaction's details and the relevant VAT rate. This means fewer errors and reduced compliance risks. Additionally, validation functionality can complement your invoicing procedures by providing up-to-date information on the latest VAT regulations, ensuring your business stays on top of legislative changes and requirements.
For the VAT savvy, Fonoa’s software ensures that preparing invoices is no longer a tangled web of compliance complexity but rather a streamlined, error-proof process, giving you more time to focus on your business growth and less on the intricacies of tax law.
Ensuring compliance for your business
VAT invoicing is vital for both compliance and the financial health of your business. Integrating advanced tools like Fonoa invoicing will not only help you produce compliant VAT invoices but also make your entire tax return preparation process more efficient and reliable. With digital solutions like these, VAT registered businesses can enjoy peace of mind and remain in good standing with tax authorities.
