European VAT – a short note


European VAT – a short note


In this article we will talk about some of the main administrative requirements of the European VAT system which are applicable to all member states of the European Union. you can find more information on the website


Every member state of the EU also has its own VAT framework in which the laws establishing the VAT are nation specific and each of these national laws are framed within parameters laid out by an EU directive no. 2006/112.


The first administrative requirement in the European VAT system is the invoice. An invoice is part of the most important documents in a business transaction. The supplier has to mention the exact details of goods and services that were supplied besides mentioning how the payment and VAT must be paid. Why an invoice is important to the buyer is because he can only reclaim the VAT paid when he has an invoice. Some of the information that should be provided on the invoice is the date , a sequential number, VAT numbers of the parties, the name and address of parties, the quantity and nature of goods and services supplied, the date of supply, the amount to be charged along with rate of fees, price of a unit, exemptions, discounts and refunds, the rate of VAT and amount to which that rate is applied, total VAT payable, an indicator that talks about intra community supply if that is the case and when the customer has issued the invoice then the invoice must show ” self-billing” .When reverse charge arrangement is used to levy VAT then the invoice should have a reference saying reverse charge, in case of intra community supply of a new means of transport a reference saying that the means of transport is new should be added. When the margin scheme for travel agents is applied then the same should be shown via an invoice. In case margin scheme for certain goods is applied then the reference saying margin scheme-collector’s items and antiques should be added. When a tax representative has been appointed then his name, address and VAT number should be furnished.


Now let us look at foreign trade. First lets understand domestic and foreign invoicing rules. As far as domestic invoicing rules are concerned businesses have been permitted from January 1 2013 to apply the invoicing rules of their own country and these domestic invoice rules are then made applicable to intra community supplies from their own member nation and these invoicing rules also apply to cross border supplies if reverse charge to the customer takes place. The foreign invoicing rules are relevant in the following cases. First when a business has issued an invoice on which foreign VAT is charged. Second when the customer comes from another EU member state and does self billing for a supply which is deemed to have taken place in another EU member state and third and last type of transaction on which foreign invoicing rules apply is when a supply is made by the fixed establishment in another EU member state.


In addition when the invoice is in the electronic format then the business should ensure that origin is authentic, the content has integrity and the invoice is legible. These days businesses also have the permission to issue a simplified invoice in two cases which are when the amount of the invoice is no higher than an amount ‘X’ and when the invoice is a supplementary document that corrects the original invoice and clearly refers to the original invoice. These are the administrative rules regarding business within Europe.