If an international expansion is on the horizon for your business, value added tax (VAT) may be one of the many details you need to address. With harsh consequences for violation (lost revenue, fines, prosecution), VAT compliance is an essential consideration for any company with international operations.
While specific requirements may be different from country to country, compliance issues tend to be very similar across the board. The following are some best practices that can help minimize the risk of non-compliance.
Keep accurate books and records. No matter what country you’re looking to setup in, maintaining careful documentation of your business activities is fundamental for VAT compliance. Though there is no set rule for which records to keep, you’ll want to consider including the following: bank statements, import/export documents, invoices, and annual accounts. Additionally, you’ll want to keep a separate summary of all things VAT related, so you have ready access should the data need to be reviewed by tax authorities.
Create detailed invoices. Most countries that implement VATrequire detailed tracking of it on company invoices. Every invoice that a company issues or receives should include a record of VAT paid, making it easy to see whether or not all taxes have been properly remitted. These documents are also what companies use to reclaim VAT; without good reporting, a business may not be able to recoup what it is owed. Company and customer VAT numbers, VAT rate charged and unit price are some of the things to include.
File returns on time. Once you are keeping the appropriate records, be sure to file your VAT return before the deadline in each country where your business operates. Many countries call for a monthly return, though some have quarterly or even annual filing requirements.
These tips, as well as working alongside a trusted international expansion expert, can go a long way in taking the headache out of VAT compliance.