VAT or Value Added Tax is a tax levied by the government of a country on the sales of goods and services. When a business has an annual turnover that’s higher than the VAT threshold, which varies from country to country, it will need to register for VAT and complete a quarterly VAT return.
If this applies to your business and you’ve registered for VAT, you’ll need to begin charging and listing the VAT amount separately on any invoices for the goods or services you offer to your customers or other businesses. You’ll also be required to pay VAT on the goods or services you buy from other businesses.
VAT rates around the world
VAT rates vary from country to country, with higher VAT rates ranging from 18% to 25% and lower rates between 15% and 5%. For instance, in the United Kingdom, the standard VAT rate is 20%, whereas in the Netherlands it’s 21% and in Denmark it’s 25%.
In most countries the VAT rates also vary depending on the services and goods you’re supplying. There are four different categories of VAT, which include the standard rate, the reduced rate, the zero rate and finally, the exempt goods and services.
Standard rate: Most goods and services fall under the standard VAT rate unless indicated otherwise.
Reduced rate: A reduced VAT rate may apply to items such as domestic fuel and power, installation of energy-saving products and sanitary hygiene products.
Zero rate: A zero VAT rate may apply to items such as food (except restaurant meals or takeaways), public transport and books or newspapers.
Exempt goods and services: Some goods and services may be exempt from tax. For instance no VAT is charged on education, insurance or fundraising events by charities.
How Sequoia ERP can help
Correctly identifying VAT rates can be tricky when you’re managing a business with multiple offices around the world as the VAT rates and thresholds will be different in each country. Even small systematic errors could lead to problems with tax authorities, suppliers or purchasers, and this is where Sequoia ERP can help.
Sequoia ERP will enable VAT compliant treatment for your business by not only helping you identify the correct VAT rates for the country you’re dealing with and applying them accordingly, but also by fully integrating with electronic documents like invoices and contracts.
It’s also been implemented with a global commodities trading company and has been adapted for global companies with multiple offices around the world, global clients with offices registered in multiple countries and can be adapted for the country of destination.