As you probably know, new VAT rules on intra-EU trade will enter into force on 1 January 2020 – in an effort to harmonize and simplify legislation and counter intra-EU fraud. One of four “quick fixes” that the EU agreed on is the mandatory VAT identification number on intra-EU invoices. While relatively straightforward, the rule may have a considerable impact on your business. How can you prepare your processes and, consequently, your ERP system to ensure compliance?
If you sell a product to an EU VAT-registered business operating in another EU country, you don't charge VAT on that sale: that’s been the rule of thumb in intra-EU trade for years. That principle remains unchanged, provided that two conditions are fulfilled: the invoice includes the recipient’s correct VAT number and the sales is reported in the EC sales list.
“Invoices – both national and cross-border – usually contain VAT registration numbers, yet that has always been a formal requirement, rather than a prerequisite to benefit from the 0% VAT rate,” explains Mohamed Akalai, Senior SAP FICO consultant at delaware. “That is now changing: a valid number becomes mandatory for intra-EU supplies to be zero-rated. In other words, if a supplier fails to state the customer’s correct VAT identification number on the invoice, the goods will not be VAT exempt in the member state where the goods are sent; local taxes will be applied instead. More than that, fines may be imposed. So, while this mandatory VAT ID number may look like a small change, it may have a significant financial impact for businesses trading in international goods.”
"While the VAT ID number may look like a small change, it may have a significant financial impact for businesses trading in international goods."
The amendment to the EU Directive entails a great risk for every taxpayer that trades goods within the EU: you will be liable for the payment of the VAT if the new conditions are not met. So, how can you get ready for this upcoming “VAT quick fix”?
“While companies used to check VAT numbers mainly during listing, now they’ll have to ensure that they have the correct number upon creating a sales order or at the latest when they issue the invoice,” Mohamed explains. “That means they have to reorganize their administrative and ordering processes, as well as their ERP systems.”
Whether you run SAP or Microsoft Dynamics 365, you’ll have to ensure that your ERP system captures your customers’ VAT IDs and that the master data is kept up to date and correct. Moreover, the system should be able to help you regularly check if your clients’ VAT ID numbers are still correct, using the European Commission’s VAT Information Exchange System (VIES) portal, and/or warn the logistics or finance team if they’re preparing a sales order and/or invoice that does not include a – correct – VAT ID.
“delaware can develop solutions to help customers in this field,” says Mohamed. “Right now, for example, we are building an interface for one of our clients that connects the VIES website with a Dynamics 365 platform, in order to automatically check the VAT ID number in the VIES website the moment an invoice is made. Another option is that the system automatically checks the master data and provides a list of invalid numbers, e.g. at the end of each day. In fact, there are multiple possibilities. We’re happy to discuss them with every customer who’s interested in adapting their intra-EU goods movement processes and ERP system to comply with the new regulation. More than ensuring compliance, the changes are bound to help them boost efficiency too.”
Curious how delaware can help you ensure compliance with the new VAT rule? Contact your delaware account manager or get in touch via our contact form.