Basics of VAT terminology

08/09/2023 - VAT terminology Basics of VAT terminology Image by storyset on Freepik

List of 15 VAT terms

To assist you in efficiently managing your business, we've assembled an extensive list of VAT terminology, each accompanied by a brief explanation of the corresponding term.

1. ECSL (EC Sales List)

  • represent a mandatory reporting obligation within the European Union for businesses involved in cross-border exchanges of goods and services. They serve as a means to monitor Value Added Tax (VAT) transactions taking place within the EU.

2. Flat rate scheme

  • The Flat Rate Scheme is a streamlined VAT method employed by businesses in select countries. Under this scheme, businesses remit a fixed percentage of their total revenue as VAT to the tax authorities, eliminating the need to compute and report VAT for each individual transaction. This approach aims to streamline VAT accounting for small enterprises and alleviate administrative complexities.

3. IOSS (Import One Stop Shop)

  • IOSS is a simplified VAT scheme that allows EU businesses to collect, declare and pay VAT for their sales of imported goods up to a value of €150. IOSS makes it easier for online sellers to comply with VAT obligations when selling goods from third countries to customers in the EU. Instead of requiring customers to pay VAT at the time of import, the VAT is collected by the seller at the time of sale, and the seller is responsible for remitting the VAT to the appropriate tax authority. You can read more about it in our previous blog posts.

4. Import VAT

  • Import VAT is a tax levied on goods acquired in one country and subsequently transported into another. In the context of the European Union (EU), import VAT pertains to the tax liability incurred when importing items from countries outside the EU into the union's territory.

5. Intrastat

  • Intrastat is a mechanism employed by member states of the European Union (EU) to gather and furnish statistical information concerning the exchange of goods among EU nations. Its purpose is to facilitate the monitoring and analysis of the movement of goods within the EU's unified market.

6. OSS (One Stop Shop)

  • OSS is a new electronic system that allows businesses to declare and pay VAT on their cross-border sales of goods and services to customers in the EU. The OSS scheme is designed to simplify VAT compliance for businesses and reduce the administrative burden of managing VAT obligations in multiple EU member states. You can read more about it in our previous blog posts.

7. Place of Supply

  • The term "Place of Supply" denotes the specific location where a particular delivery of goods or services is considered to have occurred, serving as a pivotal concept in taxation and regulation. It is instrumental in ascertaining the applicable tax laws of a jurisdiction and determining the tax amount to be imposed on a given transaction. The criteria for establishing the place of supply differ from one country to another and may hinge on the transaction's nature and the entities participating in it.

8. Reverse charge

  • Reverse charge is a mechanism that shifts the responsibility for reporting and paying VAT from the supplier to the recipient of goods or services. It means the buyer becomes liable for declaring and settling the VAT to the tax authorities instead of the seller. You can read more about it in our previous blog posts.

9. Taxable supplies

  • Taxable supplies encompass goods or services that are liable to Value Added Tax (VAT), obligating the supplier to lawfully gather and submit the tax to the government. These supplies are ordinarily utilized or acquired by individuals or businesses, with the tax being included in the purchase cost, ultimately placing the responsibility for tax payment on the end consumer.

10. VAT accounting

  • VAT accounting is a financial framework in which businesses monitor and report the Value Added Tax (VAT) they receive from customers on their sales and remit the VAT they encounter on their purchases to the government. This process includes the upkeep of records related to VAT transactions, the computation of the net VAT obligation, and the regular submission of VAT returns to the relevant tax authorities.

11. VAT compliance

  • VAT compliance pertains to the strict adherence to all pertinent regulations, reporting prerequisites, and fiscal responsibilities associated with Value Added Tax (VAT) as mandated by a government. This entails precise calculation, collection, and remittance of VAT, along with the maintenance of comprehensive records and the punctual submission of VAT returns, all aimed at upholding legal and financial conformity.

12. VAT number

  • A VAT number is an exclusive identification code issued by tax authorities to businesses for the purpose of monitoring and handling their Value Added Tax (VAT) responsibilities. This number is utilized for tax reporting, invoicing, and facilitating cross-border trade, particularly within the European Union and certain other regions that implement a VAT system.

13. VAT rate

  • Various goods and services can be subject to different Value Added Tax (VAT) rates, typically classified as standard, reduced, or zero-rated, each corresponding to a distinct VAT percentage. Having a clear grasp of the relevant VAT rate for your specific products or services is essential for precise tax calculations. You can read more about different valid VAT rates in our previous blog posts.

14. VAT registration

  • VAT registration is the formal procedure through which a business or individual officially registers with the government as a Value Added Tax (VAT) taxpayer. Upon registration, they gain the legal authority to levy VAT on taxable goods and services they offer and are usually entitled to reclaim VAT paid on business-related expenditures. This registration is pivotal for adhering to tax regulations and facilitating the accurate reporting and remittance of VAT to tax authorities.

15. VAT return

  • A VAT return is a regular report that businesses provide to tax authorities, offering a summary of the Value Added Tax (VAT) accumulated on sales and disbursed on purchases within a specified timeframe. This report aids in ascertaining the VAT amount payable to the government or eligible for reimbursement.
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