Value Added Tax (VAT) is an indirect tax that applies to the consumption of goods and services. When these transactions take place between European Union (EU) member states, they fall under the category of Intra-Community VAT.
This tax applies to commercial transactions of goods and services between companies or professionals established in different EU countries. Its purpose is to prevent double taxation and facilitate trade within the European single market.
Understanding and complying with the obligations related to this tax is essential for businesses and professionals operating in the European market.
To benefit from this system, both the supplier and the customer must be registered in the Register of Intra-Community Operators (ROI) and have a valid Tax Identification Number (NIF-VAT Nr) in the VIES (VAT Information Exchange System).
Tax and Accounting obligations
Companies engaging in Intra-Community transactions must comply with specific tax and accounting obligations:
- Registration in the ROI: Before conducting Intra-Community operations, it is essential to register in the ROI to obtain a valid NIF-VAT
- Issuance of invoices: Invoices must indicate that the transaction is exempt from VAT at the source and must include the customer’s NIF-VAT
- Informative declarations: Businesses must submit Form 349, a recap of Intra-Community transactions. This declaration can be monthly, quarterly, or annual, depending on the volume of operations
- Accounting records: According to the General Accounting Plan (GAP), Intra-Community acquisitions must be recorded by simultaneously accounting for both the input and output VAT, ensuring that the tax does not affect the financial result but does reflect the tax obligation.
The importance of correctly declaring Intra-Community VAT
Properly declaring Intra-Community VAT is crucial for several reasons:
- Legal compliance: Failure to meet tax obligations can lead to significant penalties. For example, late submission of Form 349 can result in fines of €20 per missing entry, with a minimum penalty of €300 and a maximum of €20,000
- Prevention of tax fraud: Correct VAT declaration helps combat fraudulent practices such as carousel fraud, where shell companies are used to evade tax payments. These practices not only harm public finances but also create unfair competition in the market
- Transparency and trust: Strict compliance with tax obligations strengthens trust among business partners and tax authorities, facilitating business relationships and preventing unexpected inspections or audits.
Consequences of non-compliance
Failing to declare Intra-Community VAT or doing so incorrectly can result in several consequences:
- Financial penalties: In addition to the fines mentioned above, the tax authorities may impose surcharges for late declarations and demand the payment of late interest
- Loss of tax benefits: Non-compliance may lead to exclusion from the ROI, meaning businesses would no longer be able to apply VAT exemptions on Intra-Community transactions. This would increase transaction costs and reduce competitiveness
- Reputational damage: Tax irregularities can harm a company’s reputation, making future business relationships and access to financing more difficult.
In conclusion, correctly declaring Intra-Community VAT is not just a legal obligation but also a best practice that protects businesses from sanctions and contributes to a more transparent and fair European market.
