VAT in Europe: A Harmonized but Complex Framework

In Europe, VAT follows a common principle: each state applies its own rate (from 17% in Luxembourg to 27% in Hungary), but exemption and reverse charge mechanisms are standardized.

When a French company invoices a German company, the invoice can be issued excluding VAT thanks to intra-Community VAT. The customer reverse charges the VAT in their country.

However, when dealing with an individual, VAT must be collected at the rate of the consumer’s country. This is where the OSS one-stop shop comes in, widely used in e-commerce.

Example: a company in Bulgaria invoicing an Italian customer applies 0% VAT if the customer is a B2B company with a valid number. But for an individual, it must collect Italian VAT via OSS.

VAT Outside Europe: Very Different Systems

Outside Europe, the landscape changes completely.

• In the United States, there is no national VAT, but a sales tax applied at the state level, sometimes even at the city level.
• In Singapore, it is called GST, with a single rate (9% in 2024).
• In Hong Kong, there is no VAT in the European sense, which simplifies invoicing but can complicate relationships with European partners accustomed to this tax.

These differences require particular rigor in managing international taxation. An entrepreneur dealing with both European and non-European clients must therefore properly segment their invoicing.

Comparison: VAT in Europe and Outside Europe

• European Union: From 17% to 27% depending on the country. B2B reverse charge, OSS for B2C – Standardization but administrative complexity.
• United States: No national VAT, sales tax by state (0% to 10%) – Depends on place of consumption.
• Singapore: GST 9% – Simple and centralized system.
• Hong Kong: No VAT – Simplifies invoicing, but no harmonization with the EU.

Why Is This Crucial for Your Company?

VAT is not just an administrative matter: it is a credibility criterion.

• Banks (traditional or fintechs) often require an intra-Community VAT number to open an account.
• B2B clients frequently refuse to work with a foreign company that is not registered for VAT.
• A lack of consistency can lead to tax audits, or even reclassification in the country of residence of the director (tax residence).

Conclusion and Recommendations

Understanding VAT, both in Europe and internationally, is a key step for any entrepreneur developing their business beyond their borders.

In Summary:

• In Europe: work with the rules of intra-Community VAT and OSS to remain compliant.
• Outside Europe: adapt to each local system (sales tax, GST, local VAT).
• In all cases: anticipate your obligations from the creation of your company, just as you would for bank account opening or establishing a credible economic substance.

At service-societe.com, we help our clients obtain their VAT number, manage their international invoicing, and secure their operations, whether in Europe or abroad.