VAT Validation

Value-added tax (VAT) is a consumption tax applied to goods and services at each stage of the supply chain where value is added. A consumer pays VAT based on the product’s cost (minus any previously taxed material costs); however, VAT rates vary. For example, in the US, VAT taxes aren’t imposed on goods and services. 

 A VAT identification number, also sometimes called a VAT registration number, is a unique number that identifies taxpayers (companies or individuals), including non-taxable legal entities. that are registered for VAT. All taxable entities must inform their tax administration of VAT-taxable activities in order to receive a VAT number. 

Accordion to the European Commission, a business is required to register for VAT in the following cases:

• When making an intra-EU acquisition of goods.
• When supplying goods or services subject to VAT.
• When receiving services for which it must pay VAT.
• When supplying services where the customer is liable to pay VAT.

There is an online system known as the VAT Information Exchange System (VIES) . Companies can perform a quick VAT lookup by entering the VAT number and the issuing EU member state. This helps validate VATs and check if the trading partner is legitimate. In general, this system is maintained by the European Commission. VIES is responsible for forwarding queries to national VAT databases if real-time verification is needed. By facilitating cooperation between national tax authorities, VIES promotes fair trade and transparency across the EU.

You can use the EU’s VIES lookup tool to find and verify VAT numbers. This is helpful when the invoice doesn’t list the VAT ID (this applies to simplified invoices in some EU countries). 

No. Each country in the EU decides on its own national VAT number format (for example, the number of digits). In general, VAT numbers consist of numbers and letters, as well as start with a country-specific alphabetical prefix. So, businesses supplying goods or services in multiple EU countries need to obtain a VAT number in each country they operate.

Once you enter the details in the VAT Information Exchange System (VIES), you’ll be provided with lookup results: valid or invalid. If the entered number exists in the EU database, it can be shown as a “valid” result. In contrast, “invalid” shows that no matching VAT information was found in the system. Since over 160 countries worldwide impose VAT, this lookup tool is effective and commonly used within EU member states. 

Only relevant tax administrations can issue VAT numbers. Other requests or proposals are scams. To obtain a VAT number, companies need to apply through their country’s tax authority. Application processing times vary, which needs to be considered, especially if you’re doing business in several EU countries. 

No. Using a VAT validation system, such as the VIES database, can’t be used as the only source of verification, especially for high-risk, regulated entities that must conduct KYB checks. In other words, an entity’s VAT number legitimacy alone doesn’t guarantee a business’s legitimacy, as additional due diligence measures are often required.