If you’ve just started a digital business or have been growing your start-up over time and are beginning to reach an earnings threshold where you will need to register for VAT, this can be a somewhat daunting process. Small businesses, and those that are growing at a steady rate, are more susceptible to VAT compliance problems as they usually have less resources at their disposal to be able to remain compliant in the first place. Let’s have a look at VAT, when you are required to register for VAT as a digital business, what to do in foreign jurisdictions, as well as when it may be viable to de-register if need be.
What is VAT?
VAT (value-added tax) refers to a tax on what people consume, be it goods or services. It is considered an indirect tax, because VAT registered companies earning above a certain threshold essentially gather the tax on behalf of the government in the country. Individual governments have different VAT rates, so if your digital business is operating in multiple regions around the world, it is worth researching individual rates as outlined by specific jurisdictions, as these may vary considerably by region.
When You Are Required to Register for VAT
Companies are required to register for VAT once their annual earnings threshold, in a given tax or financial year, reaches a specific amount. In the UK, that amount is £85,000 (throughout 2020 at least), whereas other countries like South Africa require VAT registration for companies earning over R1 million over the span of twelve months. Failure to do so could incur hefty fines, so make sure you are keeping a close eye on your earnings, weighing them up to budgets and expectations of total turnover across the span of any given year.
Remembering to Register for VAT in Foreign Jurisdictions
For digital businesses, there is a great chance that you will be doing business in a range of different countries, especially so if you offer an online service. Businesses who provide goods and services in a foreign jurisdiction are required to comply with VAT laws in that particular jurisdiction, over and above commitments to where the business itself is registered. Don’t let this scare you, especially if you’re getting close to income thresholds this financial year. If your business requires a VAT registration anywhere in the world, companies like Vatglobal offer a complete service, providing you with helpful tips and peace of mind around compliance practices.
De-Registration of VAT
Keep in mind, that if your digital business no longer makes taxable supplies in each country, there may be grounds for the de-registration of VAT. This can influence how large tenders view the professionalism of your business (companies that are not registered for VAT are known to be earning less than the threshold) and in turn it may become harder for you to sign larger tenders. This will be important depending on the nature of your business, as well as taking into consideration its longer-term goals. If you are in doubt about whether you should be registered for VAT, or have any questions about the registration process, the first step is to reach out to an expert about it.