What is a VAT ID? Value-Added Tax Explained

What is a VAT ID, and Does Your Business Need One?

If you’re an American business owner, you could go years without learning anything about the VAT system. As soon as you start doing business overseas, however, you might see a field that asks for your “VAT ID” on a European company’s onboarding form. What’s that mean? Have you been missing a VAT ID for years?

A VAT ID is a type of tax number that almost all European businesses need in order to stay compliant with their country’s respective tax authorities. VAT stands for value-added tax, which is a type of tax the United States doesn’t charge. However, that doesn’t mean American companies can turn a blind eye to VAT IDs. If you sell goods to citizens of the EU or carry out certain business practices in Europe, you’ll need one of these numbers.

Whether you’re a European founder wondering where to go to register for your VAT ID or you’re an American business owner hearing about it all for the first time, we have you covered. This article explains what a VAT ID is, how value-added tax works, which businesses need to register, and what happens once you have your number. If your company is based out of a country that uses the VAT system, and you’re interested in using U.S. dollars, you may also want to learn about Slash. With a Slash Global USD account, foreign founders can access the U.S. dollar without forming a US entity.³

Key Takeaways

Most of the world uses VAT IDs, but the United States does not. It’s somewhat similar to American sales tax, but it doesn’t have an exact equivalent.
VAT is collected at every stage of a supply chain rather than once at checkout, so businesses reclaim what they pay and only the final consumer bears the cost.
The One-Stop Shop (OSS) scheme is an EU-based electronic system that lets online sellers and service providers declare and pay value-added tax for cross-border sales through a single online portal.
Where your company is incorporated doesn't determine VAT liability, since the tax follows where your customer is and what you sold them.
Selling business to business often avoids registration entirely through the reverse charge, as long as you verify your customer's VAT number.

What is a VAT ID?

A VAT identification number is a code issued by a national tax authority confirming that a business is registered to charge and remit value-added tax in that country. There’s some variety in how these numbers are formatted, but it almost always consists of a two-letter country code followed by 6-13 characters. France uses FR, Germany uses DE, Japan uses JP, and so on.

Value-added tax works differently from what most Americans are used to. Rather than being collected once at the register, it's charged at every stage of a supply chain. Because a supply chain “adds value” to a product through its steps of shipping and production, the “value-added” can be taxed. A business charges VAT on what it sells, which is called output tax, and reclaims the VAT it paid on its own purchases, called input tax. It then sends its country’s tax authority the difference between the two.

Businesses handle the money along the way, but they don't end up bearing the cost. Only the final consumer does, since they can't reclaim anything. Each entity involved in the supply chain acts as a collector. With a €100 sale at a 20% VAT rate, the customer pays €120, and the seller passes along €20 minus whatever VAT it already paid its own suppliers.

VAT rates are set from country to country, and they can get pretty high. On average, they fall between 17% and 27% across Europe, often coming with reduced rates for things like food, books, and medicine. An American may think of these charges as an extra-high type of sales tax, and while VAT and sales tax are similar from a consumer standpoint, there are a few important differences between the two.

VAT vs. Sales Tax

U.S. sales tax is a one-time deal, collected by the retailer at the final sale to a consumer. There aren’t any charges when a manufacturer sells to a wholesaler or a wholesaler sells to a retailer, because those buyers present resale certificates that exempt them from mid-supply chain taxes. The sales tax doesn’t hit until the end of that chain is reached.

VAT does the opposite, spreading tax collection across every transaction. This system is particularly beneficial for clean accounting and potential audits. Because each business needs documentation of its purchases to reclaim input tax, every company in the chain has an incentive to request proper invoices from its suppliers. It creates a more natural audit trail than a single-point sales tax, which results in no collections if the final retailer doesn’t remit. Since VAT income is more consistent and almost always higher, most countries around the world have adopted the value-added system.

VAT is also border-adjustable in a way sales tax isn't, since goods are taxed on where they’re consumed rather than where they’re created. Exports are zero-rated and imports are taxed accordingly when they arrive at a given country, which keeps each place’s domestic and foreign goods on more equal footing.

More than 170 countries now use VAT or the similar GST (goods and services tax), including countries that have newly come on board in the last 10 years, like Saudi Arabia and Bahrain. Meanwhile, the United States is the only OECD (Organization for Economic Co-operation and Development) member that doesn't use VAT as its main consumption tax.

Who Needs a VAT ID?

In countries that use VAT, local businesses register when their taxable turnover crosses a national threshold. In the UK, that threshold is £90,000 in a rolling twelve-month period, recently raised from £85,000 in 2024. Some thresholds are a lot lower; Finland’s is €15,000 and Sweden’s is €7,000, meaning you’ll be hard-pressed to find any businesses in those nations that don’t have a VAT ID.

Qualifying for a VAT ID in the United States has nothing to do with any threshold. Once a single dollar moves in a way that would trigger value-added tax obligations, you’ll need one. Whether or not your sales practices cross paths with VAT depends on where your customers are, what they’re buying, and where you hold your goods. Here are the three main scenarios that commonly trigger a VAT ID registration requirement for U.S.-based companies:

Selling digital services to consumers abroad: If you sell SaaS subscriptions, downloads, online courses, and streaming to EU consumers, you’ll need a VAT ID. Because digital sales can easily cross dozens of different borders in a short time, the EU created the “Non-Union One-Stop Shop” system that lets you file one return covering every member state, instead of completing each return individually.
Shipping physical goods to overseas consumers: VAT numbers are always involved when it comes to goods sold directly to EU consumers. For consignments valued at €150 or less, a portal called the Import One-Stop Shop lets you simplify VAT collection by charging the buyer the rate for their country at checkout.
Storing inventory in another country: The last caveat is a little less common, but can catch some companies by surprise. If you use a fulfillment warehouse abroad, you have a physical presence and a registration obligation even if you don’t actually sell to customers in the EU.

These are the rules that relate to the European Union, which are consistent and always relate to a number that’s named “VAT ID”. Once you leave the EU, the guidelines can vary a bit more widely. For example, Australia gives you an ARN, Japan gives you a JCT registration number, and you’ll need a GST number for sales in Canada that crest $30,000. The EU’s regulations work as a good summary, but it’s best to check each country’s laws before you start doing business with them.

Selling business-to-business from the U.S. to other nations also has its own rules. Under the reverse charge mechanism, which shifts the legal duty to pay and report VAT from the seller to the buyer, a customer in another country self-assesses the tax on their own return rather than paying it to you. That means you’ll invoice without involving VAT, and you may not need to register at all. You do need to verify their VAT number is valid, which you can do through the EU’s official VAT checker.

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How to Obtain a VAT ID

You don’t automatically get assigned a VAT ID when expanding overseas, but it is completely free to apply and obtain one. Here are the steps you have to take, whether you operate out of America or a country that uses VAT natively:

Figure out where you need to register

Where you need to register relates directly to where you sell. Figure out each of the countries where your customers are, whether those customers are businesses or everyday citizens, and whether you're selling goods or services. Don’t forget to keep any foreign warehouses in mind, as a company could store inventory in Scotland for the sake of selling in England.

If your operations are widespread across Europe and other nations, it can be a nightmare to nail down where you sell product and what rules apply in each country. To make sure you don’t file in irrelevant countries and forget to file in relevant ones, you may consider calling upon the help of a VAT advisory service that can take those responsibilities off of your plate.

Go to the correct websites and fill out applications

Registration runs through each country's national tax authority, so you’ll often have to seek out each website one by one. However, if you sell to multiple EU nations and you qualify for a One-Stop Shop scheme, which you often can if your sales are business-to-consumer, you register once through a single member state and file consolidated returns from there.

Expect to provide incorporation documents, proof of business activity, bank details, and a description of why you're registering. Some countries, like Italy and Spain, also require non-EU businesses to appoint a fiscal representative that becomes jointly liable for your VAT.

Wait for approval

VAT processing isn’t the fastest procedure in the world. It commonly takes four to six weeks, and can stretch considerably longer if documentation comes back incomplete. Tax authorities may ask follow-up questions about your business model before issuing a number. For this reason, it’s important to plan your applications ahead of time so you don’t have a large client stuck waiting for your VAT ID to carry through with a sale.

After Receiving Your VAT ID

Once you receive your VAT ID, you have a few new responsibilities to keep up with. Ignoring these obligations can result in fines and penalties from foreign tax authorities you’ve never gotten entangled with before. The three main ones are:

Charging VAT on sales

Once registered, you charge VAT at the rate of the country where your customer is, not a single flat rate for all locations. Your invoices need to show your VAT number, the rate applied, and the tax amount separately from the net price. For most B2B sales, you’ll invoice without the VAT and state on the invoice that the reverse charge applies, which tells your customer they're responsible for accounting for the tax.

Keeping records

Documentation is very important when it comes to the VAT system, especially given all its moving parts. Keep records of sales and purchases, the VAT amounts charged and paid, and evidence of where your customers were located. Most jurisdictions require you to retain these documents for several years, while One-Stop Shop companies have to keep them for a full decade after the transaction was completed.

Filing VAT returns

Returns are typically filed quarterly, though they may need to be filed monthly or annually in certain countries. These returns report the output tax collected, input tax reclaimed, and the net owed. One-Stop Shop filers submit a single consolidated return covering all member states, and their timelines depend on whether they’re part of the Non-Union scheme or the Import scheme. Penalties vary by country; in the UK, you’ll be hit with a £200 fine for each late return.

How Slash Can Help Your Business Cross Borders With Global USD

If you’re a founder that does business in the EU, understanding how VAT works can help you manage a company that operates confidently across borders. Knowing when to register, how to display your VAT number, and what your filing obligations are can help you stay compliant as you sell to more customers and work with more suppliers. However, expanding into different markets can be tough without a full set of international payment rails and easy access to USD.

Slash is a modern financial platform that allows businesses to make international payments via wire, global ACH, virtual cards, and the stablecoins USDT and USDC.¹,⁴ If a supplier in the EU wants the funds to be sent ASAP on a Saturday, you can convert your currency to crypto on the Slash platform, send it overseas, and watch as it settles in minutes. If the transfer’s so large that security is more important than speed, you can send it via SWIFT.

From the point of view of foreign founders, one of the main challenges of expansion may be accessing and using U.S. dollars without actually having a U.S.-based entity. With Slash’s Global USD account, that’s easy. Slash Global USD allows founders in other countries to access USD account details and manage their global business payments from one place, making it easier to operate internationally while focusing on things like VAT compliance. You also get a Global USD card, issued by Rain and backed by USDSL, that allows you to spend USD by swiping your card like you would normally.

With the main Slash platform, business owners also get:

Multi-entity support: Slash offers multi-entity account management tools without separate logins, allowing businesses to track spending, manage accounts, and download statements across all subsidiaries in one place.
Business banking: FDIC-insured business checking, protected up to $150M through Column N.A.'s insured cash sweep network.²
Working capital financing: Access short-term financing with flexible 30-, 60-, or 90-day repayment terms to help bridge cash flow gaps.⁵
High-yield treasury: Earn up to 3.82% annualized yield on idle funds with money market investments from BlackRock and Morgan Stanley, managed directly within your Slash account.⁶
Accounting & ERP integrations: Sync transaction data with QuickBooks Online, Xero, NetSuite, or Sage Intacct to streamline reconciliation, reporting, and month-end close.

Before expanding overseas, give Slash a try and see how easy it can be for your business to cross borders.

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Frequently Asked Questions

Can a US company get a VAT number?

Yes, by registering in the relevant country. You can't obtain one preemptively from the US, because there's no American VAT system and no US authority issues these numbers. The registration happens with the foreign tax authority whose rules you've triggered, and you'll hold a number issued by that country rather than a single global one.

What happens if I don't register when I should have?

Tax authorities can assess the VAT you should have collected, which often means paying it out of your own pocket, plus interest and penalties. Marketplaces and payment processors also report seller activity to EU authorities, so unregistered cross-border sellers are pretty easy to identify.

Do I need a VAT ID to sell to a business in Europe?

Usually, no. If your customer is a VAT-registered business, the reverse charge mechanism usually puts the responsibility on them, so you invoice without VAT and don't register. This is why B2B software companies frequently sell into Europe for years without a VAT number, while a consumer-facing business selling a similar product would need one immediately.

What is the One-Stop Shop scheme?

The One-Stop Shop (OSS) scheme is an EU electronic system launched on July 1, 2021. It lets online sellers and service providers declare and pay value-added tax for cross-border sales through a single online portal, removing the need to register for VAT in every separate EU country. There are three different sub-schemes, Union, Non-Union, and Import, that match certain companies and scenarios.