To understand what is a VAT number, it is crucial to understand what a VAT is at all. Value-Added Tax or VAT is a type of indirect tax levied on the price of goods or services at each stage of production, distribution, or sale to the end customer.
In order to identify VAT-payers, countries under the Value-Added Tax scheme issue the VAT number, which represents the unique taxation number of the entity’s taxation under the VAT scheme. Based on a VAT number, countries can quickly determine each business entity’s tax status in the country.
What a VAT Number Look Like?
Usually, countries under the VAT scheme have a fixed format for their VAT numbers, including the country code and a string of digits. For example, in Italy, it includes 11 digits and the prefix IT (e.g., IT 123456789 10 11).
You can find a full list of the EU Member States and their VAT number formats in our article.
Why is a VAT number important?
A VAT number can be used in different cases, but the most common are:
To track the input & output VAT of your business.
- By registering your business for a VAT in a single country, you will be able to track your input and output tax, i.e., how much VAT your business needs to pay vs. how much it needs to collect through the sales activities.
For selling to other business customers
- If you are selling products and services to foreign business customers, you can use your business customer’s VAT number to shift tax liabilities to business customers using a reverse-charge mechanism.
When dealing services with a foreign business entity
- If you are dealing with a foreign supplier, you must have a VAT number.
When filing a VAT return
- At the end of the reporting period, you must file a VAT return with your VAT number to determine how much VAT you need to pay to the government or how much VAT the government owes you.
How to check if the VAT number is correct?
This question is commonly asked by businesses dealing with other business customers.
If you missed it, we already discussed why it is essential to check a customer’s tax ID before the transaction takes place.
There are many online services where you can validate a VAT number, but the question is - are those services reliable, i.e., do they provide accurate information? We cannot confirm that, but based on the VIES system’s downsides as the most popular service for validating VAT numbers within the EU business community, we are quite confident that those services are not so reliable. Besides their reliability, most services are accessible only manually, which means that it takes time (and financial resources) to integrate them into your automated system.
Fonoa Lookup provides the most reliable validation of VAT numbers
We are aware of that, and that’s why we built Fonoa Lookup, a service that checks the validity of a VAT number directly with governments of more than 65 countries.