When selling products or services to business customers in the EU, it is essential to validate the VAT number of your customers to ensure they are VAT registered. We already discussed why is it essential to validate the tax number of your customers before a transaction takes place?
This is because selling goods and services across country borders to business customers in the EU generally does not require you to charge VAT, which is different from selling to consumers.
Doing this wrong means you either charge tax when you shouldn’t and add unnecessary costs to your product, or that you don’t charge tax when you should which means you are not collecting the tax you should but still need to remit to the tax authorities. Both obvious situations that any business wants to avoid.
That’s why it is important to verify if your customers are business customers or consumers. One simple way of checking your customer’s tax status is to validate if your customer is VAT registered in VIES.
VIES (the VAT Information Exchange System) is an online system developed for this purpose by the European Commission. Through VIES, businesses can verify individual VAT numbers across the EU online quickly and in a simple way.
How to use VIES?
To validate whether your business customer is registered in the European Union for VAT, you just need to:
- Select the Member State, i.e., the country of your business customer
- Enter the VAT number of your business customer (for example, 123456789)
Which information can be found in the VIES registry?
Once the request for validation has been sent, you will get a result. That result will confirm if the VAT number you entered is valid or invalid. And in most instances, it will provide you with the name and address of the business that the VAT number is assigned to.
Downsides to using VIES
However, VIES has some limitations that are important to be aware of when checking your customer’s VAT numbers. First of all, only VAT numbers ‘activated’ by local tax authorities in EU countries will appear in the database. And while some EU countries activate all issued VAT numbers in their country for VIES purposes, many EU countries do not. This results in an incomplete overview and means the information about your customer’s tax status can potentially be misleading.
Second of all, VIES is designed to check individual VAT numbers online, which does not work great if your business has a large volume of customers across the EU. Checking numbers manually can be a lengthy process.
That is why we built Fonoa Lookup. With Fonoa Lookup you can validate tax identification numbers directly with governments throughout the EU and in many countries outside the EU for a more complete overview and more accurate validation. Plus, it offers you the ability to automatically check a large volume of tax numbers without any manual work.
Get in touch and we can help you to validate the VAT numbers of your customers before the transaction.