VAT Handling

Guide to VAT identifiers, international calculations, and supported countries

Value Added Tax (VAT)

Value Added Tax (VAT) is a consumption tax levied on goods and services throughout the production and distribution chain, with businesses collecting tax on sales while deducting tax paid on purchases. It’s the predominant tax system across more than 170 countries worldwide, particularly throughout Europe, Asia, and South America. VAT is applied incrementally at each stage where value is added to a product or service, creating a robust audit trail.

Compared to US sales tax, which is typically collected only at the final point of sale and varies by state and locality, VAT provides a more unified system with standardized rules for international transactions, though rates can vary significantly from 5% to 27% depending on the country and product category.

VAT Identifiers

VAT identifiers are used for purposes like applying VAT exemptions or the reverse charge mechanism in applicable jurisdictions. Taxwire supports several VAT identifier types:

VAT ID Type	Description	Format Example
eu_vat	European Union VAT number	DE123456789
eu_oss_vat	EU One Stop Shop VAT number	EU123456789
gb_vat	United Kingdom VAT number	GB123456789

How to Use VAT Identifiers

VAT identifiers can be provided in the customer’s tax IDs array. Here’s an example:

"customer": {
  "address": {
    "city": "Berlin",
    "line1": "Unter den Linden 74",
    "postal_code": "10117",
    "country": "DE"
  },
  "tax_ids": [
    {
      "type": "eu_vat",
      "value": "DE123456789"
    }
  ]
}

International VAT Calculations

Taxwire handles international VAT calculations based on a combination of factors:

1. Place of supply - Determined by the customer’s location and transaction type
2. Customer status - B2B or B2C, often determined by the presence of a valid VAT ID
3. Product/service type - Different rules apply to physical goods, digital products, and services

B2B Transactions

For business-to-business transactions within the EU (GB included) where the customer provides a valid VAT ID, Taxwire applies the reverse charge mechanism, which shifts tax liability to the recipient.

In order for the reverse charge mechanism to be triggered, a number of conditions have to be met other than a valid VAT ID, and in case of all of the conditions met, our API response will indicate presence of the reverse charge mechanism, as shown in the example below.

{
  "currency": "EUR",
  "tax_amount": "0",
  "items": [
    {
      "detail": "GERMANY VAT STANDARD RATE",
      "line_item_id": "item_32d25a3b-d230-4a8a-b3f4-9d565b38498c",
      "rule_name": "Reverse Charge Applied",   <--- indicates RC has been applied
      "jurisdiction_name": "GERMANY",
      "jurisdiction_type": "country",
      "tax_amount": "0",                       <---- tax amount is nullified
      "tax_type": "GERMANY VALUE ADDED TAX"
    }
  ]
}

Reverse Charge Requirements and Implementation

Taxwire automatically applies the reverse charge mechanism in two key scenarios:

1. Services: Cross-border B2B sales where the place of supply is the customer’s EU/GB country (Art 196 or equivalent)

   • Applicable for GENERAL_SERVICES or DIGITAL_SERVICES tax attributes
   • Requires a valid customer Tax Identification Number (TIN)
   • Applies to any country selling to an EU customer

2. Goods: Intra-Community Supplies (ICS) from one EU member state to a VAT-registered business in another EU member state (Art 138 equivalent - zero-rated by supplier)

   • Applicable for TANGIBLE_PERSONAL_PROPERTY (TPP) tax attributes
   • Requires a valid customer VAT ID
   • Only applies for EU-to-EU transactions

To ensure the reverse charge is applied properly, you must:

• Include a valid customer tax ID in the appropriate format
• Correctly specify the product tax attributes (TANGIBLE_PERSONAL_PROPERTY, GENERAL_SERVICES, or DIGITAL_SERVICES)
• Provide accurate address information for both seller and customer

Alternatively, you can force B2B treatment by adding a _B2B suffix to the product’s tax attribute. This will trigger the same reverse charge behavior when other conditions are met, regardless of whether a tax ID is provided.

Example with the _B2B suffix in the product’s tax attributes:

"product": {
  "tax_attributes": ["DIGITAL_SERVICES._B2B"]
}

B2C Transactions

For business-to-consumer transactions, VAT is generally charged at the rate applicable in the customer’s location.

Supported Countries for VAT

Taxwire supports VAT calculations for the following regions:

European Union

• Austria (AT)
• Belgium (BE)
• Bulgaria (BG)
• Croatia (HR)
• Cyprus (CY)
• Czech Republic (CZ)
• Denmark (DK)
• Estonia (EE)
• Finland (FI)
• France (FR)
• Germany (DE)
• Greece (GR)
• Hungary (HU)
• Ireland (IE)
• Italy (IT)
• Latvia (LV)
• Lithuania (LT)
• Luxembourg (LU)
• Malta (MT)
• Netherlands (NL)
• Poland (PL)
• Portugal (PT)
• Romania (RO)
• Slovakia (SK)
• Slovenia (SI)
• Spain (ES)
• Sweden (SE)

Rest of the world

• Australia (AU)
• Canada (CA)
• United Kingdom (GB)

API Integration Examples

A sample request for a transaction showcasing VAT calculation.

Request:

{
  "currency": "AUD",
  "line_items": [
    {
      "seller": {
        "address": {
          "city": "Melbourne",
          "line1": "123 Collins St",
          "postal_code": "3000",
          "country": "Australia"
        }
      },
      "product": {
        "tax_attributes": ["DIGITAL_SERVICES"]
      },
      "unit_price": "100",
      "quantity": "1"
    }
  ]
}

Response:

{
  "currency": "AUD",
  "tax_amount": "10.0",
  "items": [
    {
      "detail": "AUSTRALIA GST",
      "line_item_id": "item_6706b98a-1775-4363-a204-d9d4f4ea914d",
      "rule_name": null,
      "jurisdiction_name": "AUSTRALIA",
      "jurisdiction_type": "country",
      "tax_amount": "10.0",
      "tax_type": "AUSTRALIA GOODS AND SERVICES TAX"
    }
  ]
}

For more information on specific VAT requirements or calculations for particular countries, please contact our support team.