Overview
A VAT ID identifies each entity that is registered for VAT within a global jurisdiction. A VAT ID can also refer to other global indirect tax regimes that operate like VAT/sales tax, often referred to as a goods and services tax (GST). A VAT ID has a specific format as prescribed by the issuing jurisdiction. See Send VAT IDs to Anrok for validation.
Collecting this number is necessary because it can determine whether you charge the customer VAT or not. B2B sales of digital goods and services are subject to a reverse charge in most VAT countries. This means that the seller does not charge VAT on the sale, and the buyer is responsible for accounting for VAT on their own VAT return.
To apply the reverse charge mechanism and avoid charging VAT on the sale, you must collect and validate the buyer's VAT ID at the time of sale. If you do not collect a VAT ID or if it is invalid, you could be responsible for paying the VAT on the sale in the event of an audit.
Note
Examples of notable countries where a reverse charge does not apply, and you must charge VAT on B2B sales are Switzerland and South Africa.