What is a VAT ID?
A VAT ID, also known as a VAT registration number (“VRN”), identifies each entity that is registered for VAT. VAT ID and VRN, as used in Anrok, may 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.
Why do I need to collect a VAT ID?
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 accounts for VAT on their own VAT return.
In order to apply the reverse charge mechanism and not charge VAT on the sale, you must collect and validate the buyers' VAT ID at the time of sale. If you do not collect a VAT ID or it is invalid, you could be responsible for paying the VAT on the sale in the event of an audit.
Examples of notable countries where a reverse charge does not apply, and you must charge VAT on B2B sales are Switzerland and South Africa.