What Is a VAT Certificate?

VAT free stickers signify much less taxation on the product sold with the label.

The United States gains most of its taxes from income or sales taxes. In many other countries, however, value-added tax, or VAT, is used for the purposes of tax collection on every phase of product development until final sale. To do this, VAT certificates provide a licensing method, helping collect taxes on registered businesses.

Certificates

VAT certificates get distributed by local government offices in countries where VAT applies. This form of licensing allows a business under VAT rules to legally file taxes, obtain tax refunds and move product in and out of country.

Government Information

VAT certificates provide governments with registration data, which can then be used to count the number of businesses expected to pay VAT taxes. From this information, future government revenues can be projected by fiscal cycle. In addition, certificates also provide an enforcement cross-reference capability, ensuring businesses are tracked and violators are caught in the act when inspected and no registration exists.

Penalties Without a Certificate

Not having a VAT certificate represents bad news for an offending business. Typical penalties include varying levels of fines. However, some jurisdictions levy imprisonment, depending on violation severity. Typical violations include failure to register at all for a certificate, failure to display the license, not submitting business identity changes or not cooperating with cancellation rules.

References

• Investor Words: Definition -- VAT
• Forbes: Support the VAT
• Grenada: National VAT Program Brochure

Resources

• Dykes Lumber: Resale Certificate for New York State
• U.S. Internal Revenue Service: Form 6166 -- Certification of U.S. Tax Residency for VAT Exemption