Introduction.
VAT (value-added tax) and TVA (as it is called in French) in Europe are not only a problem for local companies, but also a system that Japanese companies must face when entering the European market.
In particular, VAT/TVA is an unavoidable factor in cross-border EC, exhibition sales, and establishment of local subsidiaries, regardless of the form.
This article explains the basics of VAT/TVA and practical considerations that Japanese companies should understand when engaging in European business.
VAT・TVAとは
VAT (Value Added Tax) is an indirect tax introduced in many countries, especially in EU member countries.
It is a tax levied on value added at the point of sale of goods and services and borne by the final consumer.
In France, it is called TVA (Taxe sur la Valeur Ajoutée), and although the name differs slightly in other countries, the basic structure is the same.
Businesses charge additional VAT at the time of sale and pay the difference with the VAT paid at the time of purchase. This is managed as "provisional VAT paid" and "provisional VAT received," and if the difference is negative, a refund is available.
DRR (Digital Reporting Requirements)
In connection with VAT/TVA, "DRR (Digital Reporting Requirements)" has been attracting attention in recent years.
This is a system for reporting transaction data electronically to the tax authorities and is being introduced in many European countries.
In particular, as part of the ViDA (VAT in the Digital Age) initiative, it is expected that reporting of not only intra-regional transactions but also domestic transactions will be required in near real time.
With the introduction of DRR, companies will be required to electronically declare transaction details (e.g., counterparty, amount, VAT amount, etc.) each time an invoice is issued or received. This will help prevent tax evasion and improve the efficiency of VAT collection, but will also increase the administrative burden.
Even for Japanese companies operating in Europe, DRR compliance is likely to be mandatory through local subsidiaries and registered VAT numbers, making systemic preparation essential.
Foreign transactions are tax exempt.
One point that many Japanese companies tend to be confused about with regard to VAT/TVA is the "tax exemption of foreign transactions.
In many cases, VAT is not imposed on invoices issued to Japan by European companies in transactions between Japan and Europe, because international transactions are exempt from VAT taxation.
For example, if you are using an overseas service such as OpenAI or Zoom, you will notice that the sales tax column on your invoice is 0%. This is true not only for digital services, but also for cross-border sales of goods and e-commerce.
EC Site Notes
When a Japanese company operates an e-commerce site for Europe, VAT design is extremely important.
For example, TVA must be added for consumers in France and exempted for consumers outside of France. Therefore, the design of the site must include a system that can correctly calculate and display VAT according to the delivery destination.
However, there are scattered cases where VAT notations are not reflected correctly when multilingual templates or external services are used.
In particular, if all prices are listed with tax included, there is a risk that customers will complain after purchase that VAT has been double-taxed, resulting in a refund response.
It is also extremely important to check and set up in advance, as remittance fees on refunded amounts can be high.
Selling products at local exhibitions and pop-ups
If you sell your products through exhibitions or pop-up stores in Europe, you are obligated to add TVA to your sales.
This is likely to result in VAT registration and tax liability as long as the goods are sold directly in the European local market, even if it is a temporary exhibit.
For this reason, the following steps should be taken
VAT registration with local tax authorities
TVA addition to sales price and invoice description
Quarterly or annual VAT declaration and payment
Liaise with local tax representatives and accounting firms
On-site sales without prior preparation, even for short-term events, are considered illegal sales and may be subject to penalties.
Failure to apply for TVA at an exhibition or pop-up
If you sell locally without a TVA application, you risk additional taxes and fines from the tax authorities.
It may also cause inconvenience to local partners and organizers, which may negatively affect future exhibits.
Failure to follow legitimate procedures can result in damage to a company's credibility, so tax procedures should always be completed in advance.
Apply legally and benefit from a refund.
VAT/TVA is not just a system to be borne. If you register and file legally, you can also receive a refund of VAT paid as expenses.
For example, the following expenses may be eligible for a refund
Shipping and customs clearance fees
Exhibition Expenses
Local agent fees
Car rental and commercial transportation
However, the following expenses are not refundable in principle
food and drink expenses
lodging expense
entertainment expenses
- Public transportation expenses
To receive a refund, you must possess a local VAT number, keep original receipts and invoices, and apply for the refund on time.
Basic principles of VAT/TVA that Japanese companies should be aware of
In some cases, VAT registration is required when offering goods or services in Europe.
VAT compliance is required for each delivery destination in EC sales.
Even temporary sales such as exhibitions are subject to VAT taxation.
Accurate expense management and support from the local office are essential to apply for a refund.
Establish a system to electronically manage transaction data in preparation for the introduction of DRR.
summary
VAT/TVA is more than just a consumption tax; it is the key to avoiding unnecessary taxation and refunds and facilitating smooth business through correct understanding and implementation. When Japanese companies expand into the European market, they must view VAT compliance as part of their strategy and establish a system that is in line with the local tax situation.
In the future, as European Digital Reporting Requirements (DRR) and other requirements are introduced, VAT compliance is expected to become more stringent.
To ensure that initial mistakes do not result in losses later, work with a trusted partner to develop a planned response.