Switzerland: Even though Switzerland is not a member state of the European Union this country has VAT regulations in place. If you would like to sell directly to hospitals VAT registration is recommended if not required. The alternative is to send products under incoterm DAT or DAP. The hospital would then have to take care of customs and VAT filings. Hospitals are often reluctant to do this. Please inform us separately if you plan to do any business in Switzerland or from Switzerland.
Establishing your own entity in Europe: In most European countries you can set up a business with local sales representative without forming a legal entity. Setting up your own legal entity will make it easier to have VAT incurred on operating expenses reimbursed. Next to that employees might prefer to work for a local legal entity instead of an offshore Inc. or LLC. On the other hand a local entity will have to submit a statutory annual report and you will have to hire someone to do the accounting for the entity. Furthermore establishing a local entity might have income tax consequences as well. Often local tax authorities use a cost plus system in which a certain percentage of the costs incurred is treated as a taxable profit.
Establishing your own bank account in Europe: Often you can collect money from your customers on your US bank account without having to establish a local bank account. We recommend to contact your own bank to check if this is possible. In our experience establishing a European bank account is often not required.
Requesting a refund for VAT on sales expenses: While acquiring customers for your product in European Union countries where you do not have a local VAT number you may incur VAT on Sales and Marketing expenses such as traveling or exhibits or fairs. Based on article 2, section 2 of the 13th EU directive, EU countries are entitled to refuse a refund if the appellant’s country of origin does not have VAT itself. The USA has sales tax but no VAT. This is also called the reciprocity principle. The following countries apply this principle: Bulgaria, Cyprus, Czech Republic, Estonia, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Slovakia, Spain and the UK. Henceforth a VAT refund request in these countries is very unlikely to be successful. As an alternative you could consider setting up your own legal entity in these countries. The costs for setting up and maintaining such an entity are often considerable. Therefore this is only worthwhile if you have very high costs in one or more EU countries.
Threshold scheme for selling abroad to customers without valid VAT number: Some of your customers outside of the Netherlands might not have a valid VAT number. The reason for that can be that they are an exempt entrepreneur or individual consumer.
These customers would normally have to pay domestic VAT in their own country. That would mean that the seller has to register for VAT in the country where the buyer is located. For low sales volumes that would be quite inefficient.
Therefore the European Union has decided to facilitate sellers by implementing a threshold scheme. In practice this means that a seller can invoice with VAT of his own country up to a certain amount per year.
Let’s assume the seller sells from the Netherlands and that the buyer is located in France. The threshold for France is 100,000.00 euro per year. The seller sells 10,000 euro worth of products to a French exempt entrepreneur without a VAT number. He issues an invoice with 21% Dutch VAT despite the fact that the buyer is located in France.
In June of the same year the seller has sold 100,000 euro worth of products to French customers without VAT number and he exceeds the 100,000 euro for that year. Please beware that the threshold only applies to buyers without VAT number. If he sells to buyers with a valid VAT number at the same time these sales don’t count for the threshold.
At this stage the seller has to obtain a French VAT number by registering with the French tax office. From the moment he obtains a valid French VAT number he is required to invoice with 19.6% French VAT, being the applicable rate in France.