The US tax system fundamentally differs from those in most other industrialized nations, meaning US companies generally do not possess a Value Added Tax (VAT) number. VAT is a consumption tax levied at each stage of production and distribution, where businesses charge VAT on sales and reclaim VAT paid on purchases. Since the United States does not have a federal VAT system, its businesses do not receive a corresponding identifier. The question for US companies trading internationally then shifts to what identifier they use instead and how they navigate foreign VAT obligations. The methods US companies employ to comply with foreign tax rules and recover taxes paid abroad are necessary for international operations.
The United States Tax System and Value Added Tax
The absence of a VAT number for US companies stems directly from the structure of the domestic tax system. Unlike VAT, which is a multi-stage tax collected at every step of the supply chain, the US primarily relies on a Sales and Use Tax system. Sales tax is a single-stage tax applied only at the final retail sale to the end consumer, with businesses generally exempt from paying sales tax on purchases intended for resale.
This difference means the US system lacks the mechanism for tracking input and output VAT that a VAT number facilitates. US sales tax is administered by thousands of state and local jurisdictions, resulting in a complex patchwork of rates and rules. The US remains one of the few large economies without a broad-based federal or state-level VAT structure.
Identifying US Businesses: Employer Identification Numbers
The primary tax identifier for businesses operating within the United States is the Employer Identification Number (EIN), issued by the Internal Revenue Service (IRS). This nine-digit number functions as a unique tax identification number (TIN) for entities such as corporations, partnerships, and most Limited Liability Companies (LLCs). The EIN is used for various domestic purposes, including filing tax returns, opening business bank accounts, and managing payroll.
Although the EIN is the standard identifier used in customs documentation for imports and exports, it does not serve the function of a VAT number. Sole proprietorships, while not required to have an EIN unless they employ others, typically use their Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) for tax purposes.
When US Companies Interact with Foreign VAT Systems
A US company must engage with foreign VAT systems when its international activities cross a threshold that triggers a local tax obligation. This typically happens in one of two main scenarios: selling physical goods or supplying services to customers in a VAT jurisdiction. When selling physical goods to foreign consumers, the US company may become responsible for the importing country’s VAT, especially with the elimination of low-value import exemptions in many regions.
The supply of digital services, such as SaaS or e-books, to foreign consumers (Business-to-Consumer or B2C) almost always triggers a VAT obligation in the customer’s country. For transactions with foreign businesses (Business-to-Business or B2B), the compliance burden is often shifted to the recipient through a mechanism called the Reverse Charge. This means the US company does not need to register for VAT, provided they properly document the B2B nature of the sale.
Methods for US Companies to Comply with Foreign VAT Obligations
Once a US company determines it has a VAT obligation in a foreign country, several compliance mechanisms are available, depending on the nature of the sale.
Direct VAT Registration
The most straightforward approach is Direct VAT Registration, which involves registering with the tax authority in the specific foreign country, obtaining a local VAT number, and filing local returns. This is often necessary for significant in-country activities or for B2C sales where simplification schemes are not applicable.
EU Simplification Schemes
For sales into the European Union (EU), the One Stop Shop (OSS) and Import One Stop Shop (IOSS) schemes significantly simplify compliance for B2C transactions. The OSS allows a US company to register in a single EU member state and file one quarterly return to account for VAT on all eligible services and goods sold to consumers across the entire EU. The IOSS specifically addresses the import of low-value goods, defined as consignments up to €150. This allows the US company to collect VAT at the point of sale and remit it via a single monthly return, thus avoiding customs delays for the customer.
Reverse Charge Mechanism
The Reverse Charge mechanism offers a way to avoid registration entirely in many B2B transactions involving services. Under this rule, the foreign business customer is responsible for self-assessing and paying the VAT to their own government, rather than the US supplier collecting and remitting it. For the US company, compliance is typically met by including a statement on the invoice indicating that the Reverse Charge applies.
How US Companies Recover Foreign VAT Paid
US companies frequently incur foreign VAT on business expenses while operating internationally, such as on hotel stays, travel, trade show participation, or local professional fees. This foreign VAT, known as input VAT, can often be recovered even if the US company is not locally registered for VAT. Recovery is pursued through specific refund procedures established by the foreign government, often based on agreements like the EU’s 13th Directive for non-EU companies.
The process requires the US company to meticulously gather original invoices that meet the foreign country’s documentation requirements. A formal refund claim must then be filed with the relevant foreign tax authority by a specific deadline, which is typically December 31st for the UK and June 30th for many EU countries, for the previous year’s expenses. Due to the complexity of varying national rules, documentation, and language requirements, many US businesses utilize specialized agents to manage the claim process and ensure maximum recovery.